XPD.L Regulatory News (XPD)

20 April 2020

XPEDIATOR PLC

("Xpediator" or "the Company" or "the Group")

Final Results for the Year Ended 31 December 2019

Xpediator Plc, (AIM: XPD) a leading provider of freight management services across the UK and Central and Eastern Europe, is pleased to announce its audited results for the year ended 31 December 2019.

2019 Highlights

Strong revenue growth combined with good cash generation

· Substantial increase in revenues by 19.0% to £213.2 million

· Like for like revenues increased by 10.4% reflecting good organic growth

· Delivered ahead of revised expectations with adjusted profit before tax of £5.2m1

· Improved cash generation with a strong focus on working capital

· Maintained financial headroom with positive net cash (excluding liabilities arising from the impact of right-of-use assets debt) of £7.0 million, as at 31 December 2019

· Adjusted earnings per share decreased by 41.7% to 2.80p

· Final proposed scrip dividend, with the intention to return to cash dividends from the 2020 half year results 

Operational Highlights

· Freight forwarding revenues increased by 16.6% to £159.6 million with the Baltics and Balkans key areas of strength despite strong prior year comparators

· Pall-Ex franchise in Romania also performed strongly again handling in excess of 730,000 palletised freight (2018: 61,000) a 19.7% increase

· Logistics revenues increased by 32.2% to £47.5 million with increased occupancy in the Romanian Baltics and Balkans key areas of strength despite strong prior year comparators

· Affinity Transport Solutions continued its steady growth performance, delivering £2.5 million of operating profit before central overhead allocation (excluding exceptional items)

· Opening of an office in Shanghai to support the operation of a key contract

Prospects for 2020 & COVID-19 Impact

· Asset light structure and flexible cost base, enabling the Group to manage the business during the early days of the current COVID-19 crisis

· Overall demand for transport services and solutions has continued with high demand in most sectors, whilst some areas have seen a slow down due to impacts of COVID-19

· Trading of the Group in Q1-2020 was broadly in line with management expectations

· To further protect and manage the business responsibly during this extraordinary period the Board has introduced temporary pay reductions across the business, reduced overheads where appropriate and is minimising capital investment projects. In addition, to conserve cash, the final dividend for 2019 will be structured as a scrip dividend

· At the same time, the Board is mindful of the opportunities that may arise from the current crisis and is determined the business will be well placed to capitalise

Stephen Blyth, Chief Executive Officer of Xpediator, said "2019 saw our revenues increase substantially by 19% to £213.2 million, and helping to end the year with strong cash balances. However, the outbreak of COVID-19 has changed the commercial world, with the duration and ultimate impact of the virus are as yet unknown. Our objective is to protect our staff and business, and to ensure we are well placed to resume normal operations and potentially capitalise on opportunities when the virus impact subsides. As an asset light business with low fixed overheads we are better placed than some, with demand for our services holding up and in some areas seeing an increase. However, given the current uncertain environment we have taken measures to protect the business by reducing salaries and costs across all entities. The Group continues to seek acquisitions and the current crisis will, we believe, provide many opportunities to reach our target to grow the business over the next few years. Ultimately the Board believes Xpediator is well placed to operate through this crisis and emerge in a good position"

1 Adjusted profit before tax excludes the impact of exceptional costs relating to aborted acquisition costs of £0.19m (2018: £nil), additional contingent deferred consideration on Anglia Group Forwarding Limited of £0.451m (2018: £nil), £0.215m (2018: £nil) relating to additional contingent deferred consideration due on Regional Express acquisition, £nil (2018: £0.318m) relating to acquisition costs, £0.294m (2018: £0.232m) unwind and addback of discount on deferred consideration and £1.407m (2018: £1.033m) relating to the amortisation on the intangible assets relating to the acquired entities and £0.419m (2018: £nil) relating to the net consolidated income statement impact following the application of IFRS 16.

Enquiries

Xpediator plc Tel: +44 (0)330 043 2395

Stephen Blyth, Chief Executive Officer Email: info@xpediator.com

Robert Ross, Chief Financial Officer

Cenkos Securities (Nominated Advisor & Joint Broker) Tel: +44 (0)20 7397 8900

Max Hartley, Max Gould (Corporate Finance)

Nick Searle (Sales)

Cantor Fitzgerald Europe (Joint Broker) Tel: +44 (0)20 7894 7000

David Foreman, Michael Boot (Corporate Finance)

Caspar Shand Kydd (Sales)

Novella Communications (Financial Public Relations) Tel: +44 (0)20 3151 7008

Tim Robertson

Fergus Young

This announcement has been released by Stephen Blyth, Chief Executive Officer, on behalf of the Company.

Chairman's Statement

2019 has demonstrated the growth in demand for the Group's services. Delivering £213 million of revenues reflects the significant increase in the scale of the business over the last three years when annual revenues were just £73 million. Importantly, expansion has come from a balanced mix of acquisition and organic growth further evidenced in these results with like for like revenues increasing by over 10%.

Adjusted profit before tax was £5.2 million (2018: £7.2 million) which led to adjusted earnings per share of 2.80 pence (2018: 4.80 pence). Earnings per share on a statutory basis was 0.60 pence (2018: 3.53 pence).

The Group faced some challenges during the first half of 2019 which negatively impacted our profitability. Our e-commerce business was slowed by a disruption caused by a tightening of "know your client rules" following the introduction of GDPR regulations to the distribution chain in Germany and additional marketing spend was required to stimulate the business' recovery. Our UK logistics warehouse in Braintree lost a material client and whilst this customer has been replaced, the warehouse required a reconfiguration. The warehouse is now well placed to support new customers and e-commerce activity, a key growth area for the Group.

Overall, 2019 was a year of investment in people, facilities and processes to position us for future growth. We continue to invest in the Group's IT infrastructure to support the enlarged business. The year saw the establishment of an outsourced IT department in India, the installation of enhanced Group wide cyber security systems and the ongoing development of the digitalisation of the business. A key target for 2020 is for the business to continue its development of the e-forwarding platform, which will enable a large part of the freight forwarding activity to be online by the end of 2020, with resultant overhead savings for the future.

Strategically, Xpediator remains focused on establishing its network of freight management companies across the UK and Europe with a particular expertise in the fast growing Central and Eastern European ("CEE") regions. Recognising the market opportunity, the Group is seeking to exploit the growth across the CEE regions.

The Group continues to have a good pipeline of acquisition opportunities which meet the acquisition criteria of enhancing the Group's geographical capabilities, developing our existing operational locations and extending the Company's international presence in air and sea transportation.

The Group's Brexit team has been working closely with leading transport associations and port authorities to plan ahead. The Group already holds Authorised Economic Operator status which will be critical in being able to support both exporters and importers post Brexit under most forecasted scenarios. As a Group, we are well prepared for Brexit and we see this as an area to grow the profitability of the Group.

Dividend

Subject to approval by shareholders, the Group will propose a final dividend via a scrip issue to shareholders in June 2020. This has been proposed given the current issues around COVID-19 and the objective of conserving cash where possible, but it is expected that the Group's 2020 interim dividend will return to being paid in cash.

Board and management changes

On 8 November 2019, Wim Pauwels and Charles McGurin were appointed as non-executive Directors, following the retirement of Geoff Gillo who stepped down from the role on 6 June 2019. Both Wim and Charles have extensive experience of the transport and logistics industry and have held senior roles running comparable businesses to Xpediator.

On 13 November, following Stuart Howard's resignation on 6 September 2019, the Company confirmed the appointment of Robert Ross as the Chief Financial Officer of the Group. Robert began working for Xpediator on 2 January 2020 having previously been the Finance Director of Europa Worldwide Group. He replaces Richard Myson (who had been acting CFO) who remains with the business moving to become Chief Commercial Officer and joining the Group Operating Board.

COVID-19

As the Group announced on 31 March 2020, the wellbeing and safety of our people, customers and suppliers is Xpediator's first priority. Where possible individuals are working remotely from their homes and we are continuing to operate effectively whilst also taking the appropriate actions to limit the spread of this virus.

So far in 2020, activity levels have remained broadly in line with management expectations, with high demand from some sectors and other areas slowing. In response we have sought to allocate resource to match demand across the business. While it is hard to make any predictions under these extraordinary circumstances, based on very recent trends, the Board believes that demand for our freight management and warehouse services, both in the UK and Europe will remain sufficiently robust overall but will be more volatile in any given month, and that we have the systems and protocols in place to meet this demand.

We are benefitting from our diverse operations across the UK and Europe which has already helped us offset challenges in some areas with higher activity in other markets. Pall-Ex and European road freight forwarding have been areas of strength together with good levels of warehouse utilisation. That said, operating in this market environment is more complicated involving driver shortages in certain markets, some supply issues, more complex border checks and general cost inflation most of which can be passed to clients.

The Group also has the natural advantage of being an asset light business and does not own a large fleet of trucks. Instead we have low fixed overheads and typically act as a broker to our clients sourcing capacity from the market as it is required. Despite being in a relatively good position, the Board has taken the prudent decision to introduce temporary pay reductions, reduce costs in areas of reduced activity and suspend certain capital investment projects until the crisis has passed.

Outlook

Notwithstanding COVID-19 the Group has made a solid start to 2020 with revenues slightly up on a like for like basis for the first 3 months of the financial year. This, together with the new client wins achieved in 2019 gives the Board confidence in delivering progress in 2020, subject to the outcome of COVID-19.

However, given current material uncertainties, it is not practical to give longer term guidance at this time until there is greater clarity around the duration and full effects of COVID-19 on our customers, suppliers and our markets.

Alex Borrelli

Non-Executive Chairman

Chief Executive Officer's Statement

I am excited to outline the vision for the development of the Group over the next 5 years. I also report on our results for year ended 31 December 2019, which saw the Group's revenues increase by 19%.

We set out at the beginning of the year with the objective to continue to develop our pan-European service and enhanced digitalised platform to support the transport, storage and local delivery of our global customers goods. To this end, we have been investing in the development of our Group wide IT platforms and team to accelerate our move towards digitalisation. We have also significantly expanded the management team, bringing in highly skilled individuals to support the enlarged business and implement our plans for further expansion. Although this investment has added additional cost to the Group, we are now well positioned and sufficiently resourced, to deliver rapid growth with limited further investment required to reach our stated targets over the next five years.

Demand for freight management in the UK and CEE countries was strong during the year. Changing consumer trends and economic growth in our core markets, in particular from the CEE region are driving demand and helping us to develop a more comprehensive European network of freight management companies. As a business we are still heavily CEE centric with c58% of the Group's revenue being generated between mainland Europe. 

The financial results achieved in 2019 evidence the progress we have made across all our markets. Of the £213.2 million of revenues generated in 2019, £123.5 million was generated in Europe (2018 £109.0 million) and £89.7 million in the UK (2018 £70.2 million). We remain weighted towards the CEE region on the continent where our experience and infrastructure enable us to win contracts against the larger competitors in our market, and we are very pleased with our evolution in this region.

The business is performing well, growing both organically and through acquisition. Good cash generation during the year reflected a strong focus on working capital and increased financial disciplines. The Group has a solid financial base with the financial headroom to support the Group's future ambitions.

The businesses acquired are being integrated and the process is ongoing to obtain further synergies. Despite the difficulties currently caused by COVID-19 we are poised and ready for further acquisitions and we have strengthened the IT, HR, and finance teams to facilitate more activity.

The opening of the office in Shanghai, China will facilitate the development of activity with the Chinese customers and the major contract win secured in H2 2019.

Divisional Review

Freight forwarding

£159.6m (2018: £136.9 million)Revenue

£3.4m (2018: £3.00 million)Operating profit before exceptional item

Freight forwarding services, largely provided under the Delamode brand, specialise in connecting CEE countries with the UK and rest of Europe. In 2019, freight forwarding revenues increased by £22.7 million all of which related to organic revenue and the full year impact of acquisitions from 2018.

Like for like turnover increased by £16.7 million, 12.2% on 2018, driven by new client wins and the expansion of service offerings into new markets. This included the development of consolidation services to Italy from Lithuania as well as increased sea freight activity in Bulgaria.

Freight forwarding revenues across the Baltics and Balkans have continued to grow significantly against strong prior year comparatives, with Delamode Baltics revenue up by £8.9 million and Delamode Bulgaria up by £4.2 million year on year.

The remaining increase in freight forwarding revenues in 2019 was due to full year contributions from acquisitions completed during 2018. Benfleet Forwarding Limited made significant improvements over 2018 with its Far East activity recommencing, generating increased revenue of £6.0 million and additional operating profit of £0.6 million. Anglia Forwarding, also outperformed management expectations in terms of turnover and profit.

We have continued to invest in our cross-border e-commerce project and whilst this is currently loss making (2019: loss of £0.5m), we continue to closely monitor the performance and prospects of the project and particularly in relation to its working capital requirements.

The Regional Express earn-out was completed early in order to invest appropriately for a major contract win on a three-year contract that commenced operations in August 2019. This has a slow build up in the last quarter of 2019 during the implementation phase and activity levels are expected to ramp up during 2020.

Warehousing & Logistics

£47.5m (2018: £35.9 million)Revenue

£2.9m (2018: £3.0 million)Operating profit before exceptional item

The Logistics division's activities remain largely focused in Romania and the UK and revenue increased by £11.6 million in 2019 to £47.5 million.

The Group's Pall-Ex franchise in Romania continues to perform strongly, offering a palletised freight delivery service to any part of the country within 24 hours and handling in excess of 60,000 pallets on average per month in 2019 (2018 50,000 average pallets per month). This level of growth has continued into the first quarter 2020, with approximate growth of 20% compared to the first quarter of 2019.

The development of the new cross dock facility in Sibiu for Pall-Ex and Delamode storage was completed in H1 2019 and has enhanced the service and profit levels. During 2019, management was successful in being awarded significant warehouse contracts in Romania. This resulted in the occupancy of the main 25,000 sqm warehouse facility in Bucharest increasing from 48% in March 2019 to 83% in December 2019. Whilst the Bucharest facility lost over £500k in 2019, it is expected that this will move towards a breakeven position in 2020.

There is a strong pipeline of demand for warehouse space in Romania and having the ability to deliver palletised freight throughout Romania overnight by our Pall-Ex operations puts the business in an enviable position for further growth in the future.

In the UK, the lease for a new purpose built, 20,000 sqm facility in the Port of Southampton has been signed and the site is expected to become operational in February 2021. This will give the Group almost 70,000 sqm of warehouse space within the UK with aspirations to double the size of the estate by the end of 2022.

The warehouse in Braintree experienced some challenges during 2019, with the loss of a significant client and the substantial expansion of an existing customer. During the change over, management took the opportunity to reconfigure the warehouse which will drive greater future opportunities and allow the Group to increase its e-fulfilment for new and existing customers.

Transport Services

£6.2m (2018: £6.4 million)Revenue

£142.3m (2018: £139.1million)Gross Billing

£2.5m (2018: £2.3 million)Operating profit before exceptional item

Transport solutions, trading principally under the Affinity brand, provides bundled fuel and toll cards, financial and support services for hauliers in southern Europe. Affinity has been an agent of DKV in Romania since 2002, one of the world's largest fuel card providers and provides the DKV fuel card across the Balkans to a database of approximately 2,000 Eastern European hauliers and over 15,000 trucks.

In addition, Affinity provides a "one stop shop" of transport services including roadside assistance and ferry bookings. Affinity's commercial model fits well within the Group as many of the hauliers who are customers of Affinity also supply haulage services to Delamode a key factor that enables the Group to have a good understanding of its customers/suppliers, which underpins the strategy to provide further financial services such as insurance and leasing. With current driver shortages in Europe, having a supplier base will also become increasingly important for the forwarding division.

Volumes sold to customers (gross billings) increased in 2019 by 2.3% despite year on year decreases in average fuel prices of 1.4%. However, revenue decreased slightly due to the Euro/Sterling exchange rate changes, increases in competition within the market and a tightening of the division's credit policy.

Romania remains the largest region for the division and now represents 84% of total activity, (2018: 87.2%, 2017: 89.5%).

Further progress was made towards greater expansion of this division's services outside of Romania and into other East European countries, and Affinity commenced operations in Bulgaria during 2019.

There are several opportunities which the Group can capitalise on in 2020, including further developing the leasing and insurance products tailored specifically for Affinity's existing customer base.

Acquisitions

Our strategy is to act as a consolidator of the highly fragmented freight management market. In the last two years the Group has completed four transactions which have added over 1,200 new customers together with significantly expanding the Group's air and sea freight capabilities.

During 2019, the Group had pursued a major acquisition target in Slovenia which consumed considerable time and expense, and whilst we reached the final two bidders, unfortunately, this was not successful.

During 2019 the Group focused on integrating and bedding in the acquisitions made in 2017 and 2018 which will be completed during 2020. We remain focused on expanding the Group through acquisition and have a pipeline of opportunities that are in varying stages of consideration. Acquisition targets are selected on the basis they will enhance the Group's existing market presence, add further service capabilities particularly in air and sea and benefit significantly from being a part of the wider Xpediator Group, plus be earnings enhancing.

Vision and Strategy

Our Vision

Xpediator is a leading Freight Management provider in a very fragmented and competitive logistics market.

Our vision over the next five years is to maintain our current rate of growth and become a leading international freight management and logistics provider generating revenues in excess of £1 billion.

As a business we want to deliver sustainable solutions to our clients who are at the centre of our service offerings. We are focused on offering our clients the optimal solution for their transport needs with consistently high quality and competitive services.

We also look to ensure our client base is diverse, not just in terms of the number of clients, but also the sectors we service. No single client contributes to more than 2% of Group revenue. As an acquisitive business, one of the areas of focus, when considering acquisition opportunities, is how the opportunity can add to this diversity. Accordingly, strategically selected acquisitions have added to our ability to be able to offer more services to our existing client base as well as attracting new clients. We are now able to offer even stronger industry-specific solutions for our clients in the retail and fashion, toys and games sector.

As a business our vision is to continue to focus on year on year double digit revenue growth which will be achieved through several areas.

First, continued focus on the provision of high-quality services to the CEE region. This region is experiencing some of the largest GDP growth across Europe and the growth will be generated across all three divisions of the Group.

Second, the expansion of our Logistics facilities in Southampton where we will open a new 20,000 sqm facility in H1 2021.

Third, continued focus on targeted, earnings enhancing acquisitions. Operating in a large, fragmented market results in there being numerous acquisition targets and our strategy is to focus on global freight forwarders and contract logistics providers which are supported by a strong client base with a strong earnings track record.

Finally, operating in a low margin industry, we strive to identify ways in which we can continue to provide high quality services to our clients in a cost-effective way. During 2019 we continued our investment in IT, not only to secure our clients and suppliers data, but also to enhance our online functionality. This will allow us to offer our clients a seamless online solution to make bookings and track their consignments. The digitalisation of these processes will be margin enhancing as we take out overhead costs, whilst ensuring our clients have a competitive, robust solution.

Ultimately, at the heart of the Group's vision is client service, delivered through optimal solutions, whilst being competitively priced and with consistently high levels of customer service.

Outlook

We are currently operating in an extraordinary period. I am proud of the magnificent way everyone across the Group has responded to the crisis and has pulled together to get through this period and ensure we have a business that is able to re-emerge in good health. I would therefore like to thank everyone for their efforts and wish all stakeholders well during this very difficult period. We continue with the stated vision to reach our aspirational goals. In doing so, we will add greater strength and capability to the Group, which in turn will provide greater job security and rewards for our employees, plus enhancing returns for investors.

Stephen Blyth

Chief Executive Officer

Chief Financial Officer Statement

Financial Review

Revenue

Group revenue increased in 2019 by £34.1 million (19.0%) to £213.2 million. Of this increase, like-for-like growth was £18.6 million whilst the full year effect of acquisitions made in 2018 contributed the remaining £15.5million.

The Freight Forwarding division delivered £159.6 million (16.6% increase v 2018). Our Warehousing and Logistics division delivered revenue of £47.5 million (32.2% increase v 2018). The Transport Services division delivered £6.2 million (2.9% decrease v 2018).

Group profit before tax

Whilst Group profit before tax decreased in 2019 to £2.2 million (2018: £5.6 million, 2017: £2.4 million), two of the three operating divisions (before central overheads) increased on the prior year:

2019 2018 2017

Freight Forwarding £3.4m £3.0m £2.4m

Warehousing & Logistics £2.9m £3.0m £0.9m

Transport Services £2.5m £2.3m £2.0m

The increases in profit before tax from the operating divisions was offset by year on year increases in central overheads (£2.4m), exceptional costs (£0.5m), amortisation (£0.4m), accounting adjustments (£0.4m) and interest on deferred consideration (£0.1m).

Adjusted profit before tax

Reconciliation between profit before tax

and adjusted profit before tax 2019 2018 2017

Profit before tax £2.175m £5.616m £2.436m

Exceptional items (note 30) £0.856m £0.318m £0.912m

Unwind and addback of discount on deferred consideration 1 £0.294m £0.232m £0.295m

Amortisation on intangibles (note 12) £1.407m £1.033m £0.330m

Net Income Statement Impact of application of IFRS 16 £0.419m - -

Adjusted Profit before tax £5.151m £7.199m £3.973m

1 Unwind of discount of deferred consideration = £0.346m plus addback of the release on discount of deferred consideration = £0.052m (see note 10)

The total number of ordinary shares at 31 December 2019 was 136.1 million (2018:133.8 million) following the issue of 2.3 million during the year which gave rise to a weighted number of shares of 135.1 million (135.8 million diluted). Profit after tax attributable to the owners of the parent company of £0.8 million provides a basic earnings per share of 0.60p (0.60p diluted) which is an 83.0% (82.5% diluted) decrease on 2018. Adjusted profit before tax results in a basic earnings per share of 2.80p (2.79p diluted) which is a decrease of 41.7% (40.1% diluted) on 2018. (See note 10 of the financial statements)

Group Adjusted Profit before Tax 2019 v 2018

Group operating profit before exceptional items decreased by 27.8% (£1.8 million) year on year fuelled by mix of issues surrounding the e-commerce activity, the warehouse in Braintree and the investment in overheads to accommodate future growth and IT solutions.

The Freight Forwarding division operating profit increased by £0.4 million from 2018 to 2019. Of this, organic growth accounted for £0.2 million and the full year impact of the acquisitions of Anglia Forwarding in June 2018 contributed a further £0.2 million. The loss in the e-commerce activity equated £0.5m for the year, (2018: £0.2 million profit).

The Logistics division operating profit decreased by £0.1 million from 2018 to 2019.

Organic growth decreased by 25.1% (£0.7million loss) year on year, with the full year impact of the Import Services Limited contributing additional revenue of £9.5 million and operating profit of £0.5 million. This was offset by the Braintree warehouse that has undergone a reconfiguration project following the loss of a major customer and is expected to deliver an improved contribution to the Group during 2020.

The Transport Services division under the Affinity brand saw operating profit increase by 10.6% (£0.2 million) from 2018 to 2019. This was achieved through improved overhead controls despite revenues decreasing by £0.2 million year on year.

Financial Resources

Cash

The Group continues to focus on the application of tight cash controls and the need to maintain a reasonable headroom for future contingencies and to manage financing risk. The Board regularly monitors the financing needs of the business through cash flow projections for the following 12 months. These are expected to be achieved for the coming year from existing cash balances, loan facilities and operating cash flows. The Group has sufficient financial resources and a broad spread of business activities. The Directors therefore believe it is well placed to manage its business risks.

Cash generated from operations increased by 279.5% from 2018 to £14.2 million reflecting the increased turnover generated as well as improved control of working capital. In addition, as a result of the adoption of IFRS 16, this has resulted in a benefit to net cash from operating activities by £6.5 million.

Cash outflows from investing activities decreased on 2018 levels, (71.5%), due to there being no acquisition in 2019, compared to the acquisition of two subsidiaries in 2018.

Cash from financing activities decreased by 272.7% from 2018 due mainly to lower proceeds from share issues (£6.5 million lower) and re payment of loan and CID balances. In addition, as a result of the adoption of IFRS 16, this has impacted cash from financing activities by £(6.5) million.

Overall, this resulted in an increase of £2.4 million in cash and cash equivalents from 2018 with £12.0 million balance at the end of the year 2019 (23.9% increase v 2018).

Working Capital

Whilst both trade receivables and payables increased in the year, this was as a result of the increased activity undertaken by the Group. Trade receivables increased by 1.0% to £60.9 million and trade payables increased by 4.5% to £58.6 million. Despite the increase in trade debtors, debtor days reduced by 9.8% reflecting the continued focus on managing the Group's working capital effectively. Creditor days also decreased but by less than the decrease in debtor days (4.9% year on year) which has reduced the working capital within the Group.

Administrative Costs Review

As the business has continued to develop, both in terms of operations and support functions, combined with the full year impact of the 2018 acquisitions, the average staff numbers have increased from 902 to 1,037. Consequently, Group administrative costs increased from £36.4 million to £50.0 million (37.1%).

1 CID - Confidential Invoicing Discount facility. Funding is secured on the value of invoices raised.

2 Debtor days defined as trade receivables / gross billings * 365

3 Creditor days defined as trade payables / cost of sales (gross billings less gross margin) * 365

Finance Costs

Excluding the IRFS 16 impact of £1.1 million, finance costs were in line with 2018, at £0.5 million. Improved cash management has resulted in both loans reducing by £0.6 million and lower utilisation from the confidential invoice discounting by £0.6 million.

Called up Share Capital

2.3 million ordinary shares (2018:16.3 million, 2017: 37.4 million) were issued in the year primarily relating to the equity proportion of deferred consideration payable for the acquisition of EMT and Regional Express. Called up share capital at 31 December 2019 was £6.9 million (2018: £6.7 million, 2017: £5.9million). See note 22 of the financial statements.

Impairment

The Group carries out its impairment tests annually in November as part of the budget process and all newly acquired entities are also reviewed for impairment at the balance sheet date.

No impairment losses have been recognised during the year.

Robert Ross

Chief Finance Officer

FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

The notes form part of these financial statements

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2019

The notes form part of these financial statements

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2019

The financial statements were approved by the Board of Directors on 17 April 2020 and were signed by:

The notes form part of these financial statements

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2019

The notes form part of these financial statements

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2019

The notes form part of these financial statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2019

1. RECONCILIATION OF PROFIT BEFORE INCOME TAX TO CASH GENERATED FROM OPERATIONS

2. ACCOUNTING POLICIES

Description of the business

Xpediator Plc (the "Company") is a public limited company, incorporated in England and Wales, United Kingdom. The registered office is 700 Avenue West, Skyline 120 Great Notley, Braintree, Essex, CM77 7AA and the Company registration number is 10397171.

The consolidated financial statements comprise the financial information of the Company and its subsidiary undertakings (together the "Group"). Detail of the entities of the Group are described in Note 14.

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU issued by the International Accounting Standards Board, under the historical cost convention. Accounting policies have been consistently applied from 2018 except for the introduction of the new standard IFRS 16.

The presentation currency used for the preparation of the financial statements is Pounds Sterling (£), which is the currency of choice of the principal investors of the Group. The amounts are rounded to the nearest thousand, unless otherwise stated.

The preparation of financial statements in conformity with IFRSs requires the use of certain accounting estimates. It also requires the directors to exercise their judgement in the process of applying the Group's accounting policies (see Note 2.3 - Critical accounting estimates and judgements).

Going concern

The Group meets its working capital requirements through the receipt of revenues from the provision of its services in the UK and in CEE, the management of capital and operating expenditure, from the working capital and other borrowing facilities available to it and, from time to time, from the issue of equity capital.

Ultimately the receipt of revenues and charges due to the Group depends on the availability of liquidity for the company's customers and the level of transport and logistics activity in the market. The COVID-19 pandemic has had a significant, immediate impact on the UK and global economies and on the operations and operational funding of participants in international and UK supply chains.

The COVID-19 pandemic has not, to date, had a significant adverse impact on the Group's operations but the directors are aware that if the current situation becomes prolonged then this may change. Further details of the current assessment of the impact on the business are set out in the strategic report. Based on very recent trends, the directors believe that demand for the Group's freight management and warehouse services, both in the UK and CEE will remain robust overall but will be volatile, and that the Group has the systems and protocols in place to meet this demand. At the date of approval of these financial statements it is not clear how long the current circumstances are likely to last and what the long-term impact will be.

At 31 December 2019 the Group had cash and cash equivalents of £11,951,000 (2018: £9,647,000). The Group also has funding facilities in place, details of which are set out in note 19 of the financial statements, which it does not envisage will be withdrawn.

The directors prepare annual budgets and forecasts in order to ensure that they have sufficient liquidity in place in the business. In addition, in response to the rapidly evolving COVID-19 situation, the directors, in formulating the plan and strategy for the future development of the business have considered a period beyond that for which formal budgets and forecasts are prepared and have stress tested the financial projections of the business by applying a number of scenarios including reductions in forecast revenues, delays in collection of receivables, delays in new business pipeline and mitigation or deferral of capital and operational expenditure.

The directors have taken steps to utilise the various support mechanisms instigated by UK and various CEE governments, including the use of the Coronavirus Job Retention Schemes and CEE equivalents (eg Technical Unemployment Process in Romania). The Operating and Executive Board began a process of twice weekly phone calls starting 12 March 2020 where they discuss operational and financial metrics, including regularly review of volume activity and revenue. To further protect and manage the business responsibly during this extraordinary period, the directors have introduced temporary pay reductions, negotiated rent free periods, recruitment freezes and reducing other costs through a strategic review of business overheads, as well as suspending certain capital investment projects.

Having regard to the above, and based on their latest assessment of the budgets and forecasts for the business of the company, the directors consider that there are sufficient funds available to the Group to enable it to meet its liabilities as they fall due for a period of not less than twelve months from the date of approval of the financial statements. The directors therefore consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements.

Basis of consolidation

The Group financial statements consolidate the financial statements of Xpediator Plc and its subsidiaries drawn up to 31 December each year. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The Company has control over a subsidiary if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The financial statements of subsidiaries are prepared for the same reporting year as the parent Company, using consistent accounting policies. Intra-group balances and transactions, including unrealised profits arising from intra-Group transactions, have been eliminated. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Non-controlling interests represent the equity in subsidiaries that is not attributable, directly or indirectly, to Xpediator Plc.

Subsequent to the merger accounting noted below the consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

Merger accounting

On 25 May 2017, the Company entered into a share swap agreement with the ultimate beneficiaries of Delamode Group Holdings Limited, whereby 4,000,000 new ordinary shares of £1.00 each were issued to the ultimate beneficiaries of Delamode Group Holdings Limited in exchange for their shares in Delamode Group Holdings Limited in the same proportion as their shareholding in Delamode Group Holdings Limited. The merger method of accounting is used to consolidate the results of Xpediator Plc.

On 8 June 2018, the Company issued 1,727,694 new ordinary shares of £0.05 each as part of the deferred consideration of Easy Managed Transport Limited ("EMT"). The premium on the fair value in excess of the nominal value of shares issued in consideration of business combinations is credited to the merger reserve.

On 14 July 2018, the Company issued 3,740,648 new ordinary shares of £0.05 each as part of the acquisition of Import Services Limited. The premium on the fair value in excess of the nominal value of shares issued in consideration of business combinations is credited to the merger reserve.

On 31 December 2018, the Company issued 84,951 new ordinary shares of £0.05 each as part of the deferred consideration of Regional Express Limited ("Regional"). The premium on the fair value in excess of the nominal value of shares issued in consideration of business combinations is credited to the merger reserve.

On 16 May 2019, the Company issued 1,655,876 shares to the former owners of EMT as part of the payment of the deferred consideration relating to the acquisition of the entire equity of EMT in 2017. The premium on the fair value in excess of the nominal value of shares issued in consideration of business combinations is credited to the merger reserve.

On 5 December 2019, the Company issued 89,744 shares to the former owners of Regional as part of the payment of the deferred consideration relating to the acquisition of the entire equity of Regional in 2017. The premium on the fair value in excess of the nominal value of shares issued in consideration of business combinations is credited to the merger reserve.

Revenue

The Group generates revenue in the UK and Europe.

The Group operates a number of diverse businesses and accordingly applies a variety of methods for revenue recognition, based on the principles set out in IFRS 15. The revenue and profits recognised in any reporting period are based on the delivery of performance obligations and an assessment of when control is transferred to the customer. In determining the amount of revenue and profits to record, and associated balance sheet items (such as trade receivables, contract assets and contract liabilities), management is required to review performance obligations within individual contracts. This may involve some judgemental areas (for example within the logistics & warehousing Business), where revenue is recorded in advance of invoicing the customer.

Revenue is recognised either when the performance obligation in the contract has been performed (so 'point in time' recognition) or 'over time' as control of the performance obligation is transferred to the customer. For all contracts, the Group determines if the arrangement with a customer creates enforceable rights and obligations, which is in line with our contractual commitments and industry standard best practice (for example Convention Relative au Contrat de Transport International de Marchansies par la Route or CMR).

For each performance obligation to be recognised over time, the Group applies a revenue recognition method that faithfully depicts the Group's performance in transferring control of the goods or services to the customer. This decision requires assessment of the real nature of the goods or services that the Group has promised to transfer to the customer. The Group has assessed the period of time principles as follows:

· Customers receives the benefits of the good being moved from the origin to the destination, as another supplier would not need to re-perform the service performed to date (ie the goods have been moved partway).

· The customer becomes committed to pay the Group the moment that the goods are despatched and collected.

· The customer accepts that they are liable to pay for the transaction in full although it is the Group's responsibility to ensure that the shipment is in transit before invoicing.

· The customer can usually be invoiced on despatch/export and has an obligation to pay for services despite any problems that may arise in transit.

· The Group would hold any third party liable for any issues that happen in transit that is beyond its reasonable control.

The Group recognises that it acts as both an agent and a principal. The Group is a principal if it responsible for the specified good or service before that good or service is transferred to a customer. The Group is an agent if it is not responsible for arranging for the provision of the specified good or service by another party. In this case, the Group does not control the specified good or service provided by another party before that good or service is transferred to the customer. When the Group acts as an agent, it recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party. The Affinity business (see Affinity section of revenue recognition policy) primarily operates as an agent, and largely recognises only the commission earned as revenue.

Freight forwarding

Under IFRS 15, freight forwarding revenue is recognised over the period of time based on the principles identified above. Therefore, revenue will consist of freight delivered during the period as well as a proportion of revenue for service delivered that are in process as at the end of the reporting period, which is calculated on a time proportioned basis.

Logistics & warehousing

Logistics & warehousing revenue is recognised over a period of time. Invoicing varies by contract but is typically in line with work performed. Due to the different contractual arrangements in place, each customer is assessed to determine the amount of work carried out, which has not been invoiced at the date of the Group's reporting period. This revenue is recognised by direct reference to the amount of work carried out to deliver the service and measured relative to cost or over the time period which the warehousing is provided. Judgement is therefore required when determining the appropriate timing and amount of revenue that can be recognised. The revenue from handling of incoming products is recognised when a performance obligation is satisfied, but not invoiced at the reporting date, which is correspondingly accrued on the statement of financial position within contract assets.

Affinity

Revenue is recognised at a point in time only after the performance obligation has been actually been delivered. Affinity and trucking services revenue largely acts as an agent based on the assessment above, so only commission is recorded as revenue. This largely relates to provision of DKV fuel cards, which enables the customer to purchase fuel, tolls and other services.

In addition, the Affinity business operates as a reseller of ferry crossings, where revenue is recorded at a point in time as it is based on the performance obligation being delivered. Revenue for this part of the business is recorded as a principal due to the assessments identified above.

Gross billings (Affinity)

Recoverable disbursements incurred on behalf of our Affinity Division customers based in Romania and the West Balkans include fuel costs, toll charges and breakdown assistance. The gross billings figure is included within the Groups trade payables and receivables but are excluded from consolidated income statement revenue. The gross billing revenue number is a non-statutory measure but is included to make a more meaningful calculation of days sales outstanding and days payable outstanding, so it is important to understand the level of billings going through the sales and purchase ledgers.

Franchise income

Income relating to franchise fees are not recorded as revenues by the Group but are shown as other income. This revenue arises from the sales of services to the franchisees. This income is recognised over a point in time based on when the services have been transferred to the franchisee in accordance with the terms and conditions of the relevant agreements.

Franchise fees comprise of revenue for the initial allocation of the franchise to the respective member, IT support, marketing and the use of the intellectual property.

Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree.

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3: Business Combinations are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised.

If the cost of the acquisition is less than the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities, the difference is recognised directly in the Consolidated Income Statement.

Associates

Management has applied judgement in determining that International Cargo Centre Limited (ICC) is an associate of the Group. The Group has significant influence by virtue of holding a 40% equity interest which presumes significant influence per IAS 28, together with having one of three directors on the board, while taking into account that the remaining 60% interest is held by one other party.

Non-controlling interests

The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests.

Goodwill

Goodwill arising on the acquisition of a business represents any excess of the fair value of the consideration over the fair value of the identifiable assets and liabilities acquired. The identifiable assets and liabilities acquired are incorporated into the consolidated financial statements at their fair value to the Group.

Goodwill is not amortised but tested for impairment annually. Any impairment is recognised immediately in the consolidated income statement and is not subsequently reversed. On disposal of a business, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Impairment of non-financial assets (excluding inventories and deferred tax assets)

Impairment tests on goodwill with indefinite useful economic lives are undertaken annually in November as part of the Group's budgeting process, except in the year of acquisition when they are tested at the year-end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest Group of assets to which it belongs for which there are separately identifiable cash flows; its Cash Generating Units ('CGUs'). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from a business combination that gives rise to the goodwill. Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

Foreign currencies

The financial statements of the Group are presented in its reporting currency of Sterling. The functional currency of each Group entity is the currency of the primary economic environment in which the entity operates.

Transactions in foreign currencies during the period have been converted at the rates of exchange ruling on the date of the transaction. Assets and liabilities denominated in foreign currencies have been translated at the rates of exchange ruling on the balance sheet date. Any gains or losses arising from these conversions are credited or charged to the Consolidated Income Statement.

On consolidation, the results of overseas operations are translated into Sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the translation reserve.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.

Financial assets

The Group classifies its financial assets into the categories discussed below, depending on the purpose for which the asset was acquired. The Group only has financial assets classified as held at amortised cost. The financial assets comprise of trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.

Cash and cash equivalents includes cash in hand, deposits held with banks, and - for the purpose of the statement of cash flows - bank overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the consolidated statement of financial position, unless there is a right of set-off between bank accounts across the Group. In this instance, the net cash position will be shown.

These assets arise principally from the provision of goods and services to customers (eg trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. Trade receivables are recognised initially at the transaction price and other financial assets are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue. They are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using a historical provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within administration costs in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those for which credit risk has increased significantly, lifetime expected credit losses are recognised, unless further information becomes available contrary to the increased credit risk. For those that are determined to be permanently credit impaired, lifetime expected credit losses are recognised.

Capital management

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets (e.g. accounts receivables, other financial assets) and projected cash flows from operations.

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, invoice discounting and long term loan finance.

Financial liabilities

The Group classifies its financial liabilities into two categories:

Other financial liabilities

The Group's other financial liabilities include bank loans, confidential invoice discounting facility, trade and other payables and accruals. Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Fair value through profit and loss

This category only comprises of the element of deferred consideration on business combinations, which is contingent on the performance of the acquired businesses. The expected consideration payable is assessed at each balance sheet date with the movement in the expected liability being recorded in the income statement.

Share capital

Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The company's ordinary shares are classified as equity instruments.

Leased assets

During the year, the Group has changed its accounting policy for leases where the group is the lessee. The new policy is set out below and the impact of the change is described in note 2.1.

Until to 31 December 2018, leases of property, plant and equipment where the Group, as lessee, had substantially all the risks and rewards of ownership were classified as finance leases. Finance leases were capitalised at the lease's inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, were included in other short-term and long-term payables.

Leases in which a significant portion of the risks and rewards of ownership were not transferred to the Group as lessee were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

Under the new policy, IFRS 16 has introduced a single, on-balance sheet accounting model for lessees, eliminating the distinction between operating and finance leases. IFRS 16 has impacted how the Group accounts for leases under IAS 17. On initial application, the Group has performed the following:

· Recognised right of use assets and lease liabilities in the consolidated statement of financial position, measured at the present value of future lease payments, discounted using the rate implicit in the lease or the lessee's incremental borrowing rate if this is not stated. These are included within right-of-use assets and lease liabilities respectively;

· Recognised depreciation of right of use assets and interest on lease liabilities in the consolidated income statement;

· Separated the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within financing activities) in the consolidated cash flow statement.

The incremental borrowing rate is calculated on a lease by lease basis. The weighted average lessee's borrowing rate applied to the lease liabilities on 1 January was 3.42%.

Policy applicable from 1 January 2019

For contracts entered into on or after 1 January 2019, the Group assesses at inception whether the contract is, or contains, a lease. A lease exists if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group assessment includes whether:

· the contract involves the use of an identified asset;

· the Group has the right to obtain substantially all of the economic benefits from the use of the asset throughout the contract period; and

· the Group has the right to direct the use of the asset.

At the commencement of a lease, the Group recognises a right-of-use asset along with a corresponding lease liability.

The lease liability is initially measured at the present value of the remaining lease payments, discounted using the individual entities incremental borrowing rate. The lease term comprises the non-cancellable period of the contract, together with periods covered by an option to extend the lease where the Group is reasonably certain to exercise that option based on operational needs and contractual terms. Subsequently, the lease liability is measured at amortised cost by increasing the carrying amount to reflect interest on the lease liability, and reducing it by the lease payments made. The lease liability is remeasured when the Group changes its assessment of whether it will exercise an extension or termination option.

Right-of-use assets are initially measured at cost, comprising the initial measurement of the lease liability adjusted for any lease payments made at or before the commencement date, lease incentives received and initial direct costs. Subsequently, right-of-use assets are measured at cost, less any accumulated depreciation and any accumulated impairment losses, and are adjusted for certain remeasurements of the lease liability.

Depreciation is calculated on a straight-line basis over the length of the lease. The Group has elected to apply exemptions for short-term leases and leases for which the underlying asset is of low value. For these leases, payments are charged to the income statement on a straight-line basis over the term of the relevant lease. Right-of-use assets are presented within non-current assets on the face of the balance sheet, and lease liabilities are shown separately on the statement of financial position in current liabilities and non-current liabilities depending on the maturity of the lease payments.

Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This has replaced the previous requirements to recognise a provision for onerous lease contracts.

Payments associated with short-term leases are recognised on a straight-line basis as an expense in the profit or loss. Short term leases are leases with a lease term of 12 months or less.

Externally acquired intangible assets

Externally acquired intangible assets, other than Goodwill, are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives.

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see section related to critical estimates and judgements below).

The significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows:

Taxation

The charge for current tax is based on the taxable income for the period. The taxable result for the period differs from the result as reported in the statement of comprehensive income because it excludes items which are not assessable or disallowed and it further excludes items that are taxable and deductible in other years. It is calculated using tax rates that have been enacted or substantially enacted by the statement of financial position date.

Deferred income tax is provided using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes.

Deferred tax assets are recognised only to the extent that future taxable profit will be available such that realisation of the related tax benefits is probable. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/ (assets) are settled/(recovered).

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions.

Freehold land is not depreciated. Depreciation on assets under construction does not commence until they are complete and available for use. Depreciation is provided on all other items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives. It is provided at the following rates:

Dividends

Dividends are recognised when they become legally payable. In the case of final dividends, this is when approved by the shareholders at the annual general meeting.

Holiday pay accrual

All employees accrue holiday pay during the calendar year, the board encourages all employees to use their full entitlement throughout the year, however in the unlikely case that an employee has untaken holiday pay this is accrued for at the daily salary costs, including costs of employment, such as social security.

Staff pensions

The Group does not operate a pension scheme for its employees however it does make payments to defined contribution pension schemes on behalf of employees in the UK in accordance with auto enrolment legislation. The payments made are recognised as an expense in the period to which they relate.

Share-based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss over the remaining vesting period, with a corresponding adjustment to the equity-settled employee benefits reserve.

Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods or services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

Provisions

The Group has recognised provisions for liabilities of the uncertain timing or amount for leasehold dilapidations. The provision is measured at the best estimate of the expenditure required to settle the obligation at the reporting date, discounted at a pre-tax rate reflecting current market assessments of the time value of money and risks specific to the liability. The provision takes into account the potential that the properties in question may be sublet for some or all of the remaining lease term.

2.1 New and amended accounting standards effective during the year

The Group has applied the following standards and amendments for the first time during the annual reporting period commencing 1 January 2019:

IFRS 16: Leases

IFRS 16 'Leases' had an effective date for annual periods beginning on or after 1 January 2019. IFRS 16 results in lessees accounting for most leases within the scope of the Standard in a manner similar to the way in which finance leases are currently accounted for under IAS 17 'Leases'. The Group adopted the Standard modified retrospectively from its mandatory adoption date, but has not restated comparative amounts which were reported under the previous accounting policies.

The details of the changes in accounting policies are described below.

The Group previously classified leases as either operating or finance leases based on an assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the leased asset. Immediately prior to the initial application of IFRS 16, the Group had operating leases related to office premises and equipment and some finance leases for equipment.

Under IFRS 16, most leases previously classified as operating leases under IAS 17 are recognised on the balance sheet as a right-of-use asset along with a corresponding lease liability.

The lease liability is initially measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate. The lease term comprises the non-cancellable period of the contract, together with periods covered by an option to extend the lease where the Group is reasonably certain to exercise that option. Subsequently, the lease liability is measured by increasing the carrying amount to reflect interest on the lease liability, and reducing it by the lease payments made. The lease liability is remeasured when the Group changes its assessment of whether it will exercise an extension or termination option.

Right-of-use assets are initially measured at cost, comprising the initial measurement of the lease liability, plus any initial direct costs, less any lease incentives. Subsequently, right-of-use assets are measured at cost, less any accumulated depreciation and any accumulated impairment losses, and are adjusted for certain remeasurements of the lease liability. Depreciation is calculated on a straight-line basis over the length of the lease.

For leases previously classified as finance leases the entity recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right-of-use asset and the lease liability at the date of initial application.

The Group has elected to apply exemptions for short-term leases and leases for which the underlying asset is of low value. For these leases, payments are charged to the income statement on a straight-line basis over the term of the relevant lease. For the year ended 31 December 2019, payments charged to the income statement related to low value and short-term leases were insignificant.

Right-of-use assets are presented within non-current assets on the face of the statement of financial position and lease liabilities are shown separately on the statement of financial position in current liabilities and non-current liabilities depending on the length of the lease term.

Impact on lessee accounting

The lease liabilities were determined by discounting relevant lease payments at the Group's incremental borrowing rate of between 2% and 3.5%.

Consolidated Income Statement - For the year ended 31 December 2019, the administrative expenses have decreased by £6,964,000 as the Group previously recognised rental expenses therein. Depreciation and finance costs have increased by £5,955,000 and £1,009,000 respectively as a result of the requirement to capitalise a right-of-use asset and depreciate over the term of the lease.

Consolidated Statement of Financial Position - At 1 January 2019, the Group calculated the lease commitments outstanding and applied the appropriate discount rate to calculate the present value of the lease commitment which are recognised as a liability and a right-of-use assets on the Group statement of financial position. As a result, at the 1 January 2019, the Group recognised both right-of-use assets of £31,024,000 and lease liabilities of £31,109,000.

2.2 Changes in accounting policies

There are no other standards other than that are expected to have a material impact on the Group's financial statements.

2.3 Critical Accounting Estimates And Judgements

The Group makes certain estimates and assumptions regarding the future. Management also needs to exercise judgement in applying the Group's accounting policies. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

2.3.1 Principal estimates

· Fair value measurement of intangible assets acquired in business combination;

A number of assets and liabilities included in the Group's financial statements require measurement at, and/ or disclosure of, fair value. As there are no easily identifiable valuation methods for intangible assets such as customer relationships and licences, estimation is required in assessing the fair value when accounting for a business combination. The Group recognised Goodwill and associated intangibles before amortisation of £26,733,000 (2018 - £25,743,000). This is disclosed in note 12.

· Estimated impairment of goodwill

The Group frequently tests whether goodwill has suffered any impairment. These calculations require the use of estimates, both in arriving at the expected future profitability of the entity and the application of a suitable discount rate in order to calculate the present value of these flows. As the impairment of goodwill is based on a future forecast, the Group has used a level of judgement around key assumptions of future cashflows greater than 12 months. Details of the impairment and sensitivity of cashflows are disclosed in note 12.

· Trade receivables

In accordance with IFRS 9, the Group assesses whether the credit risk has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument both due within one year and more than one year as at the reporting date with the risk of a default occurring on the trade receivable as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. The Group has trade receivables less provision for expected credit losses at the year-end of £51,160,000 (2018 - £50,659,000).

· Deferred Tax

Deferred tax assets have been recognised in relation to trading losses generated in the entities, these have been restricted to those instances where it is probable that taxable profit will be available against which the difference. The Group has recognised a deferred tax asset of £210,000 (2018 - £225,000) and a deferred tax liability of £1,968,000 (2018 - £2,204,000).

2.3.2 Principal judgements

· Deferred Contingent Consideration

The Group believes that any deferred consideration payable to sellers who continue to be employed is not part of their remuneration package and forms part of the cost of investment. Amounts payable are irrespective of continued employment with the acquired Company or elsewhere within the Group. The classification is further determined based on a number of factors including the breakdown of the acquisition consideration and the level of remuneration payable to selling shareholder. At 31 December 2019, the total deferred consideration of £4,607,000 (2018 - £3,498,000), all of which is due within one year.

· Valuation of Goodwill for Import Services

The Directors have reviewed the fair value of the goodwill and deferred consideration relating to the acquisition of Import Services Limited in line with IFRS 3 Business Combinations, paragraph 45. Based on the interpretation of the standard, the Directors believe that there is new information available relating to the assumptions used to calculate the consideration payable. As a result of the new information, the Directors have increased the value of Goodwill and Consideration Payable to the vendors of Import Services Limited by £990,000.

3. REVENUE ANALYSIS BY COUNTRY

The table below shows revenue by timing of transfer of goods and services:

3A) REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue is derived from three main divisions: Transport solutions, referred to as Affinity, Freight forwarding, and Logistics & warehousing, as detailed in note 7.

3B) CONTRACT ASSETS

Contract assets are included within trade and other receivables on the face of the statement of financial position.

By the nature of the Group's invoicing procedures, then the Group does not have any contract liabilities.

3C) NON CURRENT ASSETS BY COUNTRY

4. OTHER OPERATING INCOME

Other operating income arises mainly from sundry services executed by the Group, not being freight forwarding, logistics and warehousing or affinity services. Since this is not considered to be part of the main revenue generating activities, the Group presents this income separately from revenue.

5. OPERATING PROFIT

1 Under IFRS 16 'Leases', which the Group adopted in the current year, payments under operating leases are not charged to the consolidated income statement.

2 Amortisation charges on the Group's intangible assets are recognised in the administrative expenses line item in the consolidated income statement.

The remuneration paid to Crowe U.K. LLP and its associates (2018 - BDO LLP), the Group's external auditors is as follows:

6. EMPLOYEE BENEFIT EXPENSES

Key management personnel compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the directors of the Company.

Directors remuneration

Other remuneration comprises of private family medical cover, and insurance benefits.

Total remuneration regarding the highest paid Director is as follows:

The average number of employees (including directors) during the year was as follows:

7. SEGMENTAL ANALYSIS

Types of services from which each reportable segment derives its revenues

In 2019 the Group had three main divisions: Transport Solutions, referred to as Affinity, Freight Forwarding, and Logistics & Warehousing. All revenue is derived from the provision of services.

· Freight Forwarding - This division is the core business and relates to the movement of freight goods across Europe. This division accounts for the largest proportion of the Group's business, generating 75% of its external revenues. (2018 - 76%)

· Affinity - This division is the Transport Solution's arm of the Group. It focuses on the reselling of DKV fuel cards, leasing, ferry crossings and other associated transport related services. This division accounts for 3% of the Group's business in terms of revenue (2018 - 4%)

· Logistics & Warehousing - This division is involved in the warehousing and domestic distribution; it generates 22% of the Group's external revenues in 2019 (2018 - 20%).

Factors that management used to identify the Group's reportable segments

The Group's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team comprising the Divisional Chief Operating Officers, the Chief Executive Officer and the Chief Financial Officer.

Measurement of operating segment profit or loss

The Group evaluates segmental performance on the basis of profit or loss from operations calculated in accordance with IFRS. Segment assets and liabilities are measured in the same way in the financial statements and they are allocated based on the operations of the segment.

Inter-segment sales are priced at market rates and at arm's length basis, along the same lines as sales to external customers. This policy was applied consistently throughout the current and prior period.

8. NET FINANCE COSTS

9. INCOME TAX

Analysis of tax expense

The reconciling items for the difference between the actual tax charge for the year and the standard rate of corporation tax in UK (the ultimate parent company's tax residency) applied to profits for the year are as follows:

Deferred Tax

The deferred tax asset relates to losses carried forward at the rate of tax in the relevant jurisdiction.

The Group has potential deferred tax assets for trading losses totalling £1,257,000 (2018: £932,000) arising from certain subsidiaries across the Group. These assets have not been recognised due to insufficient certainty that the suitable profits will be generated in the foreseeable future.

The deferred tax liabilities relates to liabilities arising as part of the Group's acquisitions.

10. EARNINGS PER SHARE

11. DIVIDENDS

Subject to approval by shareholders, the Group will propose a final dividend via a scrip issue to shareholders in June 2020. This has been proposed given the current issues around COVID-19 and the objective of conserving cash where possible, but it is expected that the Group's 2020 interim dividend will return to being paid in cash.

12. INTANGIBLE ASSETS

Group

The goodwill included in the above note, relates to acquisition of Pallet Express Srl in January 2016, UK Buy in January 2017, Easy Managed Transport Limited in March 2017, Benfleet Forwarding Limited in October 2017, Regional Express Limited in November 2017, Anglia Forwarding Group Limited in June 2018 and Import Services Limited in July 2018.

Annual test for impairment

The Group carries out its impairment tests annually in November as part of the budget process and all newly acquired entities are also reviewed for impairment at the consolidated statement of financial position sheet date.

Upon acquisition the goodwill and other intangibles are calculated at Cash Generating Unit ("CGU") level, these are then measured based on forecast cash flow projections, the first year of which is based on the CGU's current annual financial budget which has been approved by the board. The cash flow projections for years two to five have been derived based on growth rates that are considered to be in line with the market expectations.

The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows.

In determining the future free cash flow, the main drivers have been revenue and Earnings Before Interest and Tax ("EBIT") margins, with margins remaining at expected levels.

The directors have reviewed the future profit and cash flow forecasts for the next five years and applying a discount rate of between 12.4%-14.1% to the cash flow projections when determining the net present value of these cash flows, it believes there is sufficient headroom in the value of the business to not have to impair the goodwill, with the exception of Easy Managed Transport Limited and Import Services Limited ("ISL"). Accordingly, no impairment provision was recognised in the year (2018 - £1,845,000).

Key assumptions used in the impairment calculations are as follows:

The WACC of the Group has been calculated at a rate of between 12.35%-14.12% with each CGU being adjusted to take into consideration a specific Company premium risk factor.

Sensitivity to changes in key assumptions

The Group has conducted sensitivity analysis on the impairment test of the CGU's classified within continuing operations. The directors believe that there is significant headroom on the carrying value of each CGU except for Import Services Limited ("ISL") and Easy Managed Transport Limited ("EMT") CGU's, where their recoverable values were approximately at their carrying value. Given the headroom in the other CGU's, it would require a significant change in the assumptions for an impairment charge to be considered material and the level of change is considered unlikely. The ISL CGU has a carrying value of £5,953,000 and EMT has a carrying value of £2,258,000 and is based on the following assumptions, the effect of a reasonably possible change in the assumptions as disclosed in the next table:

Import Services Limited

The Directors have reviewed the fair value of the goodwill and deferred consideration relating to the acquisition of ISL in line with IFRS 3 Business Combinations, paragraph 45. Based on the interpretation of the standard, the Directors believe that there is new information available relating to the assumptions used to calculate the consideration payable. As a result of the new information, the Directors have increased the value of goodwill and consideration payable to the vendors of Import Services Limited by £990,000.

The goodwill by CGU is shown below:

COVID-19

Subsequent to the year-end and in line with other Covid-19, the Board have reviewed the Impairment assumptions and consider that there is still significant headroom in these forecasts. As a result, no impairment provisions have been recognised.

13. PROPERTY, PLANT AND EQUIPMENT