WTG.L Regulatory News (WTG)

Part 1: Group results for the year ended 31 December 2014: Financial Statements (continued)

17. Property, plant and equipment

There were no material commitments for the acquisition of property, plant or equipment at either 31 December 2014 or 31 December 2013.

Depreciation of £776,000 (2013: £615,000) was charged in the year on assets of the disposal group classified as held for sale.

Assets with a net book value of £1,724,000 (2013: £1,034,000) are held under finance leases, on which depreciation of £681,000 (2013: £444,000) was charged in the year.

Telematics devices which are included as part of the services to end users were held with a net book value of £2,511,000 (2013: £nil), on which depreciation of £2,748,000 (2013: £nil) was charged in the year.

The £661,000 impairment relates to assets held in respect of the 360 assets to reflect the amount recovered through its post year end sale.

18. Associates

Set out below are the associates of the Group at 31 December 2014. In the opinion of the Directors, Nationwide Accident Repair Services Plc ("NARS") is the only material associate of the Group. The share capital of the associates listed below consists solely of ordinary shares which are held by the Group; the country of incorporation or registration is also their principal place of business.

As at 31 December 2014, the fair value of the Group's interest in NARS, which is listed on the London Stock Exchange was £7,651,000 (2013: £6,995,000) and the carrying amount of the Group's interest was £7,069,000 (2013: £9,565,000).

There are no contingent liabilities relating to the Group's interest in its associates.

Summarised financial information for associates

Set out below are summarised financial information for the material associate, NARS:

Summarised Statement of Financial Position

The information above reflects the amounts presented in the financial statements of NARS and not the Group's share of those amounts. No adjustments are applied for differences in accounting policies between the Group and the associates since they are not material.

The investment in NARS was acquired as part of the Group's expansion into providing a full scope insurance claims solution. The planned exit of the Group from the services related component of the insurance sector meant that the investment ceased to have the same strategic value on an ongoing basis. Whilst no decision had been reached at the end of the year to disinvest, and thus the investment continued to be treated as an Associate, a review of the carrying value of this investment was performed at the year end. In considering the carrying value to the Group, and in light of its change in strategic direction, it was concluded that the most accurate indicator at the year end was by reference to the consideration received when the investment was sold in its entirety on the 4 March 2015 for £7.1m. As a result of this review, an impairment of £1.3m was recognised to reduce the carrying amount to this value at 31 December 2014.

Reconciliation of summarised financial information

Ingenie and Himex became subsidiaries during 2014. Further information is provided in note 36.

Himex became a subsidiary during the year. In February 2014, Ingenie was initially accounted for as a subsidiary. Consequently, management believes that Quindell lost control of Ingenie in May 2014 (so it was then accounted for as an associate) but then regained control in July 2014 upon signing the accelerated option agreements so it has since been accounted for as a subsidiary.

SMI was reclassified from an Investment to an Associate during the year when the Group obtained the option to increase its investment from 19% to 33%. The investment was impaired to £nil prior to becoming an Associate and is held at a carrying value of £nil.

19. Investments

In note 33, a definition is given to record the degree to which fair values are observable. These are grouped into three levels: Level 1, Level 2 and Level 3. Where fair value calculations have been performed for investments, the level is disclosed above under "fair value degree observable".

The fair value degree represents unobservable inputs as they are based on unquoted entities - as listed in note 33 below.

The principal activity of each investment is the provision of software, consulting and other services, or technology enabled business process outsourcing services.

During the year, the Group obtained an option to increase its investment in SMI from 19% to 33%. Prior to being reclassified to associates, its fair value was written down to nil, resulting in a charge to the Consolidated Statement of Comprehensive Income of £1,500,000. Upon transfer as an Associate, the previous fair value loss was reversed and a net loss of £1,500,000 on the re-measurement of Investments becoming Associates was recognised in the Consolidated Income Statement within Other Income. The fair value of the investment was assessed based on anticipated future discounted cash flows to net present value arising from that entity, using inputs which were not based on observable market data and fell within Level 3 of the fair value hierarchy.

In 2013, the Group acquired the interest in the shares of 360Viewmax Limited as part of the investment in the wider 360 group of companies. The Group did not gain the voting rights of 360Viewmax Limited and so has disclosed this as an investment. The carrying value of the investment was written down by £330,000 in the year to the value realised on disposal (along with the rest of the 360 group) post year end - note 40.

The fair value of remaining investments was assessed on net present value of cash flows or sales value less cost of sale and fall within Level 3 of the fair value hierarchy.

Reclassifications in 2013 relate to the transfer of Ingenie and Himex to associates from investments.

Details of principal subsidiary undertakings are provided in note 46 in the full version of the Report and Accounts.

20. Inventories

There is no material difference between the book value and the replacement cost of the inventories shown.

The significant increase in inventories at 31 December 2014 when compared to 31 December 2013 primarily relates to telematics devices held by Himex which became a subsidiary undertaking in the year, more details are provided in note 36.

For the finished goods for resale £2,760,000 (2013: £424,000) was expensed during 2014 for sales. £286,000 (2013: £nil) was expensed as stock write downs in cost of sales.

For the telematics devices these are taken to tangible fixed assets upon fitting to end user vehicles. During 2014, £1,079,000 (2013: £nil) impairment for obsolescence and firmware upgrades has been expensed prior to end user fitting.

21. Trade and other receivables

Included above in 2013 within gross trade receivables (i.e. excluding impairment provisions) due from third parties was £91,270,000 relating to debts over which security (by way of fixed and floating charges) was taken as part of the provision of invoice discounting facilities to companies in the Group. No such amounts are included in 2014 since the related receivables have been transferred to assets of disposal group classified as held for sale. Further details are provided in note 37. The directors consider that the net carrying amount of Trade receivables approximates to their fair value.

Further disclosures concerning trade receivables are given in note 33.

22. Cash and cash equivalents

Cash and cash equivalents comprise the following for the purposes of the cash flow statement:

Cash and cash equivalents comprise cash held by the Group. The carrying amount of these assets approximates to their fair value.

23. Trade and other payables

Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates to their fair value.

Included within other liabilities of £21.1m is £12.1m received from S&G, which included £8.0m in respect of advance purchase price consideration relating to the sale of the PSD and a further £4.1m held as a deposit against cases transferred to S&G post year end and up to the completion date of 29 May 2015.

24. Borrowings

The borrowings are repayable as follows

The cumulative redeemable preference shares are in respect of PT Health and relate to non-voting Series 'A' preference shares (issued by PT Health between 2008 and 2011) with a cumulative dividend of 8.0% per annum paid quarterly. Holders of these shares may require PT Health to redeem them 10 years from the date of issuance at par of £5,447,000 (2013: £5,630,000). In the event of any liquidation, dissolution or winding up of PT Health, the Series 'A' holders shall be entitled to receive, from the assets of PT Health, a sum equal to the redemption amount before any amount is paid or assets of PT Health are distributed to common shares or any shares ranking junior to the Series 'A' preference shares. The Series 'A' preference shares shall not otherwise be entitled to any other amount or assets of PT Health.

In note 33 an explanation is given to show the degree to which fair values are observable. These are grouped into three levels: Level 1, Level 2 and Level 3.

The fair value degree represents unobservable inputs as they are based on internal valuation techniques. The key variable components and assumptions within this model include the discount rate, the effective internal rate of return, the redemption profile and timing and dividend payments. The sensitivity to the unobservable inputs is not considered significant as the impact of this fair value valuation is insignificant in the Consolidated Income Statement.

The weighted average interest rates paid for continuing operations were as follows:

The Directors estimate the fair value of the Group's borrowings as follows:

The Group has the following committed undrawn borrowing facilities, all at floating interest rates which are based on prevailing LIBOR rates:

25. Obligations under finance leases

It is the Group's policy to lease certain of its fixtures and equipment under finance leases. The average lease term is 3 years (2013: 3 years). For the year ended 31 December 2014, the average effective borrowing rate was 6.0% (2013: 7.8%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. All lease obligations are denominated in sterling or Canadian dollars. The fair value of the Group's lease obligations is approximately equal to their carrying amount. The Group's obligations under finance leases are secured by the lessor's rights over the leased assets disclosed in note 17.

26. Provisions 

Tax related matters

A provision for tax-related matters has been established with respect to judgemental tax positions which have not yet been resolved. The amount provided represents the directors estimate of the likely outcome based upon the information available however the ultimate settlement may be different. The Group is taking steps to resolve this and believe this will be settled within twelve months from the balance sheet date.

Legal disputes

The amount provided in respect of legal cases is considered to be a prudent estimate at the higher end of the range of possible outcomes given the uncertainty in relation to these outcomes. If successful then the final settlement may be lower than the total provision recognised above.

Onerous contracts

Where contracted income is expected to be less than the related expected expenditure the difference is provided in full. The timing and amount of these items can be reasonably determined.

Other

Provisions have been established for expected costs where a commitment has been made at the balance sheet date and for which no future benefit is anticipated. No reimbursement has been recognised in relation to any provision as there is no certainty of recovery or reliable means of estimation. An element of this relates to costs expected to be incurred as a result of the restructuring of the senior management team committed before the year end but for which the exact timing and quantum was not agreed until after the year end.

27. Deferred tax 

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior year.

At the Statement of Financial Position date, there are unrecognised deferred tax assets in respect of continuing businesses of £11,175,000 (2013: £2,392,000). Deferred tax balances for Statement of Financial Position purposes are analysed as follows:

28. Share Capital

On 20 June 2014, the ordinary shares of the Company were consolidated. The share consolidation replaced every 15 existing ordinary shares of 1 pence each with 1 new ordinary share of 15 pence each. The impact of the share consolidation on the number of allotted, called up, unpaid and fully paid shares was 5,775 million. There was no change in the total value of the Company's issued share capital.

Included within the ordinary share capital, as at 31 December 2014, are 2,283,333 shares of 15 pence (31 December 2013: 30,762,488 of 1 pence) with a carrying value of £12,498,000 (31 December 2013: £5,209,000) held by PT Health. Further details are provided in note 29.

The Company has one class of ordinary shares of 15 pence each which carry no right to fixed income.

The Company issued the following ordinary shares during the year:

On 18 June 2014, the Company issued 16,899,321 ordinary shares of 1 pence to TMC, a related party (see note 39). The shares remain unpaid as at the balance sheet date and the Company has yet to call upon TMC for payment. The shares have been presented in own equity (see note 3). It is the intention of the Group to seek either repayment of the unpaid share capital amounting to £169,000 from TMC or apply for the forfeiture of the shares in accordance with the Articles of Association of the Company. In the event that the shares are forfeited, then it is intended that the shares will be cancelled and no further amounts will be receivable from TMC.

The total premium of £169,874,000 is split between the share premium account (£105,461,000) and the reverse acquisition and merger reserve (£64,413,000) as per note 29. An adjustment of £12,000 has been made to the reverse acquisition and merger reserve as a result of corrections to two issues of shares in 2012 and 2013. No change has been made to the prior year figures in this respect due to the immaterial amount of the error

Share-based payments - all schemes (warrants, options and post-combination vendor remuneration)

Volatility is a measure of the amount by which a price is expected to fluctuate during a period. The measure of volatility used in all of the Group's option pricing models are the annualised standard deviation of the continuously compounded rates of return on the share over a period of time. In estimating the future volatility of the Company's share price, the Board considers the historical volatility of the share price over the most recent period that is generally commensurate with the expected term of the option, taking into account the remaining contractual life of the option.

Share-based payments in the 2014 Consolidated Income Statement include options charges of £4,102,000, 2013 post combination vendor remuneration charge of £2,826,000 and 2012 post combination vendor remuneration charge of £504,000, totalling £7,432,000. Warrants charges totalling £9,953,000 and share-based payments which settle liabilities to suppliers totalling £5,395,000 are shown within exceptional items.

Share-based payments - warrants

The Group has issued warrants, which are equity settled share-based payments. The Group had the following warrants outstanding as at 31 December 2014:

Note

1. The amounts set above are after adjusting for the 1 for 15 share consolidation.

2. Earlier of 14 June 2015 or when the Company obtains a Premium Listing on the London Stock Exchange.

3. Exercise price was the lower of 262.50 pence per warrant and, in the event of an exercise following a Premium Listing on the London Stock Exchange, the price per ordinary share equal to the average of the middle market quotations for existing issued ordinary shares on the London Stock Exchange during the period of 30 days ending on the last dealing day prior to the date on which the Premium Listing Exercise Notice is issued.

Details of the movement in share warrants outstanding are as follows:

Note

1. The amounts set above are after adjusting for the 1 for 15 share consolidation.

2. The share price on the date of exercise was 466.88 pence.

The Group recognised a total expense of £9,953,000 (2013: £4,576,000) related to the cost of warrants during the year (included as exceptional costs within administrative expenses). The expected life used in the model was adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. As a consequence of the warrants granted in 2013 having no linked performance period and all obligations being met at the outset, the Consolidated Income Statement charge in relation to these warrants was accelerated in full in 2013 rather than spread over the life of the warrants.

As at 31 December 2014, the weighted average remaining contractual life of all warrants outstanding was 0.46 years (2013:1.44 years) and the weighted average exercise price was 717.50 pence (2013: 192.45 pence).

The weighted average fair value of warrants granted during the year determined using the Black-Scholes valuation model (after adjusting for the 1 for 15 share consolidation), was 131.39 pence per warrant (2013: 27.45 pence).

The weighted average significant inputs into the Black-Scholes model for warrants issued in each of the years shown below were as follows:

2014 RAC Warrants

On 5 April 2014, the Group granted warrants to subscribe to 16,666,667 ordinary shares to RAC Limited ("RAC") (after adjusting for the 1 for 15 share consolidation), exercisable between the date of grant and 5 April 2016. They were issued as part of the wider commercial arrangements with the RAC. The warrants were to vest in three tranches: the first tranche of 6,666,667 warrants vest immediately. The second and third tranches, which totalled 10,000,000 warrants, were conditional upon the achievement of certain performance conditions. On 1 September 2014, all of the warrants were cancelled prior to the achievement of the performance conditions. Immediately prior to the cancellation of the warrants, no unvested warrants were expected to meet the performance conditions. Therefore, no charge has been recorded in relation to the second and third tranches. The Group recognised a total expense of £9,006,000 during the year in relation to the first tranche of these warrants.

2014 IBRI Warrants

On 28 May 2014, the Group granted warrants to subscribe to 952,381 ordinary shares to Independent Broker Resources Inc. ("IBRI"), and warrants to subscribe to 238,095 ordinary shares to 2277360 Ontario Inc, a company owned by C Simpson, the CEO of IBRI, (all after adjusting for the 1 for 15 share consolidation) exercisable between the date of grant and 14 June 2015. They were issued as part of the wider commercial arrangements with IBRI. These warrants had no vesting conditions and had a subscription price of the lower of 262.50 pence (after adjusting for the 1 for 15 share consolidation) and, in the event of an exercise following a Premium Listing on the London Stock Exchange, the price per ordinary share equal to the average of the middle market quotations for existing issued ordinary shares on the London Stock Exchange during the period of 30 days ending on the last dealing day prior to the date on which the Premium Listing Exercise Notice is issued. The Group recognised a total expense of £947,000 related to these warrants.

All warrants issued in 2014 lapsed after the year end without being exercised.

Share-based payments - options

The Group has issued options, which are equity settled share-based payments. Generally, these options vest in equal annual or 6-monthly tranches if the performance criteria for each option holder, which includes reference to the Group's upper targets for adjusted earnings per share, has been met for that year.

The Group had the following options outstanding as at 31 December 2014:

Note

1. The amounts above are after adjusting for the 1 for 15 share consolidation.

Details of the movement in options outstanding are as follows:

Note

1. The amounts above are after adjusting for the 1 for 15 share consolidation.

The Group recognised a total expense of £4,102,000 (2013: £345,000) related to the cost of options during the year (included as share- based payment charges within administrative expenses). As of 31 December 2014, the weighted-average remaining contractual life of the options outstanding is 8.1 years (2013: 5.6 years) and the weighted-average exercise price (after adjusting for the 1 for 15 share consolidation) was 110.84 pence (2013: 240.00 pence). The expected life used in the model was adjusted, based on management's best estimate, for the effects of non-transferability, performance conditions, exercise restrictions, and behavioural considerations.

The weighted average fair value of options granted during the year determined using the Black-Scholes valuation model (after adjusting for the 1 for 15 share consolidation) was 34.14 pence per option (2013: 97.50 pence). The options are equity settled share-based payments and the significant inputs into the Black-Scholes model for options issued were as follows:

Note

1. The amounts above are after adjusting for the 1 for 15 share consolidation.

2014 options

Options over 750,000 shares (after adjusting for the 1 for 15 share consolidation) in the Company with an exercise price of 600 pence were granted on 6 March 2014 under the Group's Unapproved Share Option Scheme. Options over 1,500,000 shares in the Company with an exercise price of 240 pence were granted on 20 June 2014 under the Group's Unapproved Share Option Scheme. The exercise periods for all options vested under both of these schemes ends on 30 June 2019.

Options over 16,333,332 shares in the Company with an exercise price of 33 pence were granted on 18 December 2014 under the Group's Unapproved Share Option Scheme. These options vested on completion of the disposal of the PSD on 29 May 2015. The exercise period for all options vested ends on 18 December 2024.

2013 options

Options over 7,738,601 ordinary shares (after adjusting for the 1 for 15 share consolidation) in the Company with an exercise price of 240 pence were granted on 21 November 2013 under the Group's Unapproved Share Option Scheme. All options vest in equal tranches commencing if the performance criteria for each option holder, which includes reference to the Group's upper targets for adjusted earnings per share, has been met for that year. 5.2 million will vest in three equal tranches commencing

1 July 2014, 2.3 million will vest annually in three equal tranches commencing 1 July 2015 and 0.2 million options will vest annually in two equal tranches commencing 1 July 2014. The exercise periods for all options vested ends on 30 June 2019.

Share-based payments - Post combination vendor remuneration

These share-based payments are equity settled and the inputs for the valuation of the shares issued as post combination vendor remuneration were as follows. The weighted average fair value based on the Black-Scholes valuation method at the date the shares were issued or committed to be issued was 20.50 pence per share (2013: 11.89 pence per share).

2014 Post combination vendor remuneration (all classified as discontinued operations in the year)

On 8 January 2014, the Group acquired ACH. Refer to note 36 for further detail on this acquisition. As part of these acquisitions, the Group awarded 24,137,500 ordinary shares of 1 pence to the former owners of RTA Management Services Limited ("RTAM"); after giving effect to the 1 for 15 share consolidation, this award consisted of 1,609,167 ordinary shares of 15 pence. The Group acquired RTAM in contemplation of its acquisition of ACH's business, and RTAM entered into a contract to provide management services to the acquired business; as such, these share-based payments were granted to the former owners of RTAM primarily for their future management services. In addition, these share-based payments included payments for introduction services which were unconnected with the ongoing services provided by RTAM. Consequently, the consideration transferred to RTAM's owners in the form of the Company's shares has been accounted for as remuneration in the form of equity-settled share-based payments.

The shares issued were fair valued using the published share price on the date of issue, discounted by the Group's cost of equity to factor in the time value of the consideration. The Group recognised a total expense of £3,959,000 related to the cost of share-based payments in the year (included as share-based payment charges within administrative expenses of the discontinued business). No further charges are expected in the future.

On 30 March 2012, the Group announced the acquisition of Enzyme. On 14 January 2014, it allotted 8,200,000 ordinary shares of 1 pence to the former owner of Enzyme in recognition of the achievement of warranted profit targets for the year ended 31 December 2013; after giving effect to the 1 for 15 share consolidation, this award consisted of 546,666 ordinary shares of 15 pence. As explained in note 3, despite some conflicting evidence the Board has concluded that the most appropriate treatment of the consideration transferred in the form of the Company's shares is that it be accounted for as remuneration in the form of equity-settled share-based payments granted in connection with continuing management services.

The shares issued were fair valued using the published share price on the date of issue, discounted by the Group's cost of equity to factor in the time value of the consideration. The Group recognised a total expense of £1,814,000 related to the cost of share-based payments in the year (included as share-based payment charges within administrative expenses of the discontinued business). No further charges are expected in the future.

On 14 May 2012, the Group announced the acquisition of SHA. On 14 January 2014, it allotted 500,000 ordinary shares of 1 pence to the former owner of SHA in recognition of the achievement of warranted profit targets for the year ended 31 December 2013; after giving effect to the 1 for 15 share consolidation, this award consisted of 33,333 shares. There is evidence that suggests that shares were granted for continuing management services and consequently the consideration transferred in the form of the Company's shares was accounted for as remuneration in the form of equity-settled share-based payments.

The shares issued were fair valued using the published share price on the date of issue, discounted by the Group's cost of equity to factor in the time value of the consideration. The Group recognised a total expense of £111,000 related to the cost of share- based payments in the year (included as share-based payment charges within administrative expenses of the discontinued business). No further charges are expected in the future.

2014 Share-based payments in settlement of invoices from suppliers

During the year, the Company was invoiced for fees for broking services by its broker and Nominated Adviser Cenkos Securities Plc, which it settled via the issue of a total of 15,789,733 ordinary shares of 1 pence. The shares issued were fair valued using the published share price on the date of issue. The Group recognised a total expense of £5,395,000 which has been included as share-based payment charges within exceptional items.

2013 Post combination vendor remuneration

As disclosed in note 36, 71,281,142 shares of 1 pence issued as consideration for the purchase of iter8 Inc. ("Iter8") have been treated as a post combination vendor remuneration item as entitlement to certain shares issued as consideration to three of the vendors was linked to their ongoing employment with the Group. The commitment to issue these shares was made on 17 April 2013 and for the purposes of the valuation of share-based payments have an effective exercise price of 1 pence. A Black-Scholes model has been used to value these share-based payments.

The Group recognised a total expense of £2,826,000 (2013: £1,990,000) related to the cost of share-based payments during the year (included as share-based payment charges within administrative expenses). Future share-based payment charges are expected in 2015 and 2016 of £2,826,000 and £836,000 respectively.

As at 31 December 2014, the weighted average remaining contractual life of these share-based payments was 1.3 years and the weighted average exercise price was 1 pence.

2012 Post combination vendor remuneration

Following the acquisition of IT Freedom Limited ("IT Freedom") in 2012, 33,031,533 shares of 1 pence issued as consideration for the purchase of IT Freedom have been treated as a post combination vendor remuneration item as entitlement to these shares issued as consideration to employee vendors was linked to their ongoing employment with the Group. These shares were issued on 23 May 2012 and for the purposes of the valuation of share-based payments have an effective exercise price of 1 pence. A Black-Scholes model has been used to value these share-based payments.

The Group recognised a total expense of £504,000 in the current year (2013: £485,000) related to the cost of share-based payments (included as share-based payment charges within administrative expenses). Future share-based payment charges in relation to the IT Freedom acquisition are expected in 2015 of £252,000.

29. Reserves

The share premium account represents the fair value of the share consideration over and above the share's nominal value of 15 pence per share (1 pence per share prior to the share consolidation exercise in 2014) for those shares issued as consideration for acquisitions that take the Group's ownership of the acquired entity up to 90%. In addition to the increase to the reserve noted in note 28 of £105,461,000 there was a further increase in the year of £1,704,000 from gains made on sale of shares treated as held in treasury.

The reverse acquisition and merger reserve represents the fair value of the share consideration over and above the share's nominal value of 15 pence per share (1 pence per share prior to the share consolidation exercise in 2014) for those shares issued as consideration for acquisitions that take the Group's ownership of the acquired entity above 90%.

The consolidated Group accounts show the reverse acquisition and merger reserve net of the reverse acquisition reserve of £10,842,000 created on the reverse acquisition of QL by Mission Capital (which occurred in 2011 (note 3, PYA A)). In the transaction, the Company remains the legal parent and therefore the Company accounts show the gross position of the reverse acquisition reserve.

The fair value of the share consideration over and above the share's nominal value of 15 pence per share (1 pence per share prior to the share consolidation exercise in 2014) for all other shares issued by the Company is included in the share premium reserve. In addition, directly attributable costs incurred in the issuing of shares are also recognised in the share premium reserve.

The shares to be issued reserve represents deferred consideration payable by the issue of the Company's shares in respect of acquisitions made by the Group. Movements in the reserve in the year are as follows:

As a result of the option renegotiation with PT Health, 6,666,666 ordinary shares of 15 pence at 210.272p were no longer issuable and have been transferred to retained earnings. QPS did not meet certain profit and cash generation targets in the year, meaning that 5,837,037 ordinary shares of 15 pence at 168.218p each were no longer issuable and have been transferred to retained earnings.

Further information regarding the non-controlling interest reserve can be found in the disclosure of the Himex and Ingenie acquisitions (note 36).

The acquisition of PT Health (see note 36) involved a share for share exchange in 2013 which resulted in the Company's own ordinary share capital being held by one of its consolidated subsidiaries, PT Health. In accordance with IAS 32.33, the Group therefore accounted for these equity instruments held by PT Health as if they were treasury shares, and has accordingly deducted them at cost from equity by including them in other reserves. On sale, the shares treated as held in treasury reserve is credited at carrying value on a first in first out basis with any resulting gain or loss being shown directly in retained earnings.

This acquisition in 2013 was accounted for under the anticipated acquisition method whereby, although the subsidiary is not 100% owned (in PT Health's case 26.0% was acquired in October 2013 which also represented the Group's holding at December 2013), it is accounted for as if it were wholly owned based on the terms of acquisition of the remaining share capital of the subsidiary and, accordingly, the further consideration still expected to be paid is accounted for via the shares to be issued reserve. A further 23.9% of PT Health's share capital was acquired by the Group in June 2014 (which took its holding to 49.9%) and this was also via a share for share exchange so the shares acquired by PT Health pursuant to this transaction, which were valued at £36,490,000, have also been accounted for as if they were treasury shares.

At the year end, the carrying value of the Company's shares held by PT Health was £12,498,000 (2013: £5,209,000) which represented 2,283,333 shares (2013: 2,050,832). Any gains or losses recognised in the subsidiary's income statement have been removed on consolidation.

Shares treated as held in treasury reserve

In accordance with IAS 32.33, the Group treats its own shares, which are held by consolidated subsidiaries or where it has issued equity instruments where the underlying substance dictates that the economic benefit flows back to the Group, as if such shares were treasury shares and deducts them at cost from equity by including them within the shares treated as held in treasury reserve. On sale, the reserve is credited at carrying value on a first in first out basis. Any gains arising on the subsequent sale of shares are recognised as an increase in share premium whilst any losses are shown directly in retained earnings.

The sale of shares held by PT Health realised a loss of £16,351,000. The sale of certain of the shares held by 360 realised a loss of £81,000. In total, losses on sale of shares treated as held in treasury resulted in a net reduction in retained earnings of £16,432,000. Sales of other shares held by 360 realised a gain of £1,704,000 which has been recognised as an increase in the share premium account.

Share consideration reserve

The share consideration reserve represents the difference between the fair value of shares consideration versus the value of non-controlling interest acquired. In respect of the acquisition of Himex, this amounted to an increase in the share consideration reserve of £10,444,000 and in respect of the acquisition of Ingenie an increase of £12,490,000, which in total amounts to an increase of £22,934,000 and is shown in the Consolidated Statement of Changes in Equity as fair value adjustment to share consideration.

Share-based payments reserve

The share-based payment reserve is increased to reflect the fair value to the Group of share-based payment transactions, with the reserve being reduced when shares are issued.

30. Operating lease commitments

At the Statement of Financial Position date the Group had outstanding commitments for minimum lease payments due under non-cancellable operating leases, which expire as follows:

Operating lease payments represent rentals payable by the Group for certain of its rehabilitation clinics in Canada, office properties and operating equipment. Leases are typically negotiated for an average period of three years in the case of plant and machinery, five years in the case of buildings.

31. Cash flow from operating activities

32. Reconciliation of net cash flow to movement in net funds

33. Financial instruments and financial risk management

(a) Carrying value and fair value

The accounting classification of each class of the Group's financial assets and liabilities, together with their fair values is as follows: