Bigblu Broadband plc Annual Report and Accounts 2018 Company Information Directors M Tobin OBE A Walwyn F Waters S Clifton P Howard S Morana C Mills (Appointed 23 May 2018) Company registration number 09223439 Company secretary B Harber Registered office Broadband House 108 Churchill Road Bicester Oxfordshire United Kingdom OX26 4XD Broker & Nominated adviser Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Joint Broker Dowgate Capital Stockbrokers Limited 15 Fetter Lane London EC4A 1BW Solicitors Shepherd and Wedderburn LLP 10 St. Paul’s Churchyard London EC4M 8AL Registrars Share Registrars Limited The Courtyard 17 West Street Farnham Surrey GU9 7DR Auditors haysmacintyre 10 Queen Street Place London EC4R 1AG Content Company Information Company Overview Strategic Report Chairman’s Statement Chief Executive Report Financial Review Principal Risks and Uncertainties Governance Directors’ Report Board of Directors’ Statement of Directors’ Responsibilities Corporate Governance Statement Independent Auditor’s Report Consolidated statement of comprehensive income Consolidated statement of financial position Company statement of financial position Consolidated statement of cash flows Company statement of cash flows Consolidated statement of changes in equity Company statement of changes in equity Notes to the financial statements 2 4 6 8 10 16 19 22 24 25 42 45 46 47 48 49 50 51 52 COMPANY OVERVIEW Bigblu Broadband plc (AIM: BBB), is a leading provider of alternative super-fast satellite and fixed wireless broadband solutions for consumers and businesses unserved or underserved by fibre broadband throughout Europe and Australia. The Company has a significant target market with 27m customers in Europe with speeds of under 4 Mbps, and a further 1m in Australia who have been identified as only suitable for either satellite or fixed wireless broadband. Acquisitive and organic growth have enabled the Company to grow rapidly since inception in 2008 during which time the Company has completed 20 acquisitions across nine different countries. It is well positioned to continue growing as it targets customers that are trapped in the ‘digital divide’ with limited or no fibre broadband options. The Company’s range of solutions includes satellite, next generation fixed wireless and 4G/5G delivering between 30 Mbps and 300 Mbps for consumers, and up to 1 Gbps for businesses. It provides customers ongoing services including hardware support, pre and post-sale support, installation, billing and portal support whilst offering various tariffs depending on end user requirements. Importantly, as core technologies evolve, and cheaper capacity is made available, the Company will continue to offer ever increasing speeds and higher data throughputs to satisfy market demands including ‘video-on-demand’. BBB’s alternative broadband offerings present a customer experience that is similar to that offered by wired broadband and the connection can be shared in the normal way with PCs, tablets and smart-phones via a normal wired or wireless router. High levels of recurring revenue, increasing economies of scale and Government support for the alternative broadband market in many countries provides a solid foundation for the Company as it targets further organic growth to 150,000 customers by 2020 as demand for alternative super-fast broadband services increases around the world. 4 Bigblu Broadband plc | Annual Report & Accounts 2018 Company Overview 5 STRATEGIC REPORT Chairman’s Statement I am very pleased to be able to report another year of growth for the Group both organically and through acquisition. 2018 has been a significant year for the Group. Customer numbers have increased to over 113k and we have successfully shown that in addition to growing the Group organically, we can consolidate our industry; identifying, negotiating, acquiring and integrating new companies into the Group. During the year, we generated strong growth in our core markets, with an 8.2% increase in like for like revenues in the year (2017: 12.7%). In addition, we raised approximately £12m of equity from existing and new investors and obtained a £3.25m extension to our Revolving Credit Facility with HSBC, with £0.4m being utilised in the year. These facilities were used to fund two major acquisitions (one in Italy and one in Germany, completing our European footprint), and also for working capital and investment opportunities mainly in supporting the launch of the Hybrid Retail Agreement and also the Preferred Partner program. The acquisitions of Open Sky, a leading satellite broadband provider in Italy with c.14,500 customers and Sat Internet, a well-established provider of satellite broadband based in Germany, with c. 6,000 customers in Germany and Austria and a further c. 500 customers in Portugal, represent new territories for the Group and will form new hubs with a combined customer base of c. 21,000 whilst adding significantly to the Groups operational footprint and scale within Europe. Raising new equity and debt capital has been key to the Group’s success and growth in 2018 and I would like to thank both our existing and new shareholders for their support. The Hybrid Retail Agreement “HRA” signed earlier in the year with Eurobroadband Retail “EBR” (agreement between Viasat Inc and Eutelsat Communications) provides an excellent opportunity for organic growth in low filled beam areas. Specifically, we have launched hybrid operations in Norway, Sweden, Finland, Poland and Spain. In its first step toward building a retail consumer broadband business across Europe, EBR selected the Group to assist with localised retail services and subscriber management. Specifically, the Group provides in-language/in-market sales, installation, billing, customer care and logistics services. EBR provide marketing support, satellite network capacity and customer premise equipment, among other ancillary requirements supplying the customer population. The Group invested significant set-up costs of c £1.9m in the year as it launched in five new territories including establishing new corporate entity in Spain, local Pathfinder instances in each jurisdiction, telco licences, significant branding exercises together with headcount expenses in start-up ahead of revenue generation. At the end of the year with c 3,700 customers this represented an investment of c£432 per new customer. Following this investment, the Group has seen continued increases in net adds under the HRA program and improving ARPU’s. On 6th December 2018 the Group announced that it had been selected as a preferred partner by Eurobroadband Infrastructure (“EBI”), a subsidiary of Eutelsat (NYSE/Euronext: ETL), to launch a market leading superfast satellite broadband service to consumers and businesses across Europe, outwith the HRA territories significantly extending our market offerings throughout Europe. Under this commercial arrangement EBI will provide satellite network capacity, as well as assist with subscriber premises equipment, installation and marketing to support the ‘Konnect’ brand. The Group will promote and sell satellite broadband services while managing all activities related to subscriber management including installation, billing and support. Based on a shared growth model, the Group will be an integral part of EBI’s strategy of revitalising the distribution network over its KA-SAT satellite to boost the deployment of internet access via satellite across Europe in line with EU 2020 targets. 6 Bigblu Broadband plc | Annual Report & Accounts 2018 Strategic Report: Chairman’s Statement During the year under review a significant amount of effort has gone into improving internal operations following the appointment of a new Chief Operating Officer in January 2018. This focus on improving operations and customer experience will enable further revenue and operating margin enhancements to be generated from the growing customer base. As stated last year, I am a strong believer that good corporate governance supports a Group’s long-term success. This is even more important for 2019 and beyond, given the speed of our growth, the increased amounts of capital raised and the geographic spread and size of our business. The structures, advisers and committees we have in place for establishing and articulating the Board’s strategy and monitoring the performance of the Group’s management continue to evolve. Christopher Mills joined in May 2018 and has brought considerable experience to the Group. Mr Mills founded Harwood Capital Management in 2011, a successor from its former parent company JO Hambro Capital Management, which he co-founded in 1993. He is investment manager of North Atlantic Smaller Companies Investment Trust plc and is non-executive director of several companies, including Augean plc, EKF Diagnostics Holdings plc, Goals Soccer Centres plc, Journey Group plc, Ten Entertainment Group plc and MJ Gleeson plc. Previously, Mr Mills was a director of Invesco MIM, where he was head of North American investments and venture capital, and of Samuel Montagu International. Part of our governance regime is our continued regular communication with shareholders as our strategy continues to progress. To this end, we have embarked on an inclusive investor relations programme in 2019 and welcome all shareholders to the Group’s AGM on 22 May 2019, which will be held at the offices of Harwood Capital LLP, 6 Stratton Street, London W1J 8LD. My colleagues and I look forward to welcoming you there. Finally, I would like to thank Andrew Walwyn, his management team and all the staff in the Group for their efforts in 2018. Everyone played their part in a demanding yet successful year in the Group’s life. I, and the rest of the Board, are looking forward to the remainder of 2019 with confidence. Michael Tobin OBE Chairman 25 March 2019 7 Chief Executive Report Overview 2018 was a pivotal year for the Company, completing the European footprint expansion with two significant acquisitions, establishing new consumer models in five territories and integrating acquired businesses onto the Company’s operational platforms to underpin further organic growth. The acquisitions of Open Sky and Sat Internet completed during the period further strengthened the Company’s operating capabilities, adding new territories whilst completing the footprint expansion across Europe. Our geographic expansion was especially pleasing given the significant set-up costs and delays experienced in the first half of the year due to operational difficulties within the EBB partnership between Viasat and Eutelsat, which were completely out of our control. However, the Company has ultimately benefited from being involved in the strategic ambitions of two of the World’s largest satellite operators and the Company expects to benefit significantly going forward as its partners launch new services across Europe. During the period the Company completed a £12m equity fundraise with new and existing investors to fund the acquisitions of Open Sky and Sat Internet and extended its revolving credit facility with HSBC to ensure the Company is well funded with a stronger balance sheet going into another period of growth. Total Revenue Total revenue increased by 26.1% to £55.4m (FY 2017: £43.9m) with recurring revenue, defined as revenue generated from the Group’s broadband airtime, which is typically linked to contracts, up 19% to £49.5m representing 89.5% of total revenue. Adjusted EBITDA for the period was £6.8m representing an EBITDA margin of 12.3% compared to £4.7m in FY 2017 and an EBITDA margin of 10.6% demonstrating the good progress made, the benefits of recent acquisitions and the Group’s ambitious growth strategy. Customer numbers increased year on year by 13% to c.113k compared to FY 2017 (c.100k). Importantly, the Company met its total revenue targets once again despite the challenges faced during the period. Continued Organic Growth The Company continued to grow with an 8.2% increase in like-for-like revenue when compared to the prior period. This increase was primarily driven by continued customer additions and increased data demands from existing customers as well as further Government support. Acquisitive Growth Following a successful £12m (net £11.5m) equity fundraise, the Company acquired Open Sky and Sat Internet in May 2018 for an aggregate initial consideration of c£10m. These earnings enhancing acquisitions contributed approximately 21,000 new customers and are performing in-line with expectations. 8 Both companies formed new hubs for the business from which they will develop operations in Italy, Germany, Austria and Portugal, which the Company views as attractive growth markets. These businesses also bring excellent leadership and team members with significant ‘in market’ experience including product knowledge, marketing strategies and reseller programmes that will ultimately help improve the Company’s operational and financial performance. The Company is therefore now well positioned to deliver total last-mile broadband solutions across all the major markets in Europe, using either satellite or fixed wireless technology. Accelerating Technology Evolution New satellites from our partners, which are fully funded and already in build, will likely usher in a completely different satellite broadband proposition. From the middle of 2020, the Company expects to be able to offer a fibre like service from the sky, with 100 Mbps download speeds and unlimited data allowances across key European markets. Furthermore, from 2021, we expect to be offering our customers between 200 Mbps and 300 Mbps download speeds. Our fixed wireless businesses are also benefiting from significant advances in technology improving speeds and throughput. The Company has now demonstrated the first 1 Gbps capable network with a pioneering mmWave technology, utilising the newly released 60 GHz spectrum. Importantly, all customers who have been connected to the Company’s networks in Norway and the UK within the last year are now able to be connected at up to 100 Mbps if desired. Continued Government Support We remain focused on helping Governments across Europe achieve their stated targets to deliver ‘universal broadband coverage’ with download speeds of at least 30 Mbps by 2020 and coverage to more than 50% of households with speeds of at least 100 Mbps by 2025. We remain convinced it will be difficult for Governments to meet these challenging targets without the use of super-fast alternative technologies such as satellite and fixed wireless broadband. Indeed, many Governments have already launched ‘intervention schemes’ to artificially stimulate the market and educate consumers about the options available to them given that fixed fibre broadband is unlikely to become a reality for many in the foreseeable future. During March 2018, the Company received a £2.1m BDUK grant to carry out field trials to develop and establish the operating standards of the next generation of 5G fixed wireless broadband services utilising unused TV whitespace spectrum to increase super-fast wireless broadband penetration in very rural areas. Bigblu Broadband plc | Annual Report & Accounts 2018 Across Europe, there are now Government funded support schemes in the UK, France, Germany, Spain and Hungary where the hardware and installation costs of getting online with satellite or fixed wireless are subsidised. A similar scheme exists in Australia, where since entering the Australian Satellite Broadband market in March 2017 following the acquisition of BorderNET, the Company commanded 50% market share of net new adds under the Government funded NBNCo scheme during the last six months of the financial period. Looking forward, other countries and Governments are expected to launch similar schemes in the near future. Board Appointment and Expanded Senior Management Team Christopher Mills – Non-Executive Director Our largest shareholder, Christopher Mills, joined the Company as a Non-Executive Director on 23 May 2018. Mr Mills founded Harwood Capital Management in 2011, a successor from its former parent company JO Hambro Capital Management, which he co-founded in 1993. He is the investment manager of North Atlantic Smaller Companies Investment Trust plc, and is non-executive director of several companies. Total holdings in BBB, at the date of the announcement, are 22.9%. Mark Anderson – Chief Operating Officer In order to effectively manage the significant International growth opportunity, the Company appointed Mark Anderson as Chief Operating Officer (“COO”) during the period, who has already made a positive impact across the Company. Post Balance Sheet Events Eurobroadband Infrastructure In December 2018, the Company announced Eurobroadband Infrastructure (“EBI”), a subsidiary of Eutelsat (NYSE/ Euronext: ETL), had selected the Company as its preferred partner in its program to launch a market leading superfast satellite broadband service to consumers and businesses across Europe at download speeds of up to 50 Mbps. Under this commercial arrangement, EBI will provide satellite network capacity, as well as assist with subscriber premises equipment, installation and marketing to support the ‘Konnect’ brand. The Company will promote and sell satellite broadband services while managing all activities related to subscriber management including installation, billing and support. Based on a shared growth model, the Company will be an integral part of EBI’s strategy of revitalising the distribution network over its KA-SAT satellite to boost the deployment of internet access via satellite across Europe in line with EU 2020 targets. Whilst the PPP agreement was only signed in December 2018, tangible progress has already been made and the Board expects EBI to contribute significantly to its accelerated organic revenue growth in 2019 and beyond. Strategic Report: Chief Executive Report Quickline In January 2019, Quickline, a subsidiary of the Company, acquired 100% of JHCS, for a consideration of £0.3m. JHCS is a wireless network provider that supplies fast broadband to homes and businesses in rural Nottinghamshire and Lincolnshire. The network will be managed by Quickline without any disruption to the service. Over the years, Quickline has been working hard to bring superfast internet to rural and remote areas, which includes its key role in the development of 5GRIT – the 5G Rural Integrated Testbed. The acquisition of JHCS was an important step in this ongoing mission to deliver fast, reliable and secure broadband to small villages, farms, holiday parks and other sites that are often ignored by larger service providers. By offering speeds of up to 100 Mbps, the company is helping rural businesses enhance the way they operate on a daily basis. Outlook The Company has now successfully positioned itself at the forefront of the alternative super-fast broadband industry. Our exciting product portfolio and expanding routes to market mean the Company is now one of the largest and most recognised companies in the industry. Looking forward to the current year, there remains plenty of scope to take advantage of global growth opportunities including, but not limited to, launching new super-fast satellite broadband services within the European arena, rolling-out next-generation fixed wireless networks and further growth across Australia. Importantly, sales through partnership agreements are gaining strong traction through compelling consumer product offerings and increased marketing spend, which underpins our rapid organic customer growth expectations in the current year. Given the above, the Company looks forward to the remainder of the current financial year with a clear focus on accelerating organic revenue growth and continuing to leverage its increased scale from the recent acquisitions while also benefiting from improved management systems to ensure the Company can continue to deliver shareholder value. Andrew Walwyn Chief Executive Officer 25 March 2019 9 Financial Review In the year, total customers increased from c100k at the start of the year to c113k as at 30 November 2018. The sales mix across the Company, following the disposal of fibre customers in Australia, was c.78% Satellite and c.22% Fixed Wireless during the period. The Company incurred significant charges during the period, including costs related to fundraising, acquisitions, business consolidations and the initial start-up costs associated with Partnership agreements, are described in more detail in the following section. Interest costs increased slightly during the year to £2.2m (FY 2017: £2.1m) as a result of increased interest charges for the draw down on the Revolving Credit Facility with HSBC during the period, which increased by £0.4m to £4.9m. The difference between the charge and the interest paid in the cash flow statement relates to the accrued redemption premium on the BGF debt. The tax credit arises from the release of deferred tax on fully and partly amortised customer base intangible assets. A reconciliation of the statutory operating loss before taxation for FY 2018 of £13.0m (FY 2017: £8.0m loss) to adjusted EBITDA is shown below: Audited 12 months to 30 November 2018 Audited 12 months to 30 November 2017 £000 £000 Statutory operating loss (12,999) (8,023) Depreciation Amortisation Share based payments Fundraise, legal and related costs associated with acquisition and disposal activity Employee related costs associated with consolidations in the regions Partnership investment start- up costs Deferred Consideration Provision 6,629 7,491 395 1,617 2,716 8,049 353 975 980 601 1,893 800 - - Adjusted EBITDA 6,806 4,671 Total revenue increased by £11.5m or 26.1% to £55.4m (FY 2017: £43.9m), driven by organic growth as well as the net impact of acquisitions and disposals during the period. Like for like revenue growth was 8.2% (FY 2017: 12.7%) as the Company continued to add net new customers during the year, albeit at a reasonably modest rate, and a slightly increased average revenue per user (“ARPU”) with other income including installations, services, network support and grants increasing during the period. ARPU, calculated by dividing total revenues from all sources by the average customer base, increased in 2018 to approximately £42 per month (FY 2017: £41) as we began to offer better packages with increased revenue from services, installations and grant income. Churn rates (defined as the number of subscribers who discontinue their service as a percentage of the total number of subscribers within the period), excluding disposed fibre customers, increased to an average of 21.6% per annum (FY 2017: 16.8%) during the period. This was due to in part to customer service issues as we migrated customer bases over to new systems and the slower network launch of new products and support. The Company recruited a call centre Director and expanded the customer experience team during the period to reduce the risks of these issues re-occurring. Gross profit margins improved from 35.5% (FY 2017) to 40.6% (FY 2018) as a result of improved product sales mix and additional high margin other income, including grant income and support. items Distribution and administrative expenses, pre identified as exceptional in nature, increased by 43.9% to £15.7m (FY 2017: £10.9m) representing 28.3% of revenue (FY 2017: 24.8%) due to a combination of the increased overheads relating to the completed acquisitions, and specific investments in central overheads across Senior Management, customer services, IT, HR and finance. Underlying depreciation increased to £3.5m in FY 2018, from £2.7m in FY 2017 as a result of capital investment made during the period and a full depreciation charge for Quickline as it was acquired in August 2017. In addition, a further £3.1m depreciation charge was also provided following a full review of the useful economic life of fixed wireless assets in the UK and Norway. Amortisation decreased to £7.5m in FY 2018, from £8.0m in FY 2017, mainly due to the completed amortisation of acquisitions made in FY 2016, which are written off over 24-month period, offset against increased amortisation for acquisitions completed in FY 2017 and FY 2018. 10 Bigblu Broadband plc | Annual Report & Accounts 2018 Strategic Report: Financial Review Company Statutory Results and EBITDA Reconciliation Adjusted EBITDA (before share based payments, depreciation, intangible amortisation, acquisition, employee related costs, deal related costs and start-up costs) was £6.8m (FY 2017: £4.7m). The Company incurred significant expenses in the period, that are considered exceptional in nature, are highlighted below: ● £1.6m of fees relating to the fundraising and M&A activity completed during the period ● £1.0m employee termination and redundancy costs where divisions or hubs have been consolidated including provisions made for the disposal of the Australian Fibre business ● £1.9m of specific set up costs incurred in relation to the HRA agreement with Viasat and the PPP agreement with Eutelsat. These were costs incurred in setting up business operations in Spain, Poland, Norway Finland, Sweden, Italy, Germany and Portugal including statutory entities, legal, telco licenses, websites, rebranding, finance, IT and internal headcount cost incurred in going live in all these territories. ● £0.8m provision as part of an ‘earn-out’ consideration for the acquisition of Quickline completed in 2017. As part of the total consideration, an additional earn-out payment is due to the vendors should certain performance targets be met over a three-year period. A provision of £2.7m was made in last year’s accounts and further positive performance through 2018 has resulted in a further deferred consideration of £0.8m, which has now been provided for. Post period end £2m has been paid to the vendors. Included within these identified costs are c£1.3m, which were not paid in the period but are anticipated to be paid in the current financial year. Reported loss per share (basic and diluted) reduced from 19.7p to 25.8p as a result of increased depreciation and non- recurring items. Revenue and Adjusted EBITDA in FY 2018 and the comparative period is segmented by geography as follows: Segmental Analysis Customers FY 18 Customers FY 17 Change Actual Change % Revenue FY 18 Revenue FY 17 Change Actual Change % Like for Like Revenue % growth *** Adjusted EBITDA FY 18 * Adjusted EBITDA FY 17 * Change Actual Change % Closing Employees FY 18 Closing Employees FY 17 Change Actual Change % UK Europe ** Australia PLC **** 26,312 28,574 (2,262) (8%) £16.4m £14.1m £2.3m 16% 3.6% £2.5m £3.2m (£0.7m) (23%) 99 74 25 34% 55,055 33,052 22,003 67% £23.8m £14.4m £9.4m 65% 5.7% £6.5m £3.0m £3.5m 115% 111 76 35 46% 32,153 38,614 (6,461) (17%) £15.2m £15.4m (£0.2m) (1%) 18.2% £1.5m £0.6m £0.9m 148% 58 62 (4) (6%) (£3.7m) (£2.1m) (£1.6m) 4 4 0 0% Total 113,520 100,240 13,280 13% £55.4m £43.9m £11.5m 26% 8.2% £6.8m £4.7m £2.1m 46% 272 216 56 26% * Adjusted EBITDA is before share based payments, depreciation, intangible amortisation, acquisition, employee related costs, deal related costs and start-up costs ** Europe comprises territories in which the Group operates in plus the results of the European partnership sales in Norway, Sweden, Finland, Poland and Spain *** Like for like adjusted to exclude impact of disposal of fixed line division **** Includes plc and central costs such as executive, finance, IT and central marketing costs 11 Performance against Key Performance Indicators The Group utilises a number of Key Performance Indicators (‘KPI’s’), the definitions of which are included in the glossary, to measure performance against our strategy. A description of these KPI’s and performance against them is set out below. KPI 2018 2017 Description Customer Base 113,520 100,240 Represents organic total connections plus less disposals, less lost customers (churn) and base management since inception. acquisitions gross 2018 performance + 13% growth Customer Net Connects 13,280 21,523 Represents gross organic connections less disposals, less (churn) and base plus acquisitions lost customers management in the period. Acquisitions accounted for c21k, disposals c11k and organic growth c3k in the current year Revenue £55.4m £43.9m Revenue represents that element of billings recognised in the period, including from bases or companies acquired from their date of acquisition and government grants Organic Revenue Growth* 8.2% 12.7% Adjusted EBITDA** £6.8m £4.7m EBITDA % 12.3% 10.6% Organic revenue growth compares current and prior period revenue, treating acquired businesses as if they had been owned for the relevant period in both years Earnings before share based payments, intangible amortisation, depreciation, acquisition, employee related costs, deal related costs and start-up costs is the measure of the Group’s operating performance. It evaluates performance without factoring in financing decisions, accounting decisions or tax environments or provisions for potential legal costs, share based payments, acquisition costs and fund-raising fees. Includes two acquisitions this year generating revenues of c£5.8m. Remainder comes from organic and acquisitions growth in 2017 annualised and government grants Continued growth in current year, impacted by increased churn in core markets and delays in JV Includes contributions from two acquisitions this year. Remainder comes from current year organic and acquisitions in 2017 annualised. Operating Cash Flow £4.9m £2.3m Operating cash flow relates to the amount of cash generated from the Group’s operating activities and is follows: Profit/(Loss) calculated as before Tax adjusted for Depreciation, Amortisation, Share Based Payments and adjusting for changes in Working Capital and non-cash items. Operating cash flow improved due to increased EBITDA and working capital management. Free Cash Flow £1.1m (£2.0m) Cash generated by the Group after investment in capital expenditure and servicing debt. Free Cash Flow improved due in large part to improved Operating Cash Flow and a reduction in CAPEX. EPS (25.8p) (19.7p) Earnings per share (EPS) is the portion of a Group’s profit allocated to the weighted average of each outstanding share, allowing for the May share issue and capital structure change of 15 shares for each 1. EPS during the year was from a loss of 25.8p in 2018 compared to 19.7p in 2017 * organic revenue growth compares current and prior period revenue, treating acquired businesses as if they had been owned for all of both periods on a constant currency basis ** Adjusted EBITDA represents earnings before interest, taxation, depreciation, amortisation, share based payments and other exceptional costs 12 Bigblu Broadband plc | Annual Report & Accounts 2018 Strategic Report: Financial Review Operating and Free Cash Flow The Group delivered adjusted EBITDA in the year of £6.8m (2017: £4.7m). Operating cash flow including M&A related costs and working capital movements was £4.9m inflow (2017: £2.3m inflow), which represents a conversion of 72% (2017: 48%) of adjusted EBITDA. Interest paid in the period amounted to £1.5m (FY 2017 £1.4m) and the Group received approximately £11.5m from the issue of shares (2016 £7.5m) and other bank support of £0.4m (FY 2017 £4.5m) which enabled it to invest in further growth. At 30 November 2018, the Group had cash in the bank of £5.1m (2017 £3.5m). Operating Loss from Continuing Operations Add back: non-cash items and M&A related costs Adjusted EBITDA Fundraise, legal and related costs associated with acquisition and disposal activity Employee related costs associated with consolidations in the regions Partnership investment start-up costs Deferred consideration provision Other cash flow items including working capital and foreign exchange variances Operating Cash Flow Interest paid Tax Paid Capital expenditure Free Cash Flow Cash performance 2018 £000 2017 £000 (12,999) (8,023) 19,805 12,694 6,806 (1,617) (980) (1,893) (800) 3,354 4,870 4,671 (975) (601) - - (830) 2,265 (1,478) (1,406) (18) - (2,282) (2,826) 1,092 (1,967) Operating cash flow, including exceptional costs and after movements in working capital, increased from £2.3m in FY 2017 to £4.9m in FY 2018. This represents a conversion of 72% (FY 2017 48%) of Adjusted EBITDA. This improvement largely reflects working capital improvements of £6.1m, some of which will reverse in the current year and which have more than offset cash exceptional costs. Interest paid in the period amounted to £1.5m (FY 2017 £1.4m). Capital expenditure of £2.3m in the current year compares to £2.8m in 2017 as the Company continues to invest in tower and mast infrastructure following the acquisition of Breiband in 2016 and Quickline in 2017, in addition to providing customers with equipment for the services provided. Acquisition expenditure included £11.6m related to the acquisitions made in Germany and Italy together with deferred consideration and earn out payments. In addition, we incurred £1.8m of intangibles expenditure for software and network development. Financing cash flow includes £11.5m proceeds from equity issuance, £1.5m cash and £0.4m loans within subsidiaries acquired and £0.4m proceeds from loan drawn down. 13 Net Debt and Cash Total Debt increased in the year by £0.8m to £17.0m, due to a £0.4m increase in the RCF with HSBC and a loan of £0.4m acquired on the acquisition of Open Sky. Net debt decreased year on year from £13.1m as at 30 November 2017 to £11.9m as at 30 November 2018. This was primarily a result of the improved operating cash flow after movements in working capital of £4.9m in FY 2018 compared to an inflow of £2.3m in FY 2017. Acquisition activity continued to be funded through our financing activities. The receipt of equity proceeds of c£11.5m, was used to fund the acquisitions of Sat Internet Services and Open Sky, as well as additional funding for working capital. Opening Net (Debt) / Cash Facilities Received Debt on acquisition Facilities Repaid Movement in Cash Movement in Net Debt Closing Net Debt 2018 £m (13.1) (0.4) (0.4) 0.4 1.6 1.2 (11.9) 2017 £m (10.2) (4.5) - 1.4 0.2 (2.9) (13.1) Applying our bank’s adjusted measure of financial leverage, the Group’s year-end net debt to EBITDA ratio was 1.82x, reducing from 2.78x at the previous year-end. 2018 £m 5.1 (4.9) (11.7) (0.4) (11.9) 1.75x 2017 £m 3.5 (4.5) (11.7) (0.4) (13.1) 2.79x Net cash and cash equivalents Bank loans BGF loan Other loans / Finance Leases Net Debt Adjusted Net Debt / EBITDA Taxation Total debt increased in the year by £0.8m to £17.0m, due to a £0.4m increase in the RCF with HSBC and a loan of £0.4m acquired on the acquisition of Open Sky. Net debt decreased year on year from £13.2m as at 30 November 2017 to £11.9m as at 30 November 2018. This was primarily a result of the improved operating cash flow after movements in working capital of £4.9m in FY 2018 compared to an inflow of £2.3m in FY 2017. Acquisition activity continued to be funded through our financing activities. The receipt of equity proceeds of c£11.5m, was used to fund the acquisitions of Sat Internet Services and Open Sky, as well as additional funding for working capital. As at 30 November 2018, the Group had a cash balance of £5.1m and £3.2m of headroom under the HSBC facility. The increase in cash is largely due to the continued support of our Network Partners. However, we recognise as we work closer with our network partners across existing and new territories, there will be a desire to reduce creditor days. We will continue to work with them to ensure payment terms are appropriate for our size of business alongside the ongoing marketing and product support obligations to ensure the Company can deliver consistently improving products and services to its customers. Earnings per share On 28 May 2018 the Group reorganised its share capital by way of a consolidation (the “Consolidation”). Upon implementation of the Consolidation, every 15 ordinary shares of 1p each in the capital of the Group (“Existing Ordinary Shares”) then in issue were consolidated into 1 new ordinary share of 15p (“New Ordinary Share”). The weighted average number of shares for last year and the earnings per share has been restated to reflect the Consolidation. Basic earnings per share from continuing operations was a loss of 25.8p in the year, compared with a loss in 2017 of 19.7p. Adjusted earnings per share (i.e. before amortisation of intangibles, share based payments, start-up costs and accelerated depreciation) moved from a profit of 6.0p last year to a profit of 5.2p this year. The reported tax credit in the year was £1,870k (2017: £2,451k credit) against a reported pre-tax loss of £15.2m (2017: £10.1m). The underlying effective tax rate measured against adjusted loss before tax is 19% (2017: 19%). Basic earnings per share (25.8p) (19.7p) Basic adjusted earnings per share 5.2p 6.0p 2018 2017 Balance Sheet Accounting standards Net assets on the balance sheet are £10.1m (FY 2017: £9.3m). Goodwill increased mainly due to the FY 2018 acquisitions (£11.6m), offset against amortisation of £7.5m. Inventory days increased to 22 days (FY 2017: 18 days) and debtor days increased to 32 days (FY 2018) from 25 days (FY 2017). Creditor days increased to 107 days (FY 2018) from 95 days (FY 2017) due to extended terms from our airtime providers and delayed payments to a key supplier in Australia in respect of the disposal of the fibre business. Within other creditors of £9.2m, £6.4m relates to total deferred consideration provisions. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as endorsed and adopted for use in the EU. There have been no changes to IFRS this year that have a material impact on the Group’s results. IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from Contracts with Customers) come into effect from January 2018 and will not be relevant to the Group until accounting year ended 30 November 2019. IFRS 16 (Leases) comes into effect from January 2019 and will not be relevant to the Group until accounting year ended 30 November 2020. 14 Bigblu Broadband plc | Annual Report & Accounts 2018 Going concern Dividend Strategic Report: Financial Review At this stage given the investment in organic growth opportunities being considered, the directors do not recommend the payment of a dividend (2017: Nil) The Directors have prepared and reviewed projected cash flows for the Company reflecting its current level of activity and anticipated future plan for the next 12 months. The Company is currently loss-making, mainly as a result of amortisation and other charges including additional depreciation, and will continue to be so for the foreseeable future. The business continues to grow the number of users in a number of key target markets and continues to review the short-term business model of the company by which the company becomes profitable and delivers a return on the investments. The Board has concluded that no matters have come to their attention which suggest that the Company will not be able to maintain its current terms of trade with customers and suppliers. The Company’s forecasts for the newly combined Company, including due consideration of the short term continued operating losses of the Company, taking account of possible changes in trading performance, indicate that the Company has sufficient cash available to continue in operational existence throughout the forecast period and beyond. As a consequence, the Board believes that the Company is well placed to manage its business risks and longer- term strategic objectives, successfully. Accordingly, they continue to adopt the going concern basis in preparing these results On behalf of the Board Frank Waters Chief Financial Officer 25 March 2019 15 Principal Risks and Uncertainties The Board and management regularly review and monitor the key risks involved in running and operating the business. The future success of the Group is dependent on the Board’s ability to implement its strategy. The model for the future development of the Group is reliant on its ability to achieve a critical mass of customers, its ability to derive revenue from these customers by providing excellent technical support, a value-added service, solution delivery and delivering operational gearing. The table below sets out a number of the material risks together with relevant mitigating factors. Dependence on satellite owners and satellite infrastructure Risk: The Group is dependent on its ability to purchase broadband capacity from satellite owners. The terms upon which satellite owners sell such capacity may change to the Group’s detriment and the Group may not be able to secure capacity from the satellite owners with which it currently deals. In the event of the failure of a satellite, the Group may not be able supply broadband access to part of its customer base, which would have an adverse impact on the Group’s relationship with its customers and its revenues, its operational results of operations and its prospects. the network providers Mitigation: The Board is in regular dialogue with to ensure appropriate capacity exists in target markets at an affordable price. New satellites and capacity changes from time to time, so it is vital the relationship with the satellite owners, both in Europe and Australasia, continues to prosper. Overbuild by fibre in areas where the Group has presence Risk: Operators, either commercially or funded through Government Schemes, overbuilds the Group’s existing wireless network. This increases price competition and could provide faster speeds (potentially up to Ultrafast) that wireless internet is currently capable of. This would reduce Group revenues and could potentially make certain areas unviable. Mitigation: Group strategy is to focus in rural areas where fibre is not commercially viable thereby avoiding direct competition with fibre operators where possible. Key contract terms Risk: The Group’s current contractual agreements with the satellite owners are typically non-exclusive, are terminable immediately or within a short timeframe of giving notice, do not contain restrictive covenants which would prevent the satellite owners from directly competing with the Group and do not contain express provisions obliging them to continue providing services to the Group Mitigation: The Board work closely with satellite owners as partners to develop short, medium and longer-term sales plans, target opportunities and markets. This is especially so with the agreement signed with Euro Broadband Retail “EBR” hybrid retail agreement. ”HRA”. Lack of spare capacity within satellite fleets Risk: Currently there is significant spare capacity within the satellite fleets for a much larger number of customers, while competition between satellite owners serves to keep the wholesale cost of the capacity in proportion to (albeit typically still more expensive than) a fibre broadband offering. However, the nature of satellite broadband coverage means that whilst there is excess capacity overall, in specific locations certain satellites can have very limited availability if their capacity is already full or in the peripheral areas of satellite coverage. In the event that there is insufficient capacity, the Group may be unable to provide services to existing customers or to accept new customers which may have an adverse effect on the Group’s relationship with its customers, revenues, results of operations and prospects. Mitigation: The Board works closely with the satellite owners to identify potential congestion issues and in the development of ways to overcome these challenges. The Group seeks to maximise coverage its customers by having availability to relationships with a range of satellite broadband providers. The work done recently by EBR together with the commercial Agreement signed, will also ensure the Group will be focused on those areas with excess capacity for organic growth. 16 Bigblu Broadband plc | Annual Report & Accounts 2018 Strategic Report: Principal Risks and Uncertainties Mitigation: Roll up strategies are inherently risky. This risk is mitigated as far as possible by working closely with existing management teams, professional advisors and network operators to reduce the risks during the acquisition stage. Dedicated resources are employed internally to support the due diligence process and to on-board the businesses into the Group and further enhance our operating system capabilities to reduce on going risk. Acquisitions Risk: The Group believes there is an opportunity to continue acquisition of customers by way of accretive bolt-ons in existing markets. However, there can be no guarantee the Group will be able to agree terms with potential sellers of assets, or that, if terms are agreed, that the new customer base can be retained and integrated into the Group’s operations. This would slow down inorganic growth plans. The Group intends to conduct appropriate due diligence in respect of its acquisition targets and to identify any material issues that may affect the decision to proceed with the purchase. During the due diligence process the Group is only able to rely on the information that is available to it. That information may not be accurate or remain accurate during the due diligence process. More broadly, there can be no guarantee that due diligence undertaken will be adequate or reveal all relevant facts or uncover all significant liabilities. If due diligence fails to identify key information, or if the Group considers such material risks to be commercially acceptable, the Group may be forced to write-down or write-off assets of the target acquired. This may have a material adverse effect on the Group’s business, financial condition or results of operations. In addition, following an acquisition, the Group may be subject to significant, previously undisclosed liabilities of the acquired business that were not identified during due diligence and which could have a material adverse effect on the Group’s financial condition and results of operations, especially if the due diligence is required to be undertaken in a short timeframe or in a competitive situation. Competition from existing/emerging alternative technologies Risk: There may be competition from existing and emerging alternative technologies, such as 4G, and 5G, improved versions of the wide area radio network or mesh radio technologies. In the event that such technologies become widely available, the Group’s subscriber base, revenues, results from operations and prospects may be adversely affected. Mitigation: The Board recognises this risk and seeks to mitigate it by regular dialogue in the marketplace with other solution providers to ensure the Group’s offering is adjusted accordingly to meet the market demands. Government policy and increased investment in fibre roll-out Risk: Given the importance of digital connectivity to the economy, it may be the case that many Governments further invest in fibre roll-out thus reducing the market size for satellite and wireless broadband. government Recent Mitigation: announcements in the UK and Australia indicate support will be provided for satellite and wireless providers. We remain confident this will continue within the jurisdictions in which we operate. System reliance Risk: The Group believes the proprietary technology platform, Pathfinder, built on Microsoft technology is a key contributor to the operational success of the business. In the event of a system failure of the platform or any other technology or system operated by a third party, short term operations would be affected adversely. This is especially important as we on-board new acquisitions. Dependence on key executives Risk: The performance of the Group will depend heavily on its ability to retain the services of the Board and to recruit, motivate and retain further suitably skilled personnel. The loss of the services of key individuals may have an adverse effect on the business, operations, customer relationships and results. and Mitigation: Continued sustained development and testing of the existing systems regularly. Enhancements are rolled out during the course of the year. undertaken is Mitigation: The Board will continue to ensure that the management team are appropriately incentivised and that there is scope to appropriately incentivise new key personnel where required. The Group operates a share option scheme which enables employees to benefit from continued growth. It also ensures that the management team, staff and shareholders objectives are aligned. 17 Fraud, including cyber attacks Risk: As a provider of broadband solutions, the Group is a potential target and products may have vulnerabilities that may be targeted by attacks specifically designed to disrupt the Group’s business and harm its reputation. Mitigation: The Group have dedicated technical staff who focus on investigation and mitigation of risks related to fraud and cyber-attacks. If an actual or perceived breach of security occurs in the Group’s internal systems, it could adversely affect the markets perception of the Group’s products or internal control systems. In addition, a security breach could affect the Group’s ability to provide support for customers. Future funding Risk: Should the Group decide to accelerate its growth strategy, new funding, either debt and/or equity, will be required. No assurance can be given that any such additional financing will be available or that, if available, it will be on terms acceptable to the Group. Furthermore, any additional equity capital may dilute shareholders’ ownership interests in the Group and may have an adverse impact on the value of the Group’s equity. The terms of financing may also adversely affect shareholders’ holdings or rights or may contain restrictive covenants. If adequate additional funding cannot be obtained, the Group may have to abandon or limit any planned acquisitions which may have a material adverse effect on the Group’s business, financial condition, future trading performance and prospects. Force majeure Mitigation: The Board will seek additional funding as appropriate and at the appropriate time to achieve the strategic goals of the Group. This may involve acceleration of the funding requirements should the relevant opportunities arise. that in mind the Directors will With continuously review funding and capital requirements acquisition to opportunities that it negotiates. relative Risk: The Group’s operations now or in the future may be adversely affected by risks outside its control, including space debris damaging or destroying satellites, labour unrest, civil disorder, war, subversive activities or sabotage, fires, floods, explosions or other catastrophes, epidemics or quarantine restrictions. Mitigation: This continues to be monitored by the Board with our professional advisors, satellite and wireless operators and insurance specialists. General economic conditions Risk: Market conditions, particularly those affecting telecoms and technology companies may affect the ultimate value of the Group’s share price, regardless of operating performance. The Group could be affected by unforeseen events outside its control, including, natural disaster, terrorist attacks and political unrest and government legislation or policy. Market perception of telecoms and technology companies may change which could impact on the value of investors’ holdings and impact on the ability of the Group to raise further funds. General economic conditions may affect exchange rates, interest rates and inflation rates. Brexit Risk: The Board is monitoring the impact that Brexit may have on the Group’s performance but awaits clearer guidance on what this might look like in reality once the decisions are made. Mitigation: This continues to be monitored by the Board with our professional advisors. Mitigation: A significant part of the business arises within the EU but is primarily linked to airtime provision in these countries rather than the specific trade in goods. The systems are developed in such a way to provide maximum flexibility in billings and collections and we are in regular dialogue with HSBC and our Network Partners to assess risks The Strategic Report was approved by the Board of Directors on 25 March 2019 and was signed on its behalf by: Andrew Walwyn Chief Executive Officer 18 Bigblu Broadband plc | Annual Report & Accounts 2018 Governance: Directors’ Report GOVERNANCE Directors’ Report The Directors present their report together with the audited financial statements for the year ended 30 November 2018. Results and dividends The consolidated statement of comprehensive income for the year is set out on page 45. No dividend has been declared or is proposed for the year (2017: Nil). Directors and their interests The Directors who served during the year are set out below, together with their beneficial interests in the ordinary shares of the Group. Biographical details are included on pages 22-24. On 28 May 2018 the Group reorganised its share capital by way of a consolidation (the “Consolidation”). Upon implementation of the Consolidation, every 15 ordinary shares of 1p each in the capital of the Group (“Existing Ordinary Shares”) then in issue were consolidated into 1 new ordinary share of 15p (“New Ordinary Share”). The consolidation has been reflected in the below figures. 2018 2017 Appointed Ordinary shares of 15p each Michael Tobin 29 Sept 2015 Andrew Walwyn 12 May 2015 Frank Waters 12 May 2015 Simon Clifton 29 Sept 2016 Paul Howard 29 Sept 2015 Stephen Morana 10 Feb 2017 Christopher Mills* 23 May 2018 Total 227,277 2,968,438 296,480 1,866,030 149,577 199,783 258,334 5,965,919 Share options 226,667 755,240 848,753 429,953 133,333 133,333 - Ordinary shares of 15p each 113,511 3,301,771 286,490 2,266,030 140,578 188,933 - Share options 226,667 333,333 509,787 100,000 133,333 133,333 - 2,527,279 6,297,313 1,436,453 * Mr Christopher Mills also has an indirect interest in a further 12,975,000 shares in the Group (through his interests in Oryx International Growth Fund Limited, Harwood Capital LLP and North Atlantic Smaller Companies Investment Trust). His total indirect and direct holdings is 13,233,334 shares representing 22.9% of the issued share capital. The Group has established an EMI option scheme and an ‘unapproved’ share option scheme, pursuant to which the CEO and other members of staff have been or may be granted share options. The number and exercise price of options over ordinary shares in the Group held by Directors at the end of the year were as follows: EMI Share options Exercise price (pence) Remaining share options Remaining exercise price (pence) Michael Tobin Michael Tobin Andrew Walwyn Andrew Walwyn Frank Waters Frank Waters Frank Waters Simon Clifton Paul Howard Paul Howard Stephen Morana Total - - 233,333 51,942 189,784 227,273 217 100,000 - - - 802,549 - 78.75 114.45 29.64` 78.75 114.45 114.45 - - - 133,333 93,333 - 48,058 86,450 6,061 66,667 66,667 133,333 633,902 78.75 114.45 114.45 114.45 78.75 114.45 78.75 131.25 19 Following consultation with a number of shareholders and as highlighted in last year’s report the Group has established a Long Term Incentive Plan (“LTIP”), pursuant to which the CEO and other members of staff have been or may be granted shares. The number and exercise price of ordinary shares in the Group held by Directors and other staff members at the end of the year were as follows: Andrew Walwyn Frank Waters Simon Clifton Other staff members Total LTIP Share options Exercise price (pence) 421,907 338,968 329,953 800,733 1,891,561 15.0 15.0 15.0 15.0 There are a number of performance conditions as well as time restrictions relating to the financial year ended 30 November 2018 attached to these options. No Director options were exercised, lapsed or forfeited during the year. Directors’ Remuneration The following table shows emoluments paid to Directors during the financial year: Current Directors: Salary/fees £’000 Bonus £’000 BIK £’000 Pension £’000 Total emoluments £’000 Year ended 30 November 2018 Michael Tobin (Non-Executive Director and Chairman) Andrew Walwyn (Chief Executive Officer) Frank Waters (Chief Financial Officer) Simon Clifton (Chief Technology Officer) Paul Howard (Non-Executive Director) Stephen Morana (Non-Executive Director) Christopher Mills (Non-Executive Director) Service Contracts 69 229 187 179 52 46 - - 85 70 80 - - - - 19 12 12 - - - - 7 5 5 - - - 69 340 274 276 52 46 - 762 235 43 17 1,057 Year ended 30 November 2017 Total emoluments £’000 60 330 266 219 40 32 - 947 The Chief Executive Officer, Chief Financial Officer and Chief Technology Officer have entered into service contracts with the Group that are terminable by either party on not less than 12 months prior notice. The non-executive Directors have entered into service contracts with the Group that are terminable by either party on not less than 3 months prior notice. Pensions and Private Healthcare There are pensions and private healthcare arrangements in place for the Chief Executive Officer and Chief Financial Officer and Chief Technology Officer. 20 Bigblu Broadband plc | Annual Report & Accounts 2018 Substantial shareholdings As at 30 November 2018 the Group was aware of the following interests in 3% or more of its issued voting share capital: Governance: Directors’ Report Shareholder Harwood Capital LLP BGF Investment Management Limited Mr Andrew Walwyn Herald Investment Management Ltd Mr Simon Clifton Livingbridge Hargreave Hale Ltd % holding 22.9 8.0 5.2 6.6 3.3 4.2 5.9 No. of shares 12,975,000 4,544,444 2,968,438 3,757,777 1,866,030 2,403,644 3,359,148 Employee involvement Directors’ indemnity and insurance Pursuant to the Company’s articles of association, the Company has granted an indemnity to its Directors and officers under which the Company will indemnify them, subject to the relevant article, against all costs, charges, losses and liabilities incurred by them in the performance of their duties. The Company has also arranged directors’ and officers’ liability insurance. The Group’s policy is to encourage involvement at all levels, as it believes this is essential for the success of the business. Employees are encouraged to present their views and suggestions in respect of the Group’s performance and policies. Financial risk management objectives and policies The Group’s financial instruments comprise cash, liquid resources and various items, such as trade receivables and trade payables that arise directly from its operations. The main risks arising from the Group’s financial instruments are currency risk, interest rate risk, credit risk and liquidity risk. The Directors review the policies for managing each of these risks on an on-going basis and they are summarised in note 23 to the financial statements. Going concern The financial statements have been prepared on the going concern basis, which assumes that the Group will have sufficient funds to continue in operational existence for the foreseeable future. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current available working capital and working capital facilities for the next 12 months. Therefore, the Directors consider the going concern basis appropriate. 21 Board of Directors Michael Tobin OBE: Non-Executive Chairman Date of appointment: Michael joined the Board and became Chairman in September 2015. Committee memberships: Michael chairs the Board’s remuneration and nomination committees and serves on the audit committee. Independence: The Board consider Michael to be an independent Director. External appointments: Michael currently holds numerous Non-Exec Directorships including Teraco in South Africa, Datapipe in the USA, Iconic in Madrid, Basefarm in Norway, Eurodiesel in Belgium, Chayora in Hong Kong and TeamRock, Popshack and PeoplePerHour in the UK, where he is also Chairman of Ultrahaptics. He is also an advisor to the board of OCom in Amsterdam. Michael is a highly successful serial technology entrepreneur & pioneer with over 30 years’ experience in the telecoms & technology sector. As Chief Executive, Michael Tobin OBE led TelecityGroup plc, a leading FTSE250 Technology company from 2002 to 2015. Michael joined Redbus in 2002 delisting it from the main market to AIM and then took it private, winning the London Business Awards “Business Turnaround of the Year” award in 2005. After engineering the merger with Telecity he successfully re-listed TelecityGroup in October 2007 winning the accolade of UK Innovation Awards IPO of the year 2008 and the techMARK Achievement of the year in the same year. Subsequently he grew the business from £6m market cap in 2002 to being a top performer in the FTSE250 worth over £2Bn, being recognized as Britain’s Most admired Tech Company in 2012. Prior to joining TelecityGroup, Michael headed-up Fujitsu’s e-Commerce operations in Frankfurt, Germany. Before that, he ran ICL’s Danish outsourcing subsidiary out of Copenhagen Denmark. He also held several senior positions based in Paris for over 11 years including Business Development Director at International Computer Group coordinating global distribution of IT infrastructure. As a Non-Exec Director, Michael was instrumental in transforming PACNET in Hong Kong from a Sub Sea Cable operator to a successful Datacentre operator culminating in its sale in 2016 to Telstra for $800m. Michael was named ‘UK IT Services Entrepreneur of the Year’ by Ernst & Young in 2009, 2010 & 2011; PWC Tech CEO of the Year 2007; London Chamber of Commerce ‘Business Person of the Year’ for 2009 & 2010; In 2009 was named techMARK ‘Personality of the Year’; In 2007 & 2009 he was the winner of the DCE Outstanding Leader of the Year, and in 2008 won ‘Data Centre Business Person of the Year’ at the Data Centre Leaders awards. He was awarded ‘Outstanding Contribution to the Industry’ at the Data Centre Europe awards and in 2011 received a Lifetime Achievement Award for services to the industry. In 2005 he was named number 31 of Britain’s Top 50 Entrepreneurs. In 2015 Michael was honoured in the Queens New Year’s Honours List with the Order of the British Empire medal for Services to the Digital Economy. Paul Howard: Non-Executive Director Paul spent over 15 years with J.P Morgan Cazenove as a telecoms and media analyst and was one of Cazenove’s youngest ever partners. He won numerous awards from Reuters and Starmine and was Head of the Number One ranked European telecoms research team as ranked by the Institutional Investor in 2011. Paul left Cazenove in 2011 and became an investor and non-executive director of various small telecoms companies. He also spent a year with Morgan Stanley in 2015 helping their Select Risk equity trading business. Paul has a BSc from Durham University in Maths and is a qualified accountant. Date of appointment: Paul joined the Board in September 2015. Committee memberships: Paul serves on the Board’s remuneration and audit committees. Independence: The Board consider Paul to be an independent Director. External appointments: Paul is an advisor to Oakley Advisory and joined the business in March 2015. 22 Bigblu Broadband plc | Annual Report & Accounts 2018 Stephen Morana: Non-Executive Director Date of appointment: Stephen joined the Board in February 2017. Committee memberships: Stephen chairs the Board’s audit committee and serves on the nomination committee. Independence: The Board consider Stephen to be an independent Director. External appointments: Stephen holds a number of non-executive roles. Christopher Mills: Non-Executive Director Date of appointment: Christopher joined the Board in May 2018. Committee memberships: None Independence: The Board consider Christopher to be a non-independent Director. External appointments: Christopher holds a number of non-executive roles. Andrew Walwyn: Chief Executive Officer Date of appointment: Andrew joined the Board as CEO on the completion of the reverse acquisition in May 2015. Committee memberships: Andrew serves on the Board’s nomination committee. Independence: Executive – non-independent External appointments: None Frank Waters: Chief Financial Officer Date of appointment: Frank joined the Board as CFO on the completion of the reverse acquisition in May 2015. Committee memberships: None Independence: Executive – non-independent External appointments: Frank holds a number of non- executive directorships in sports clubs. Governance: Board of Directors Stephen has a wealth of technology, financial and equity capital markets experience. Until recently, Stephen was CFO of Zoopla Property Group plc, the FTSE250 digital media group, which also owns the uSwitch business. Before that he spent a decade at Betfair plc during which time he acted as CFO and interim CEO. He was part of the management team that grew the business from an early stage start-up to a multi-billion-pound listed business, which ultimately merged with Paddy Power to create one of the world’s largest public online betting and gaming companies. Christopher founded Harwood Capital Management in 2011, a successor of the former parent company of Harwood, J O Hambro Capital Management which he co- founded in 1993. He is Chief Executive and Investment Manager of North Atlantic Smaller Companies Investment Trust plc and Chief Investment Officer of Harwood Capital LLP. He is a Non-Executive Director of several companies. Christopher was a Director of Invesco MIM, where he was head of North American Investments and Venture Capital, and of Samuel Montagu International. Andrew began his career at Carphone Warehouse before moving to DX Communications as Sales Director. Following the sale of DX to Telefonica, Andrew took on the role as Managing Director of Tiny Computers where he oversaw the sale of the ISP business to Tiscali and the eventual sale of the company to Time Computers. In 2008, Andrew co-founded Bigblu Broadband having identified the gap in the market for satellite broadband. Frank qualified as a Chartered Accountant (ICAS) with Ernst & Young in 1989. Frank has spent the last 20 years, primarily as finance director, in a number of fast growing entrepreneurial companies in the mobile, consumer electronics and technology sectors. Frank was instrumental in the sale of DX Communications alongside Andrew Walwyn to what is now Telefonica. Frank joined Bigblu Broadband in the autumn of 2013 and, as Chief Financial Officer, is responsible for finance, commercial, legal, regulatory, and M&A matters. 23 Simon Clifton: Chief Technology Officer Date of appointment: Simon joined the Board in September 2016 following the fundraise and acquisitions in summer 2016. Committee memberships: None Independence: Executive – non-independent External appointments: None Simon co-founded the business with Andrew Walwyn in 2008 and has a background in mobile telecoms and alternative broadband technologies. Since 2003 Simon has been at the forefront of the development of satellite broadband as a technology for both the consumer and business markets in Europe, and foresaw the disruptive opportunity for the company presented by the arrival of Ka band satellite communications in 2010. Simon is responsible for leveraging the satellite owners’ investment in capacity and for the company harnessing the growing and abundant commodity market in Ka band spectrum, and then delivering it as a consumable satellite broadband product that address particular geographical and vertical market opportunities globally. Simon also has responsibility for integrating complimentary technologies like fixed wireless broadband into the business portfolio, as well as R&D and supplementary product development like VOIP and TV services. Simon has served as the CTO of the Group since its inception and has previously been involved with several successful, fast growing entrepreneurial companies. Statement of Directors’ Responsibilities The Directors are responsible for preparing the Strategic Report, Directors’ Report and the financial statements in accordance with applicable law and regulations. UK Company law requires the directors to prepare Group and Company Financial Statements for each financial year. Under that law the directors are required to prepare Group Financial Statements in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the EU and the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. The Directors have chosen to prepare the Group financial statements in accordance with IFRS as adopted by the EU. The Group financial statements are required by law and IFRS adopted by the EU to present fairly the financial position, financial performance and cash flows of the Group for that year. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. in the United Kingdom governing the Legislation preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board In preparing each of the group and company financial statements, the directors are required to: ● select suitable accounting policies and then apply them Andrew Walwyn Chief Executive Officer 25 March 2019 consistently; ● make judgements and estimates that are reasonable and prudent; ● state that the group had complied with IFRS, subject to any material departures disclosed and explained in the financial statements; ● prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. 24 Bigblu Broadband plc | Annual Report & Accounts 2018 Governance: Corporate Governance Statement Corporate Governance Statement Dear Shareholder, At Bigblu Broadband plc all our stakeholders are important to us. The design and operation of a robust governance structure appropriate for a Group of our scale and ambition is critical to meeting their needs. Our approach to governance is based on the concept that good corporate governance enhances long-term shareholder value and sets the culture, ethics and values for the rest of the Group. The Board has ultimate responsibility for reviewing and approving the Annual Report and Accounts and it has considered and endorsed the arrangements for their preparation. The Directors confirm the Annual Report and Accounts, taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. Michael Tobin OBE 25 March 2019 Quoted Companies Alliance Code for Small & Mid-sized Quoted Companies 2018 The board of Bigblu Broadband Group plc (the “Company”) is responsible for the Group’s corporate governance policies and recognises the importance of high standards of corporate governance and integrity. The Company has adopted the Quoted Companies Alliance Code for Small & Mid-sized Quoted Companies 2018 (the “QCA Code”) in September 2018. This statement sets out how the Company complies with the 10 principles of the QCA Code. 1. Strategy & business model The Company is an alternative broadband provider who markets and delivers fast broadband services to homes and businesses mainly located in areas of poor or underserved telecoms infrastructure. The Company’s target customers are homes and businesses who are not served by fibre broadband. The Company is technology agnostic and uses a variety of technologies to deliver a super-fast broadband service to target customers including satellite broadband, 4G, 5G and licensed and unlicensed spectrum fixed wireless broadband (point to point and point to multi-point). The Company is active and has customers in 30 countries including many countries in Europe and Australia and had approximately 123,000 customers as at 31st May 2018. The Company operates from a number of strategic bases in the UK, France, Norway, Spain Germany, Italy, Poland, Portugal and Australia. The Company has grown strongly since listing on AIM in May 2015 both organically and by acquisition. The Company has acquired and integrated 20 businesses in 7 countries in the last 3 years. The Company has a cloud-based global billing and customers service (ERP) platform enabling it to support customers around the world in any language the customer chooses, with the system supporting multiple currencies and VAT jurisdictions. The Company also has one phone system across all territories enabling flexibility in delivering customer support. The Company uses satellite capacity from a number of different satellite owners to enable it to provide satellite broadband services and these include but are not limited to Eutelsat, SES Astra, Viasat, Avanti, and NBNCo. The Company makes its decisions on which satellite operator to use in each country based on a mixture of quality of their services, their product roadmap, business model and resultant price structure, and the amount of capacity available. Satellite design and processing efficiency continue to progress at a pace resulting in continually improving satellite economics with each new satellite launch allowing the Company to continue to improve its broadband offerings and keep pace with the growth in internet demand. Since the Company’s inception in 2008, headline consumer satellite broadband speeds in Europe have increased from 4 Mbps to 50 Mbps and the Company, working with its satellite owner partners, believes that speeds and data allowances will continue to increase exponentially over the next 3 – 5 years. The Company could face challenges if consumer demand for faster broadband services and continual increases in data consumption were not matched by exponential improvements in satellite economics by the satellite fleet operators. The wide number of satellite operators coming to the market with new business models and technologies mean that the Company perceives this risk as relatively small. The Company embraces new technologies like 4G and 5G and indeed is itself helping to develop and design new hardware to bring technologies like fixed broadband via 5G to the mainstream market. Many of the Company’s existing fixed wireless customers are already being connected to fixed 5G type services. The Directors believe there is a significant opportunity to continue to grow the Company’s subscriber base organically and also through acquisition by consolidating the currently fragmented market of alternative broadband providers across Europe and Australia. 2. Understanding and meeting shareholder needs and expectations The AGM is the main forum for dialogue with shareholders and the Board. The Notice of Meeting is sent to shareholders at least 21 days before the meeting. The chairs of the Board and all committees, together with all other Directors, routinely attend the AGM and are available to answer questions raised by shareholders. Feedback from investors is also obtained through direct interaction between the CEO, CFO and CTO at meetings following the publication of its full-year and half-year results. The Company also holds an open retail investor meeting shortly after results have been published. 25 The voting record at the Company’s general meetings is monitored and we are pleased that all resolutions have been passed by shareholders. There is also regular dialogue with investors through the medium of the Company’s corporate broker, Numis Securities, and through the Company’s Investor Relations and Financial PR agency Walbrook PR. The Company has a dedicated investor relations website at www.bbb-plc.com which aims to keep all types of investor fully informed and up to date on the Company’s activities, share price and future meetings as well as supplying documents and information which may be of general interest. Details of specific contacts at Numis and Walbrook PR are published on all the Company’s RNS releases and on the Company’s investor website. 3. Taking into account wider stakeholder & social responsibilities and their implications for long-term success The long-term success of a business and good Corporate Governance includes the Board considering the Company’s impact on the communities it operates in, the environment and society as a whole. The group’s stakeholders include shareholders, customers, members of staff, suppliers, regulators, including industry bodies and creditors lenders. The board works hard to identify the Company’s stakeholders and understand their needs, interests and expectations. The principal ways in which their feedback on the group is gathered are via meetings, conversations, surveys and online reviews. Following this feedback, the group has continued and evolved its clearly defined customer- focused and people-led strategy. Every company should consider its corporate social responsibilities (CSR). Any CSR policy should include a narrative on social and environmental issues and should show how these are integrated into the Company’s strategy. Integrating CSR into strategy will help create long-term value and reduce risk to shareholders and other stakeholders. The Company see CSR as a very important area for consideration and are currently in the process of finalising a CSR Policy. The Directors are aware of the impact the business activities have on the communities in which it operates and has in place an environmental policy. The Group’s responsibilities to stakeholders including staff, suppliers and customers and wider society are also recognised and this is evidenced and underpinned by our values: ● Customers – Grow profitable elements of the business whilst putting the customer first ● Innovation – Industry leading product design always exceeding customers expectations ● Quality – Excellence in operations, processes and systems ● Environment – Engaging with and supporting the communities in which we work ● Team Work – Support and engage with our people 26 4. Embedding effective risk management The board of the Company ensures that its risk management framework identifies and addresses all the relevant risks and threats that the business may be subject to in the execution of its business plan. These include extended business activities including key customers and its supply chain. The section “Principal Risks and Uncertainties” on pages 16 to 18 of this Annual Report identifies these risks and how the board and the business mitigate these risks. The board of the Company meets regularly during the year and continually reappraises and discusses the tactics and strategy employed to mitigate these risks. 5. Maintaining a balanced and well-functioning board The Board and its committees The Board is responsible for the effective oversight of the Group. It also agrees the strategic direction and governance structure that will help achieve the long-term success of the Group and deliver shareholder value. The Board takes the lead in areas such as strategy, financial policy and making sure a sound system of internal control is maintained. The Board’s full responsibilities are set out in the schedule of matters reserved for the Board described below. The Board delegates authority to its Committees to carry out certain tasks on its behalf, so that it can operate efficiently and give the right level of attention and consideration to relevant matters. Role of the Board and management Role of Chairman and Chief Executive Officer There is a clear division of responsibilities between the running of the Board and the executive responsible for the Group’s business. The Chairman is responsible for leadership of the Board, ensuring its effectiveness and setting the agenda for Board meetings. Once strategic objectives have been agreed by the Board, it is the Chief Executive Officer’s responsibility to ensure they are delivered upon and consistently to be accountable to the Board. The day to day operations of the Group are managed by the Chief Executive Officer and his management team. Board processes The full Group Board met nine times in the financial year under report and is scheduled to meet eight times in the current financial year and at any other time as may be necessary to address any specific significant matters that may arise. The agenda for Board meetings is prepared in conjunction with the Chairman. Submissions are circulated in advance and for regular Board meetings will include operational and financial updates together with papers relating to specific agenda items. Management prepare monthly finance reports which allow the Board to assess the Group’s activities and review its performance. Members of management are regularly involved in Board discussions and Directors have other opportunities for contact with a wider group of employees. Bigblu Broadband plc | Annual Report & Accounts 2018 To assist in the execution of its responsibilities, the Board has established an Audit Committee and a Remuneration Committee as well as a Nominations Committee and a framework for the management of the consolidated Group including a system of internal control. The Board is ultimately responsible for the Group’s system of internal control and for reviewing its effectiveness. This includes financial, operational and compliance controls and risk-management systems. The Board has reviewed the effectiveness of the system of internal control during the year in conjunction with the External Auditors. Internal control systems are designed to meet the Group’s particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss. Role and Responsibilities of the Board The Board’s primary role is the protection and enhancement of long-term shareholder value. To fulfil this role, the Board is responsible for the overall management and corporate governance of the consolidated Group including its strategic direction, establishing goals for management and monitoring the achievement of these goals. From time to time the Board may delegate or entrust to any Director holding executive office (including the CEO) such of its powers, authorities and discretions for such time and on such terms as it thinks fit. During 2018, the Board reviewed and updated the “Delegation of Board authority” which establishes those matters which it is considered appropriate remain within the overall control of the Board (or its committees) and those which are delegated to the CEO (or onwards as appropriate). In addition to overall Group strategy, the Board approves the annual budget and retains control over corporate activity (mergers, acquisitions, partnerships, material disposals and investments) and material contract and financing decisions (over and above set value/credit-risk limits). Management’s role is to implement the strategic plan established by the Board and to work within the corporate governance and internal control parameters established by the Board. The Board has approved a schedule of matters reserved for its decision; specifically, the Board is responsible for: ● Guiding the Group’s long-term strategic aims, leading to its approval of the Group’s strategy and its budgetary and business plans ● Approval of significant investments and capital expenditure ● Approval of annual and half-year results ● Ensuring maintenance of a sound system of internal control and risk management (taking into consideration recommendations of the Audit Committee) ● Ensuring adequate succession planning for the Board and Executive management (taking into consideration the recommendations of the Nomination Committee) ● Determining the remuneration policy for the Directors and the senior management team (taking into consideration the recommendations of the Remuneration Committee) Governance: Corporate Governance Statement Board focus during the year identify and anticipate ● Strategy: During FY18, the Board worked with management to industry trends to ensure that the Group’s strategy is designed to address these trends as well as other industry dynamics, such as the competitive landscape. The Board also considered various fundraises and approved a number of acquisition opportunities to advance the Group’s strategy including the acquisition of Opensky and Sat Internet. In addition, the Board considered the disposal of the Fibre Business in Australia as this was considered Non-Core During FY17, the Board approved two acquisitions. The Board also reviewed relationships with the Groups main partners and suppliers including the HRA with EBR. ● Financials: During FY18, the Board reviewed the Group’s operating results and financial statements with management and the Group’s external auditors. The Board also reviewed and approved the Budget and operating plan for the financial year. ● Fundraising: During FY18, the Board worked with management to identify and source appropriate funding options to pursue the roll up strategy. The Board were delighted with the support from HSBC, BGF and Harwood Capital as well as new and existing shareholders throughout the summer of 2018. ● Governance: As noted above, the Board continued to review its governance structure in FY18. As a result of this review, the Board considered and noted its compliance with the requirements applicable to a publicly listed Group, including the Code. In addition, the control environment was improved with the recruitment of additional Operational HR and systems resources. ● Business performance: In FY18, the Board received and reviewed reports from management on the performance of the Group’s business. The Board engaged in discussions with management on various aspects of business performance, Key Performance Indicators, including business drivers, industry trends, risks, opportunities and the competitive landscape. Board committees Prior to listing in May 2015, the Board established the Audit and Risk Committee (now chaired by Stephen Morana) to oversee financial reporting, internal control and the management of the risks the Group faces. The Board also established a Nomination Committee (chaired by Michael Tobin OBE) to lead the process for appointments to the Board and a Remuneration Committee (chaired by Michael Tobin OBE) which has the responsibility of helping to develop and manage the Group’s Remuneration Policy. The various committee reports can be found on pages 32 to 40 and each committee’s full terms of reference are available on our website. 27 Table of Attendance The table below summarises the attendance of the Directors and committee members at the scheduled Board and committee meetings held during the year: Board Audit and Risk Committee Remuneration Committee Nomination Committee*** Held Attended Held Attended Held Attended Held Attended Michael Tobin OBE* Andrew Walwyn Frank Waters Simon Clifton Paul Howard Stephen Morana** Christopher Mills 9 9 9 9 9 9 6 9 9 9 9 9 8 4 3 - - - 3 3 - 2 - - - 3 3 - 5 - - - 5 - - 5 - - - 5 - - 1 1 - - - 1 - 1 1 - - - 1 - The figures in the “held” column represent the number of meetings a Director was eligible to attend as a Director and the “attended” column represents the number of meetings attended by that Director. * Michael Tobin OBE is Chairman of the Board and Chairman of the Nomination and Remuneration Committees. ** Stephen Morana is Chairman of the Audit and Risk Committee. ***There was 1 Nomination Committee meeting held during the year. 6. Having appropriate experience, skills and capabilities on the board Board Composition, Qualification and Experience ● the role of Chairman is to be filled by a non-executive Director, ● the Board should have enough Directors to serve on various committees of the Board without overburdening the Directors or making it difficult for them to fully discharge their responsibilities, ● Directors appointed by the Board are subject to election by shareholders at the following annual general meeting and thereafter one third of Directors are subject to retire by rotation each year. The Group Secretarial service is provided by a professional services company in order to conform to requirements. The Board currently comprises seven (2017 six) Directors. The number and/or composition may be changed where it is felt that additional expertise is required in specific areas, or when an outstanding candidate is identified. During 2018 the Board was strengthened with the appointment of Mr Christopher Mills who brings extensive experience. The composition, experience and balance of skills on the Board are periodically reviewed to ensure that there is the right mix on the Board and its Committees and they are working effectively. The Board comprises a Non-Executive Chairman (who, for the purposes of the QCA Code was independent on appointment), three Non-Executive Directors, two of whom are considered by the Board to be independent for the purpose of the QCA Code. There are three Executive Directors who are considered by the Board to be non-independent for the purpose of the QCA Code. The current members of the Board have a wide range of skills and experience. The Board believes that a membership that combines detailed knowledge of the Group’s operations, the technology industry and leading a Group listed on the London Stock Exchange are crucial to the Board’s ability to lead the Group successfully. The composition of the Board is determined using the following principles: ● a majority of the Board should be non-executive Directors. Currently there are 4 non-executive Directors and from 3 executive Directors. BGF have the right to appoint a further non-executive Director which has not been exercised as yet. BGF do have an Observer at Board meetings for certain matters. 28 Bigblu Broadband plc | Annual Report & Accounts 2018 Governance: Corporate Governance Statement Key Board Roles Chairman Chief Executive Officer Non-Executive Directors Leads the board Leads the management team Promotes highest standard of corporate governance Supports the Chairman to ensure appropriate governance standards spread through the Group Acts as intermediary between Directors when required Challenges strategic matters Raises strategic initiatives aimed at improving shareholder returns in line with the strategic direction of the Group Challenges initiatives strategic presented by Executive Directors as well as assists in the development concept of Group Strategies Promotes a culture of openness and debate Oversees Board-approved actions implementation of all Encourages constructive relations between Executive and Non- Executive Directors Ensures that the Board is made aware of the employees' views on relevant issues Facilitates effective contributions by the Non-Executive Directors Develops proposals for the Board to consider in conjunction with fellow Executive Directors Available to shareholders to address any concerns or issues that they feel have not adequately been addressed through usual channels of communication. Integral role in succession planning Non-Executive Director Independence The Board considers and reviews the independence of Non-Executive Directors on an annual basis as part of the Directors’ performance evaluation. In carrying out the review, consideration is given to factors such as their character, judgement, commitment and performance on the Board and relevant committees and their ability to provide objective challenge to management. The Board considers its Independent Non-Executive Directors bring strong judgement and considerable knowledge and experience to the Board’s deliberations. As noted in the Annual Report on Remuneration on page 50, Michael Tobin OBE, Paul Howard and Stephen Morana all participate in the Company’s share option plan. Notwithstanding this, in character and judgement, this is evidenced by the valuable contributions they make at Board and Committee meetings, and in particular, the knowledge and experience they bring to the roles as Chairman, Non- Executive Directors and Committee members. In addition, whilst Christopher Mills is considered Non-Independent Christopher provides enormous contribution guidance and support to the business and is considered to be independent in character and judgement. Appointment and Tenure All Non-Executive Directors serve on the basis of letters of appointment which are available for inspection upon request. The letters of appointment set out the expected time commitment of Non-Executive Directors who, on appointment, undertake that they will have sufficient time to meet what is expected of them. Non-Executive Directors are appointed for an initial three-year term and the continuation of their appointment is conditional on satisfactory performance and subject to annual re-election at the Company’s Annual General Meetings. Executive Directors serve on the basis of service agreements which are also available for inspection upon request. Further details on the Executive Directors’ service agreements are included in the Annual Report on Remuneration, on page 36. Director Training The Chairman is responsible for the induction of new Directors and ongoing development of all Directors. The Board received tailored training as appropriate for service on a listed Company Board. New Directors receive a full, formal and tailored induction on joining the Board designed to provide an understanding of the Group’s business, governance and key stakeholders. The induction process typically includes an induction pack, operational site visits, meetings with key individuals and the Group’s advisors, and briefings on key business, legal and regulatory issues facing the Group. As the business environment changes, it is important to ensure the Directors’ skills and knowledge are refreshed and updated regularly. Accordingly, the Nomad ensures that updates on corporate governance, regulatory and technical matters are provided to Directors at special sessions in between formal Board meetings. In this way, Directors keep their skills and knowledge relevant so as to enable them to continue to fulfil their duties effectively. 29 Information and Support Available to Directors 7. Evaluating board performance Board Evaluation and Effectiveness The Board and its Committees were formed upon listing in May 2015 and in May 2018 an internal evaluation commenced as a result of the Group’s continued growth in size and complexity resulting in the appointment Christopher Mills in May 2018carried out a Board Effectiveness Review during the year. The results were analysed and a report was presented to the Board. Following discussions at a subsequent Board meeting, a number of proposed recommendations were made and the Board agreed to take them forward for implementation. 8. Ethical values & behaviours The Company operates a corporate culture that is based on ethical values and behavior’s. The Executive Directors (comprising Andrew Walwyn, Frank Waters and Simon Clifton) communicate regularly with staff through meetings and messages to ensure best-in-class ethical standards and to provide clear guidance on how the members of staff are expected to behave towards their colleagues, suppliers, customers, shareholders and on their wider responsibilities to the communities within which they operate 9. Maintaining governance structures and processes The Chairman is responsible for leadership of the Board, ensuring its effectiveness and setting the agenda for Board meetings. Once strategic objectives have been agreed by the Board, it is the Chief Executive Officer’s responsibility to ensure they are delivered upon. The day to day operations of the Group are managed by the Chief Executive Officer and the wider management team comprising the Chief Financial Officer and the Chief Technical Officer. The division of responsibilities between the Chairman, Chief Executive Officer and Non-Executive Directors is set out in writing in their contracts and agreed by the Board. The roles of the Chairman and the Chief Executive Officer are separate with a distinct division of responsibilities. The partnership between Michael Tobin OBE and Andrew Walwyn is based on mutual trust and facilitated by regular dialogue between the two. The separation of authority enhances the executive management by the Board and helps to ensure that no one individual on the Board has unfettered authority. independent oversight of For the roles and responsibilities of the board please see section 6 on page 28. All Board Directors have access to the Company Secretary, who advises them on Board and governance matters. The Chief Executive Officer, Chief Financial Officer and the Company Secretary work together to ensure that Board papers are clear, accurate, delivered in a timely manner to Directors, and of sufficient quality to enable the Board to discharge its duties. As well as the support of the Company Secretary, there is a procedure in place for any Director to take independent professional advice at the Group’s expense in the furtherance of their duties, where considered necessary or advisable. Director Election from recommendations the Nomination Following Committee, taking into account the results of the Board’s performance evaluation process, the Board considers that all Directors continue to be effective, committed to their roles and have sufficient time available to perform their duties. In accordance with the Company’s Articles of Association one third of Directors are to retire by rotation excluding those appointed during the year and those re- elected at the Group’s AGM in 2018 as set out in the Notice of AGM. Directors’ Conflicts of Interest Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the Board believes that a significant conflict exists, the Director concerned is either not present or does not take part in discussions and voting at the meeting whilst the item is considered. Directors have a statutory duty to avoid situations in which they have, or may have, interests that conflict with those of the Company, unless that conflict is first authorised by the Directors. This includes potential conflicts that may arise when a Director takes up a position with another Company. The Company’s Articles of Association allow the Board to authorise such potential conflicts, and there is in place a procedure to deal with any actual or potential conflict of interest. The Board deals with each appointment on its individual merit and takes into consideration all the circumstances. All other appointments have been authorised by the Board and have been included in the conflicts register. Independent professional advice and access to Company information Each Director has the right of access to all relevant Group information and to the Group’s management and, subject to prior consultation with the Chairman, may seek independent professional advice at the Group’s expense. A copy of any advice received by the Director is to be made available to all other members of the Board. 30 Bigblu Broadband plc | Annual Report & Accounts 2018 Governance: Corporate Governance Statement Independent auditor and audit information Each person who is a Director at the date of approval of this report confirms that, so far as the Director is aware, there is no relevant audit information of which the Group’s auditor is unaware and each Director has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the Group’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of the Companies Act 2006. their willingness haysmacintyre have expressed to continue as the Group’s auditor. As outlined in the Audit and Risk Committee report on page 47, resolutions proposing their reappointment and to authorise the Audit and Risk Committee to determine their remuneration will be proposed at the next AGM. On behalf of the Board Ben Harber Company Secretary 25 March 2019 10. Communicating with shareholders and other relevant stakeholders Shareholder engagement Responsibility for shareholder relations rests with Andrew Walwyn, the Group’s Chief Executive Officer. He ensures that there is effective communication with shareholders and is responsible for ensuring that the Board understands the views of shareholders. Andrew is supported by the Group’s corporate brokers with whom he is in regular dialogue. As a part of a comprehensive investor relations programme, formal meetings with investors are scheduled to discuss the Group’s interim and final results. In the intervening periods, the Group continues its dialogue with the investor community by meeting key investor representatives and holding investor roadshows as appropriate. Annual General Meeting The Company’s Annual General Meeting (“AGM”) will take place at the offices of Harwood Capital LLP, 6 Stratton Street, London W1J 8LD. All shareholders have the opportunity to attend and vote, in person or by proxy, at the AGM. The notice of the AGM can be found on our website and in a notice, which is being mailed out at the same time as this Report. The Notice of AGM sets out the business of the meeting and an explanatory note on all proposed resolutions. Separate resolutions are proposed in respect of each substantive issue. The AGM is the Company’s principal forum for communication with private shareholders. Risk management and internal controls The Audit Committee report explains the process carried out for the assessment of the effectiveness of the Group’s risk management and internal control systems on page 33. 31 Nomination Committee Report The role of the Nomination Committee is documented in its terms of reference which were reviewed and adopted by the Board of Directors in May 2016. The Nomination Committee is chaired by Michael Tobin OBE, and its other member is Stephen Morana who is also a Non-Executive Director. Role and responsibilities The Committee assists the Board in discharging its responsibilities relating to the composition and make-up of the Board and any Committees of the Board. It is also responsible for periodically reviewing the Board’s structure and identifying potential candidates to be appointed as Directors or Committee members as the need may arise. The Committee is responsible for evaluating the balance of skills, knowledge and experience as well as the size, structure and composition of the Board and Committees of the Board, retirements and appointments of additional and replacement Directors and Committee members and makes appropriate recommendations to the Board on such matters. A copy of the Committee terms of reference is available on the Company’s website. Meetings during the year The Committee met once in the financial year and at that meeting the Committee to review the composition of the Board and its Committees. Process for Board appointments When the Company decides to appoint a Non-Executive Director: ● The Committee Chairman, or search consultants where engaged, will submit a short-list of candidates to members of the Committee and the Chief Executive Officer for them to review and enable them to suggest other candidates. ● The Committee Chairman, one other Committee member and the Chief Executive Officer will then meet short-listed candidates selected by the Committee. In addition, potential candidates will be given the opportunity to meet with Executive Directors as appropriate. If the Chairman wishes to proceed with the selection process, the candidate will then be invited to meet all members of the Committee. ● After meeting the candidate, the Committee will decide whether to recommend the candidate to the Board for appointment. ● Where an exceptional candidate is identified the process may be shortened by Committee decision. When the Company decides to appoint an Executive Director: ● The Committee Chairman and the Chief Executive Officer or, where engaged, search consultants, will submit a short-list of one or more candidates to the Committee following meetings with Executive management. ● Some or all of the Committee members will then meet the candidates selected for interview. ● The Committee’s assessments will be reviewed with the Chairman of the Board and the Chief Executive Officer, following which a candidate may be recommended to the Board for appointment. Michael Tobin OBE Nomination Committee Chairman 25 March 2019 32 Bigblu Broadband plc | Annual Report & Accounts 2018 Audit Committee Report The role of the Audit Committee is documented in its terms of reference which were reviewed and adopted by the Board in May 2015. The annual report on the role and activities of the Audit Committee are as follows: Membership of the Committee The Committee was chaired by Stephen Morana with Michael Tobin OBE and Paul Howard being the other members of the Committee. All members and the Chair are Independent Non-Executive Directors. All of the members of the Committee have extensive experience of the technology industry as well as financial procedures and controls. During the year ended 30 November 2018, the Committee met three times. The table on page 38 summarises the attendance of members at committee meetings: Only members of the Committee have the right to attend meetings, though the Committee may invite others to attend if it is considered appropriate or necessary. The external auditors are invited to attend meetings of the Committee on a regular basis as is the Chief Financial Officer where appropriate. The external auditors, the Chairman, the Chief Executive Officer, the Chief Financial Officer and members of the l finance function may be invited to Audit Committee meetings at the discretion of the Committee. The Committee plans to meet at least twice during the year. Roles and activities The purpose of the Committee is to assist the Board in the effective discharge of its responsibilities for financial reporting, corporate control and risk management. The Committee is responsible for monitoring the integrity of the Group’s financial statements, including its annual and half-yearly reports, interim management statements, preliminary result announcements and any other formal announcements relating to its financial performance prior to release. The Committee oversees the relationship between the Group and its external auditors and makes recommendations to the Board on their appointment. In addition, the Committee monitors and reviews the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into account relevant legal, professional and regulatory requirements. Governance: Corporate Governance Statement The terms of reference of the Committee also includes the following responsibilities: ● to increase shareholder confidence and to ensure the credibility and objectivity of published financial information; ● to assist the Board in meeting its financial reporting responsibilities; ● to assist the Board in ensuring the effectiveness of the Group’s accounting and financial controls; ● to strengthen the independent position of the Group’s external auditors by providing channels of communication between them and the Non-Executive Directors; ● to review the performance of the Group’s external auditing functions; ● to review and challenge significant accounting and treasury policies, the clarity and completeness of disclosures in financial reports and significant estimates and judgements; ● to review the findings of the audit with the external auditors; ● where requested by the Board, to review the content of the annual report and accounts and advise the Board on whether, taken as a whole, it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; ● to monitor and keep under review the adequacy and effectiveness of the Group’s financial controls and risk management systems, including a review of the Group’s risk management framework; and monitoring and reviewing the appropriateness of timing of creation of a Group internal audit function together with an annual internal audit plan; and ● to review the Group’s policies and procedures for its systems and preventing and detecting fraud, controls for preventing bribery, its Code of Conduct and its policies for ensuring that the Group complies with relevant regulatory and legal requirements. The full terms of reference of the Committee can be found on the Group’s website. During the year-ended 30 November 2018 the Committee: ● reviewed and approved the year-end and interim results and accounts; ● discussed with the external auditors and reviewed and approved the annual audit plan and receive their findings and reports of the annual audit and interim review; and ● received, reviewed and challenged the half-year and year-end accounting papers prepared by management covering significant accounting policies, significant transactions, judgemental areas, estimates, disclosures and going concern. 33 Significant issues The issues considered by the Committee that are deemed to be significant to the Group are set out below. Revenue recognition The Group principally generates revenue from sales of airtime, data, hardware and installation in connection with supplying Broadband services and network recharges. There is a risk therefore that revenue is inappropriately recognised if revenue is incorrectly apportioned to a product or service. A detailed revenue recognition policy is in place and for recognition includes processes and procedures dependent upon the individual nature of the goods or services sold. The Group’s external auditors have reported to the Committee that they have reviewed the revenue recognition policy and processes as well as performing detailed testing of revenue recognition across the year and found revenue to be appropriately accounted for. As a result of the above and after providing appropriate challenge the Committee has concluded that the revenue recognition for the Group is appropriate. Goodwill and intangibles carrying value At 30 November 2018, the Group had on its balance sheet goodwill of £29.0m (2017: £21.0m) and other intangibles of £7.1m (2017: £9.2m) that has primarily arisen as a consequence of acquisitions. Management perform impairment reviews annually, or more frequently if there is an indication of impairment, based on the Group’s hubs. The cash flow forecasts used for each hub are based on the latest Board approved budgets. Management prepare an accounting paper for review by the Committee that details the methodology applied, key assumptions used and the impact of sensitivity analysis. This includes a discounted cashflow, taking into consideration the Group debt value, equity value, the cost of debt and cost of equity, and a growth rate of 2% pa. Having considered the impairment reviews performed, the Committee is satisfied that the carrying value of goodwill and intangibles at 30 November 2018 is appropriate. Internal controls and risk environment Whilst the Board is ultimately responsible for the establishment, monitoring and review of effectiveness of control systems throughout the Group, each of the individual Company leaders drive the process through which risks and uncertainties are identified. The Board recognises that rigorous internal control systems are critical to managing the risks in achieving its strategic objectives. The Board further acknowledges that these systems are designed to manage rather than eliminate risk in the Group. identifying, evaluating and The normal process for managing significant risks faced by the Group would be overseen by a Risk and Compliance Committee, in association with work performed by an internal audit function. Currently, this has not been required and instead 34 the Group operations team have taken a lead role in looking at controls in the various jurisdictions. It is the Board’s intention and desire, following the latest acquisitions that within a year a Risk and Compliance Committee will be established and will design a risk framework in order to capture and evaluate control weaknesses and risks facing the business. In the meantime, where the Board defines an identified risk as significant, procedures exist to ensure that necessary action is taken to rectify or mitigate as appropriate. The aforementioned functions will provide additional assurance to an established Audit and Risk Committee who will have ultimate responsibility for the oversight and review of the adequacy and effectiveness of the Group’s systems of internal controls. In addition, the Committee in the absence of an established Audit and Risk Committee from time to time engage with External consultants to review aspects of the business as appropriate. Such findings are / will be discussed at the Audit Committee. The external auditors provide a supplementary, independent and autonomous perspective on those areas of the internal control system which they assess in the course of their work. Their findings are regularly reported to the Audit Committee and the Board. Key elements of the control environment are: ● annual budgets and strategic plans prepared for all business units; ● monitoring of performance against budget and forecast with reporting to the Board on a regular basis; ● monthly review of detailed key performance indicators; ● all contracts are reviewed at a level of detail appropriate to the size and complexity of the contract; ● timely reconciliations are performed for all significant balance sheet accounts; ● clearly defined authorisation lines; organisational structure and ● an operations team reviews key business processes, controls and their effectiveness, as well as identifying, assessing and managing significant control issues; and ● the Audit Committee, which assesses the overall internal control the Group’s appropriateness of environment. The preparation and issue of financial reports is managed by the Group Finance Team, as delegated by the Board. The Group’s financial reporting process is controlled using the Group accounting policies and reporting systems. The Group Finance Team supports all reporting entities with guidance on the preparation of financial information. This is especially important for new acquisitions. In the current year, this process was supported by the group operations team. Each legal entity has a Finance Director or Controller allocated who has responsibility and accountability for providing information which is in accordance with agreed policies and procedures. The financial information for each entity is subject to a review at reporting entity and Group level by the Group Finance Director and also the Chief Financial Officer. The Annual Report is reviewed by the Audit Committee in advance of presentation to the Board for approval. Bigblu Broadband plc | Annual Report & Accounts 2018 The Directors, through the use of appropriate procedures, systems and the employment of competent personnel, have ensured that measures are in place to secure compliance with the Group’s obligation to keep adequate accounting records. The accounting records are kept at the registered office of the Group or relevant statutory entity office. How we manage risk To enhance effective governance and risk management oversight in the future, it is intended that the Group will, as appropriate, establish an additional layer of risk management in the Audit Committee with the appointment of an Internal Auditor given the wide spread of hubs. This function is authorised by the Board to provide an additional level of assurance to the Audit Committee in overseeing risk management and internal control activities. It will also provide the business with a framework for risk management, upward reporting of significant risks and policies and procedures. On a half yearly basis, the Audit Committee will review the status on risk exposures and risk management throughout the business within a pre-agreed risk management framework. The risk management framework will be designed to identify, evaluate, analyse and mitigate or manage risks appropriate to the achievement of the business strategy. The Group will adopt a two-pronged approach to identifying risks: 1) a bottom-up approach at the business function level; where risks are managed at the operational level with an appropriately defined escalation process in place for those risks rated as high; and 2) a top-down approach at the Executive level; where the principal risks and uncertainties are identified and managed. A series of risk identification approaches will be used including adding risk discussions into team meetings. All identified risks will be assessed against a pre-defined scoring matrix and prioritised accordingly. Any risks identified in the bottom-up approach deemed to be rated as higher risk are escalated in line with pre-defined escalation procedures for further evaluation. The Group’s risk appetite is considered by the Board and evaluated to ensure appropriateness of risk management and mitigation. Whistle-blowing and anti-bribery Whistleblowing and Anti Bribery policies are in place in the Group enabling employees to confidentially report matters of concern directly to Non-Executive Directors, and that all Executives are reminded of their responsibility in relation to Anti Bribery Legislation. This is also a regular topic on the Board Meeting agendas. Governance: Corporate Governance Statement External Auditor The Audit Committee reviews and makes recommendations with regard to the appointment and reappointment of the external auditors. In making these recommendations, consideration is given to auditor effectiveness and independence, partner rotation and any other factors that may impact the reappointment of the external auditors. There are no contractual restrictions on the choice of external auditors. The Audit Committee is confident that the effectiveness and independence of the external auditors is not impaired in any way. The Committee will continue to assess the effectiveness and independence of the external auditors. In doing so, they will consider a formal tender process in accordance with the provisions of the UK Corporate Governance Code. The external auditors may perform certain non-audit services for the Group, any such non-audit services require pre-approval by the Audit Committee and are only permitted to the extent allowed by relevant laws and regulations. During the year-ended 30 November 2018, the non-audit services provided by haysmacintyre primarily related to tax compliance activities, a review of the half year reporting and a review of transfer pricing arrangements. Full details of auditor’s remuneration is shown in note 4 to the Financial Statements. Review of effectiveness of External Auditors An important role of the Committee is to assess the effectiveness of the external audit process. In performing this assessment, the Committee: ● reviewed the annual audit plan and considered the auditors performance against that plan along with any variations to it; ● met with the audit engagement partner to review the audit findings and responses received to questions raised by the Committee; ● held regular meetings with the audit engagement including with the absence of executive partner, management; ● considered their length of tenure; ● reviewed the nature and magnitude of non-audit services provided; and ● reviewed the external Auditors own independence confirmation presented to the Committee. Based on the assessment performed, the Committee has recommended to the Board that a resolution to reappoint haysmacintyre be proposed at the next Annual General Meeting. Stephen Morana Chairman of the Audit Committee 25 March 2019 35 Annual statement of the remuneration committee chairman As Chairman of Bigblu Broadband Remuneration Committee, I am pleased to present the Board of Directors’ Remuneration Report for the year ended 30 November 2018, which has been prepared by the Committee and approved by the Board. In line with the UK reporting regulations, this report is divided into three sections: The agenda for Remuneration Committee meetings is prepared in conjunction with the Chairman of the Committee. Submissions are circulated in advance and may include remuneration benchmark surveys and best practice guidelines together with papers relating to specific agenda items. Remuneration policy for FY18 and future years Bigblu Broadband plc was listed on the Alternative Investments Market (AIM) in May 2015. In advance of its listing, the Remuneration Committee reviewed the Group’s remuneration structure to ensure it aligns with the forward-looking strategy, is able to motivate and retain the executive team over the next key phase in the Group’s development, and to ensure it takes into account market practice and best practice for a listed Group. The remuneration structure for Executive Directors, which applies from the commencement of the new financial year 1 December 2018, is set out in the Remuneration Policy below. As reported previously during the year the Committee introduced a Long-Term Incentive Plan for certain senior executives to ensure their interests are aligned with that of the shareholders. reflect remuneration arrangements Our that we compete for talent in a competitive market against other telecommunications companies. The Committee has also carefully considered the expectations of our Funders and UK shareholders in formulating our policy and has included claw back provisions in our incentive schemes for Directors and Board Members, to align with developing best practice. The overarching principles of our Remuneration Policy are to provide a competitive package of fixed and variable pay that will enable the Group to ensure it can attract and retain executives with the right skills and experience to drive the long-term success of the Group. The Committee believes remuneration arrangements can achieve these goals through the application of stretching performance targets and strong shareholder alignment through our equity incentives. that our ● The Annual Statement by the Remuneration Committee Chairman; ● The Directors’ Remuneration Policy, which details the Group’s remuneration policies and their link to Group strategy, as well as projected pay outcomes under various performance scenarios; and ● The Annual Report on Remuneration, which focuses on our remuneration arrangements and incentive outcomes for the year under review and how the Committee intends to implement the Remuneration Policy in FY19 The role of the Remuneration Committee is documented in its Terms of Reference which were reviewed and adopted by the Board of Directors in May 2016. The objectives of the Remuneration Committee are to ensure that the Group’s Directors and senior executives are fairly rewarded for their individual contributions to the Group’s overall performance by determining their pay and other remuneration and to demonstrate to all shareholders that the general policy relating to, and actual remuneration of individual senior executives of the Group, is set by a committee of the Board members who have no personal interest in the outcome of the decisions and who will give due regard to the interests of the shareholders and to the financial and commercial health of the Group. The Remuneration Committee intends that its policy and practice should align with and support the implementation of the Group’s strategy and effective risk management for the long term. The policy is intended to motivate the right behaviours and to ensure that any risk created by the remuneration structure is acceptable to the Committee and within the risk appetite of the Board and its strategy. The remuneration package for executive Directors comprises a combination of annual salary, annual performance bonus and share options / Long Term Incentive Plans with performance criteria. Remuneration for non-executive Directors consists of an annual fee plus options. There were additional fees awarded for serving on Board committees and non-executive Directors are not entitled to bonuses. The members of the Remuneration Committee are Michael Tobin OBE and Paul Howard. The Chief Executive Officer, the Chief Financial Officer or other Non-Executive Director, may be invited to Remuneration Committee meetings at the discretion of the Committee. The Committee plans to meet at least twice during the year. 36 Bigblu Broadband plc | Annual Report & Accounts 2018 Governance: Corporate Governance Statement Remuneration decisions in FY18 Directors’ remuneration policy The activities of the Committee and key decisions in FY18 are set out below. This section describes the Group’s proposed remuneration structure for Directors which, if approved, will apply for up to three years from the date of the Annual General Meeting. The overarching principles of our remuneration policy are to provide a competitive package of fixed and variable pay that will enable the Group to ensure it has executives with the right skills and experience to drive the success of the Group, and that their remuneration is linked to shareholder interests and the Group’s long-term success. Our remuneration philosophy is: ● to promote the long-term success of the Group, with stretching performance targets which are rigorously and consistently applied ● to provide appropriate alignment between the Group’s strategic goals, shareholder returns and executive reward ● to have a competitive mix of base salary and short and long-term incentives, with an appropriate proportion of the package determined by stretching targets linked to the Group’s performance Executive Directors’ fixed and variable remuneration arrangements have been determined taking into account: ● the role, experience in the role, and performance of the Executive Director ● the location in which the Executive Director is working ● remuneration arrangements at UK listed companies of a similar size and complexity ● remuneration arrangements at UK telecommunications companies of a similar size and complexity, including companies with which the Group competes for talent ● best practice guidelines for UK listed companies set by institutional investor bodies Following an extensive review carried out by external consultants a number of actions were taken ● there was a rebasing of Executive salaries, reflecting the performance of the enlarged Group and their additional global responsibilities. ● The basis and awards under the bonus scheme were updated and linked intrinsically to delivering revenue, EBITDA and Cash targets ● Non-Executive Director salaries were not increased until June 2018 when increases were agreed by Executive Directors reflecting the significant support received during the year. Such sums were reinvested in Shares in the Company ● A Long-term Incentive Plan was introduced in 2018 which aligns Executive Directors with that of the Companies Shareholders following a review by External Consultants and approval from a panel of Shareholders The Group achieved forecast results in the year-ended 30 November 2018, with revenue of £55.4m (2017: £43.9m) and adjusted EBITDA of £6.8m (2017: £4.7m). As a result, Andrew Walwyn, Frank Waters and Simon Clifton will receive bonuses of 37.5% percent of their respective salaries. Additional uplift bonuses can be earned when performance materially exceeds targets. No such bonuses were awarded during the period. Long-Term Incentive Plan Following consultation with External Advisors, the Company’s Nominated Advisor and a Panel of Shareholders a LTIP was put in place to further ensure Executives are fully aligned with Shareholder Returns and to remove the subjectivity surrounding Option awards. The basis of the award is in line with best practice and is calculated by reference to two metrics, actual BBB share price performance and relative performance versus a basket of similar companies in the following weightings: ● 50% on how the actual BBB share price performs and ● 50% compared to how BBB performs against a basket of similar Companies Due to no share scheme running in 2017 an award of 200% of salary was made on launch with a view that this will revert to 100% of salary annually. During the course of the year the following Executive Directors were granted awards under the LTIP as follows: Director Options Price Date Vesting Andrew Walwyn 421,907 15p May 2018 May 2020 Frank Waters 338,968 15p May 2018 May 2020 Simon Clifton 329,953 15p May 2018 May 2020 37 Future policy table The key components of Executive Directors’ remuneration are as follows: Pension Benefits Purpose and link to strategy: Provide post-retirement benefits for participants in a cost-efficient and equitable manner. Operation: Pension contributions are provided by the Group as part of a legislatively compliant Workplace Pension Scheme that requires an overall contribution of 9% of gross base salary to be made by Year 3 of the scheme. This overall percentage contribution will be made up from a combination of contributions from the Executive Directors and the Group, with a choice of funding vehicles through either the Group Plan or by contributions being made to a personal SIPP chosen and set up by the Executive Director. Maximum opportunity: The CEO, CFO and CTO will receive a matching contribution of 1 percent (year 1), 3 percent (year 2) and 4.5 percent of salary (in Year 3 of the scheme) under his opt-in to the Group Workplace Pension Scheme. Subject to the applicable maximum contribution (£2,000 FY17). to The Committee does not anticipate pension benefits as being at a cost that would exceed 10 percent of base salary, notwithstanding future changes to pension legislation. the Group Performance metrics: None Purpose and link to strategy: To provide competitive benefits for each role. Operation: Benefits currently include the provision of private medical and dental insurance, life insurance, permanent health and disability insurance and car allowance. relocation package Reasonable including annual family visitation allowance, legal fees allowance and health insurance. Travel and subsistence allowances in line with the Group Expenses Policy and other benefits may be provided based on individual circumstances. Maximum opportunity: There is no overall maximum value set out for benefits. They are set at a level that is comparable to market practice and appropriate for individual and Group circumstances. The Committee retains the discretion to amend benefits in exceptional circumstances or in circumstances where factors outside of the Group’s control have materially changed (e.g. increases in insurance premiums). Performance metrics: None Fixed Pay Base salary Purpose and link to strategy: To attract and retain talent of the right calibre and with the ability to contribute to strategy, by ensuring base salaries are competitive in the relevant talent market. Operation: Base salaries are usually reviewed annually, with reference to individual performance, Group performance, market competitiveness, salary increases across the Group and the position holder’s experience, competence and criticality to the business. Any increases are generally effective from 1 December. Maximum opportunity: Executive Director salary increases will normally be in line with those for the wider executive population. employee However, higher salary increases may be made where there is a change in role or responsibilities. Performance metrics: Group performance against market expectations is taken into account when determining appropriate salary levels. 38 Bigblu Broadband plc | Annual Report & Accounts 2018 Variable Pay Annual bonus Purpose and link to strategy: Performance measures and targets are set prior to or shortly after the start of the relevant financial period. At the end of the financial period, the Remuneration Committee will determine the extent to which the targets have been achieved. Awards are typically delivered in cash; however, the Committee has discretion to defer awards in cash or in shares. The Committee has discretion and the contractual legal vehicle, to reduce or recoup the bonus in the event of serious financial misstatement or misconduct. In extreme cases of misconduct, the Committee may claw back annual bonus payments previously made. Operation: Performance measures and targets are set prior to or shortly after the start of the relevant financial period. At the end of the financial period, the Remuneration Committee will determine the extent to which the targets have been achieved. Awards are typically delivered in cash; however, the Committee has discretion to defer awards in cash or in shares. The Committee has discretion and the contractual legal vehicle, to reduce or recoup the bonus in the event of serious financial misstatement or misconduct. In extreme cases of misconduct, the Committee may claw back annual bonus payments previously made. Maximum opportunity: The base bonus opportunity for Executive Directors will be up to 75 percent of base salary. Up to 75 percent of maximum will vest for target performance. Performance above base performance can result in additional bonuses being paid linked to improved performance - ie paying for themselves. Performance metrics: The annual bonus will be based on achievement of financial targets (e.g. revenue growth, cash conversion, EBITDA). The Committee has discretion to adjust the formulaic bonus outcome downwards (or upwards with shareholder consultation) within the limits of the plan, to ensure alignment of pay with the underlying performance of the business. Governance: Corporate Governance Statement Non-Executive Directors’ Fees Purpose and link to strategy: To reflect the time commitment in preparing for and attending meetings, the duties and responsibilities of the role and the contribution expected from the Non-Executive Directors. Operation: Monthly invoiced fee for Chairman. Monthly invoiced fees for Non-Executive Directors. Additional fees paid to the Chairmen of Board Committees may be paid if there is a material increase in time commitment required. Non-Executive Directors do not participate in any bonus incentive schemes, nor do they receive any pension or benefits (other than nominal travel expenses). Non- Executive Directors will participate in the Company’s share option schemes. Maximum opportunity: Any increases to Non-Executive Director fees will be considered as a result of the outcome of a review process and taking into account wider market factors, e.g. inflation. There is no prescribed individual maximum fee. Further details are set out below. Performance metrics: None Notes to the policy table ● Revenue growth, adjusted EBITDA and cash generation are considered to be the best measures of the Group’s annual performance given our current size and stage of growth and will continue to determine at least 75% of the achievement criteria for annual bonus awards. The Committee will keep this under review and may select alternative measures as the Group evolves and strategic priorities change. ● Annual bonus targets will be selected prior to, or shortly after, the start of the financial period. Financial targets will be calibrated with reference to the Group’s budget for the upcoming financial period and the Group’s performance over the prior financial period. ● Differences in remuneration policy operated for other employees ● Other senior and key-role employee remuneration has some of the same components as set out in the policy, being base salary, annual bonus, long- term incentive participation and pension provision. However, there is no provision for Medical insurance, Permanent Health Insurance, Life assurance or Car Allowance for non-Executive employees. Annual incentive arrangements bonus and share a similar structure and pay-out arrangement, although the mix between performance-based and time-based awards, and the maximum award, varies by seniority and role. long-term 39 In recruiting a new Non-Executive Director, the Committee will use the policy as set out in the table below. Non-Executive Directors The appointments of each of the Chairman and the Non-Executive Directors are for a fixed term of 3 years, and subject to one third retirement by rotation and re-election at the AGM. Their letters of appointment set out the terms of their appointment and are available for inspection upon request. They are not eligible to participate in the annual bonus scheme, nor do they receive any additional pension or expenses (other than nominal travel expenses) on top of the fees disclosed below. They do however have eligibility to participate in the Company’s Share Schemes. Non-Executive Directors appointment may be terminated at any time upon written notice or in accordance with the articles and receive no compensation on termination. Non-Executive Director Role Appointment date Re-appointment date Michael Tobin Chairman September 2015 Paul Howard Non-Executive Director September 2015 Stephen Morana Non-Executive Director February 2017 Christopher Mills Non-Executive Director May 2018 May 2018 May 2018 - - Term of appointment 3 years 3 years 3 years 3 years Executive Directors Each of the Executive Directors entered into a service agreement with the Company as follows. Executive Director Role Contract date Re-appointment date Notice period Andrew Walwyn Chief Executive Officer May 2015 Frank Waters Simon Clifton Chief Financial Officer May 2015 Chief Technology Officer September 2016 - May 2018 May 2018 6 months 6 months 6 months The Employer is entitled to terminate an Executive Director’s employment by payment of a cash sum in lieu of notice, equal to (i) the basic salary that would have been payable, and (ii) the cost that would have been incurred in providing the Executive Director with medical insurance benefits for any unexpired portion of the notice period (the ‘‘Payment in Lieu’’). The Company can alternatively choose to continue providing the medical insurance benefits under item (ii) instead of paying a cash sum representing their cost. The Payment in Lieu can be paid in one lump sum or alternatively monthly instalments over the notice period. The Company’s policy on termination payments is to consider the circumstances on a case-by-case basis, taking into account the executive’s contractual terms, the circumstances of termination and any duty to mitigate. The Committee will continue to monitor market trends and developments over the next year in order to assess ongoing relevance for the Company’s remuneration practices. The Committee welcomes feedback from our shareholders as we remain committed to an open and transparent dialogue and hope to receive your support at the forthcoming AGM. On behalf of the Remuneration Committee. Michael Tobin Chairman of the Remuneration Committee 25 March 2019 40 Bigblu Broadband plc | Annual Report & Accounts 2018 Independent Auditor’s Report Opinion Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Our application of materiality We apply the concept of materiality in planning and performing our audit, in evaluating the effect of any identified misstatements and in forming our opinion. For the purpose of determining whether the financial statements are free from material misstatement, we define materiality as the magnitude of a misstatement or an omission from the financial statements or related disclosures that would make it probable that the judgement of a reasonable person, relying on the information would have been changed or influenced by the misstatement or omission. We also determine a level of performance materiality, which we used to determine the extent of testing needed, to reduce to an appropriately low level that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a while. We establish materiality for the financial statements as a whole to be £544,000 which is 1% of group revenue. Key audit risks were identified as impairment of intangibles assets, revenue recognition and going concern. We have audited the financial statements of Bigblu Broadband plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 30 November 2018 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statement of Financial Position, the Consolidated and Parent Company Statements of Cash Flows, the Consolidated and Parent Company Statements of Changes in Equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. In our opinion, the financial statements: ● give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 November 2018 and of the group’s loss for the year then ended; ● have been properly prepared in accordance with IFRSs as adopted by the European Union; and ● have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: ● the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or ● the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. 42 Bigblu Broadband plc | Annual Report & Accounts 2018 Independent Auditor’s Report An overview of the scope of our audit In arriving at our opinions set out in this report, we highlight the following risks that in our judgement had the greatest effect on the financial statements: Audit risk How we responded to the risk Impairment of intangible assets Our audit work included but was not restricted to: During the year to 30 November 2018 the group made £11.6m of acquisitions taking the total intangibles to £36.1m split between goodwill (£29.0m), customer contracts (£3.4m) and other intangibles (£3.7m). With the exception of goodwill, intangibles are amortised over two to three years, and goodwill is reviewed annually for impairment by the Group. There is a risk therefore that amortisation is not correctly calculated and that the impairment has not been thoroughly reviewed. ● Review of all acquisition agreements during the year ensuring materiality correct calculation of goodwill, contracts and IP values. ● Review of forecasts for each subsidiary and customer base to ensure carrying value of intangibles is not impaired. ● Review of impairment review to ensure appropriate discount factors have been applied. ● Review of amortisation calculations. Revenue Recognition Our audit work included but was not restricted to: The group generates revenue from the sale of airtime, data, hardware and installation in connection with the supply or broadband services. There is a risk therefore that revenue is inappropriately recognised or revenue is incorrectly apportioned to a product or service. ● Substantive testing on a sample of transactions ensuring inclusion in the correct revenue stream and period. Going Concern Our audit work included but was not restricted to: The group is financed by a mixture of current and non-current loans which are subject to covenants and repayment schedules. In the year ended 30 November 2018 the group incurred an operating loss of £13.0m There is a risk that the going concern basis of preparation is inappropriate. ● Review of budget and cash flow forecasts ● Review of post year end cash activity and management accounts ● Review of loan covenants to ensure compliance. ● Discussion with management regarding future plans and activities. ● Review of covenant compliance, during the year and post year end Our audit scope included the audit of each of the subsidiaries for the year/period ended 30 November 2018. Our audit work therefore covered 100% of Group revenue, Group loss and total Group assets and liabilities. The subsidiary audits were performed to subsidiary level materiality which was calculated for each subsidiary with reference to their respective turnover and was lower than or equal to Group materiality in each case. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 43 Opinions on other matters prescribed by the Companies Act 2006 Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report. This report is made solely to the Group’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Group’s members those matters we are required to state to them in an Auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Ian Cliffe (Senior Statutory Auditor) For and on behalf of haysmacintyre, Statutory Auditors 25 March 2019 10 Queen Street Place London EC4R 1AG In our opinion, based on the work undertaken in the course of the audit: ● the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and ● the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: ● adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or ● the parent company financial statements are not in agreement with the accounting records and returns; or ● certain disclosures of directors’ remuneration specified by law are not made; or ● we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. 44 Bigblu Broadband plc | Annual Report & Accounts 2018 Consolidated Statement of Comprehensive Income Statement of Comprehensive Income Revenue Cost of sales Gross profit Distribution expenses Administrative expenses Operating loss Finance costs Loss before tax Taxation on operations Loss for the financial year Other comprehensive expense Foreign currency translation difference Total comprehensive expense for the year Loss per share from operations Notes 2018 £’000 2 55,351 (32,859) 22,492 (10,931) (24,560) 2017 £’000 43,892 (28,315) 15,577 (9,284) (14,316) 3 7 8 (12,999) (8,023) (2,167) (15,166) 1,870 (13,296) (2,057) (10,080) 2,451 (7,629) (394) (13,690) (67) (7,696) Basic and diluted EPS 9 (25.8p) (19.7p) In accordance with section 408 of the Companies Act 2006 the parent company has not presented its own Income Statement, which resulted in a loss of £27,828k (2017: loss £4,208k). All results relate to continuing operations. The notes on pages 52 to 64 form an integral part of these financial statements. 45 Consolidated Statement of Financial Position Assets Non-current assets Property, plant and equipment Intangible assets Investments Total non-current assets Current assets Cash and cash equivalents Inventory Trade and other receivables Deferred tax asset Total current assets Total assets Current liabilities Trade and other payables Non-current liabilities Other payables Loans Deferred tax liability Total liabilities Net assets Equity Share capital Share premium Share option reserve Other equity reserve Foreign exchange translation reserve Reverse acquisition reserve Listing cost reserve Merger relief reserve Retained losses Total equity Notes 10 11 12 13 14 17 15 16 16 17 18 18 19 19 19 19 19 19 2018 £’000 5,517 36,087 53 41,657 5,067 1,950 9,893 882 17,792 59,449 As restated 2017 £’000 9,347 30,194 345 39,886 3,452 1,476 5,707 648 11,283 51,169 (31,313) (20,731) (409) (16,979) (657) (18,045) (49,358) 10,091 8,506 23,900 1,460 271 (2,156) (3,317) (219) 16,233 (34,587) 10,091 (3,586) (16,228) (1,292) (21,106) (41,837) 9,332 6,826 23,900 817 271 (2,520) (3,317) (219) 4,471 (20,897) 9,332 Approved by the Board on 25 March 2019 and signed on its behalf by: Andrew Walwyn Chief Executive Officer The notes on pages 52 to 64 form an integral part of these financial statements. 46 Bigblu Broadband plc | Annual Report & Accounts 2018 Company Statement of Financial Position Statements of Financial Position Assets Non-current assets Investments Current assets Cash and cash equivalents Trade and other receivables Total assets Liabilities Current liabilities Trade and other payables Non-current liabilities Non-current loans Net assets Equity Share capital Share premium Share option reserve Other equity reserve Listing cost reserve Merger relief reserve Retained losses Total equity Approved by the Board on 25 March 2019 and signed on its behalf by: Andrew Walwyn Chief Executive Officer The notes on pages 52 to 64 form an integral part of these financial statements. Notes 12 14 15 16 18 18 19 19 19 19 2018 £’000 5,625 5,625 915 26,680 27,595 33,220 2017 £’000 5,625 5,625 625 39,394 40,019 45,644 (2,632) (1,713) (16,628) 13,960 8,506 23,900 1,460 271 (219) 16,233 (36,191) 13,960 (16,228) 27,703 6,826 23,900 817 271 (219) 4,471 (8,363) 27,703 47 Consolidated Statement of Cash Flows Loss for the year Adjustments for: Interest charge Amortisation of intangible assets Release of grant creditors Depreciation of property, plant and equipment Tax credit Share based payments Foreign exchange movement (Increase) / decrease in inventories (Increase) in trade and other receivables Increase in trade and other payables Loss on disposals of fixed assets Cash generated from continuing operations Interest paid Tax paid Net cash inflow from operating activities Investing activities Purchase of property, plant and equipment Purchase of intangibles Purchase of investments Net cash used in investing activities Financing activities Cash within subsidiaries acquired Proceeds from issue of ordinary share capital Proceeds from bank revolving credit facility Loans received and paid within subsidiaries acquired Net cash generated from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year The notes on pages 52 to 64 form an integral part of these financial statements. Notes 2018 £’000 As restated 2017 £’000 (13,296) (7,629) 11 10 10 11 11 11 2,167 7,491 (2,556) 6,629 (1,870) 395 (130) (474) (4,445) 10,896 63 4,870 (1,478) (18) 3,374 (2,282) (5,498) (8,169) (15,949) 1,491 11,948 400 351 14,190 1,615 3,452 5,067 2,057 8,049 (582) 3,287 (2,451) 353 (1,285) 114 (207) 544 15 2,265 (1,406) - 859 (2,826) (4,362) (4,066) (11,254) - 7,518 4,500 (1,489) 10,529 134 3,318 3,452 48 Bigblu Broadband plc | Annual Report & Accounts 2018 Company Statement of Cash Flows Loss for the year Adjustments for: Interest charge Share based payments Increase in trade and other receivables Increase in trade and other payables Cash (outflow) / inflow from operating activities Interest paid Financing activities Proceeds from issue of ordinary share capital Proceeds from bank revolving credit facility Intercompany loans Net cash generated from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year The notes on pages 52 to 64 form an integral part of these financial statements. Statements of Cash Flows 2018 £’000 (27,828) 2,137 395 13,767 919 (10,610) 2017 £’000 (4,208) 2,011 353 (19) 2,120 257 (1,448) (1,406) 11,948 400 - 12,348 290 625 915 7,518 4,500 (10,533) 1,485 336 289 625 49 l a t o T y t i u q e 0 0 0 £ ’ f e i l e r r e g r e M 0 0 0 £ ’ e v r e s e r t s o c g n i t s i L 0 0 0 £ ’ e v r e s e r 0 0 0 £ ’ e v r e s e r 0 0 0 £ ’ e v r e s e r e s r e v e R i n g e r o F n o i t i s i u q c a e g n a h c x e r e h t O y t i u q e 0 0 0 £ e v r e s e r s e s s o l 0 0 0 £ ’ d e n i a t e R e r a h S n o i t p o 0 0 0 £ ’ e v r e s e r e r a h S 0 0 0 £ ’ i m u m e r p e r a h S l a t i p a c 0 0 0 £ ’ e t o N y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C 50 6 4 1 , 0 1 1 7 4 4 , ) 9 1 2 ( ) 7 1 3 3 ( , 6 2 7 1 7 2 ) 1 0 2 3 1 ( , 4 6 4 9 8 5 5 1 , 2 6 3 5 , 6 1 0 2 r e b m e c e D 1 t A ) 9 2 6 7 ( , 3 5 3 5 7 7 9 , ) 3 1 3 3 ( , - - - - - - - - - - - - - - - ) 6 4 2 3 ( , - - - - - - ) 7 6 ( ) 9 2 6 7 ( , - - - 3 5 3 - - - - - - 1 1 3 8 , 4 6 4 , 1 2 2 s t n e m y a p d e s a b - e r a h s d e l t t e s - y t i u q E e s n e p x e e v i s n e h e r p m o c r e h t O r a e y e h t r o f s s o L s e r a h s f o e u s s I 2 3 3 9 , 1 7 4 4 , ) 9 1 2 ( ) 7 1 3 3 ( , ) 0 2 5 2 ( , 1 7 2 ) 7 9 8 0 2 ( , 7 1 8 0 0 9 3 2 , 6 2 8 6 , 5 9 3 ) 0 3 ( - - ) 6 9 2 3 1 ( , - 0 9 6 3 1 , 2 6 7 , 1 1 - - - - - - - - - - - 4 6 3 - - - - ) 6 9 2 3 1 ( , - - - 8 4 2 5 9 3 ) 4 9 3 ( - - - - - - - - 0 8 6 , 1 8 1 2 2 s t n e m y a p d e s a b - e r a h s d e l t t e s y t i u q E e s n e p x e e v i s n e h e r p m o c r e h t O 7 1 0 2 r e b m e c e D 1 t A r a e y e h t r o f s s o L s e r a h s f o e u s s I 1 9 0 0 1 , 3 3 2 6 1 , ) 9 1 2 ( ) 7 1 3 3 ( , ) 6 5 1 , 2 ( 1 7 2 ) 7 8 5 4 3 ( , 0 6 4 , 1 0 0 9 3 2 , 6 0 5 8 , 8 1 0 2 r e b m e v o N 0 3 t A . s t n e m e t a t s l i a c n a n fi e s e h t f o t r a p l a r g e t n i n a m r o f 4 6 o t 2 5 s e g a p n o s e t o n e h T Bigblu Broadband plc | Annual Report & Accounts 2018 Statement of Changes in Equity 0 0 0 £ ’ 3 8 7 , 1 2 ) 8 0 2 4 ( , 3 5 3 5 7 7 9 , 3 0 7 7 2 , ) 8 2 8 7 2 ( , 5 9 3 0 9 6 3 1 , 0 6 9 3 1 , y t i u q e l a t o T d e n i a t e R f e i l e r r e g r e M y t i u q e r e h t O t s o c g n i t s i L n o i t p o e r a h S e r a h S y t i u q E n i s e g n a h C f o t n e m e t a t S y n a p m o C ) 8 2 8 7 2 ( , - - - - 2 6 7 , 1 1 - - - - - - ) 3 6 3 8 ( , 1 7 4 4 , 1 7 2 ) 9 1 2 ( - - s e s s o l 0 0 0 £ ’ ) 5 5 1 , 4 ( ) 8 0 2 4 ( , - - - - - - - - - 1 7 4 4 , 0 0 0 £ ’ e v r e s e r 1 7 2 0 0 0 £ ’ e v r e s e r ) 9 1 2 ( 0 0 0 £ ’ e v r e s e r 4 6 4 0 0 0 £ ’ e v r e s e r - - 3 5 3 - 7 1 8 8 4 2 5 9 3 0 0 0 £ ’ 9 8 5 5 1 , - - 1 1 3 8 , 0 0 0 £ ’ 2 6 3 5 , - - 4 6 4 , 1 0 0 9 3 2 , 6 2 8 6 , - - - - - 0 8 6 , 1 i m u m e r p l a t i p a c e r a h S e t o N 2 2 s t n e m y a p d e s a b - e r a h s d e l t t e s - y t i u q E 8 1 2 2 s t n e m y a p d e s a b - e r a h s d e l t t e s - y t i u q E 7 1 0 2 r e b m e c e D 1 t A r a e y e h t r o f s s o L s e r a h s f o e u s s I 6 1 0 2 r e b m e c e D 1 t A r a e y e h t r o f s s o L s e r a h s f o e u s s I ) 1 9 1 , 6 3 ( 3 3 2 6 1 , 1 7 2 ) 9 1 2 ( 0 6 4 , 1 0 0 9 3 2 , 6 0 5 8 , 8 1 0 2 r e b m e v o N 0 3 t A . s t n e m e t a t s l i a c n a n fi e s e h t f o t r a p l a r g e t n i n a m r o f 4 6 o t 2 5 s e g a p n o s e t o n e h T 51 Notes to the Financial Statements 1. Accounting Policies General information and basis of preparation Bigblu Broadband plc is a public limited company, incorporated and domiciled in England and Wales under the Companies Act 2006. The address of its registered office is 108 Churchill Road, Bicester, Oxfordshire, England OX26 4XD. The Company’s ordinary shares are traded on the AIM Market operated by the London Stock Exchange. The financial statements of Bigblu Broadband plc for the year ended 30 November 2018 were authorised for issue by the Board on 25 March 2019 and the balance sheets signed on the Board’s behalf by Andrew Walwyn. The nature of the Group’s operations and its principal activities is the provision of satellite and wireless broadband telecommunications and associated / related services and products. The Group prepares its consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the EU. The financial statements have been prepared on the historical cost basis. The consolidated financial statements are for the 12 months to 30 November 2018. This review covers the consolidated results of Bigblu Broadband plc and its subsidiary undertakings from the date of acquisition. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts in the financial statements. The areas involving a higher degree of judgement or complexity, or areas where assumptions or estimates are significant to the financial statements are disclosed further. The principal accounting policies set out below have been consistently applied to all the years presented in these financial statements, except as stated below. Standards issued and applied for the first time in 2018 The following new and revised Standards and Interpretations have been adopted in the current year. Unless otherwise disclosed, their adoption has had no material impact on the amounts reported in these financial statements: ● Amendment to IFRS 12 Disclosure of interest in other entities clarifying scope; ● Amendment to IAS 7 Statement of cashflows on disclosure initiative; and, IFRS16 is expected to be adopted from 1 December 2019. This will require all operating leases as a lessor to be reflected on the Balance Sheet. The potential impact on the Group is currently being assessed but given the nature of the operating leases held, this is not expected to have a significant impact. At 30 November 2018, operating lease commitments were £1.0m (see note 20) and operating lease payments for 2018 were £0.7m (see note 3). Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 6 to 18. The financial position of the Group, its cash flows and liquidity position are described in the Finance Review on pages 10 to 15. In addition note 23 to the financial statement includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposures to credit risk and liquidity risk. As at 30 November 2018 the Group generated an adjusted EBITDA before a number of non-cash and start-up costs expenses as shown on page 10, of £6.8m (2017: £4.7m), and with cash inflow from operations of £4.9m (2017: inflow of £2.3m) and a net increase in cash and cash equivalents of £1.6m in the year (2017: increase £0.1m). The Group balance sheet showed net cash at 30 November 2018 of £5.1m (2017: £3.5m). Having reviewed the Group’s budgets, projections and funding requirements, and taking account of reasonable possible changes in trading performance over the next twelve months, the Directors believe they have reasonable grounds for stating that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and Accounts. The Board has concluded that no matters have come to its attention which suggest that the Group will not be able to maintain its current terms of trade with customers and suppliers or indeed that it could not adopt relevant measures to reduce costs and free cash flow. The forecasts for the combined Group up to 30 April 2020, as extended as part of HSBC approval process, including due consideration of the continued operating losses of the Group, and projections, taking account of reasonably possible changes in trading performance, indicate that the Group has sufficient cash available to continue in operational existence throughout the forecast year and beyond. The Board has considered various alternative operating strategies should these be necessary and are satisfied that revised operating strategies could be adopted if and when necessary. As a consequence, the Board believes that the Group is well placed to manage its business risks, and longer-term strategic objectives, successfully. ● Amendment to IAS 12 Income taxes on recognition of deferred tax assets for unrealised losses Revenue The adoption of these standards has not had a material impact on the financial statements. The following new and revised Standards and Interpretations are issued. The Group intends to adopt these standards in 2019 and are currently not effective: ● Amendments to IFRS 9 Financial Instruments ● IFRS 16 Lease ● IFRS 15 Revenue recognition Revenue is recognised at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer net of sales taxes and discounts. The Group principally obtains revenue from providing the following telecommunications services: airtime usage, service charges, connection fees and equipment sales. Products and services may be sold separately or in bundled packages. Revenue for equipment sales is recognised when the invoice is raised. ● IAS 10 Transfers of Investment property ● Annual Improvements to IRS Standards 2014 – 2016 Cycle Revenue for service charges, connection fees and airtime usage are recognised at the time services are performed which is when the performance obligation is settled. ● Amendments to IAS 28 Investments in Associates and Joint Ventures ● IFRIC 22 Foreign currency transactions Of the standards and interpretations in issue but not yet effective, only IFRS15 is expected to have a material impact on the results and financial position of the Group. IFRS15 will be adopted for the year commencing 1 December 2018. This is expected to have no material impact on the current trading activity. Post year end a new contract has been signed that will require different treatment under IFRS15 than under the currently followed IAS18. 52 Bigblu Broadband plc | Annual Report & Accounts 2018 Notes to the Financial Statements Foreign currency For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in Pounds Sterling, which is the functional currency of the Group, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit and loss for the year. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average monthly rate of exchange ruling at the date of the transaction, unless exchange rates fluctuate significantly during that month, in which case the exchange rates at the date of transactions are used. Intangible Assets and Amortisation Goodwill and Intellectual Property are reviewed annually for impairment and the carrying value is reduced accordingly. Other intangible assets are amortised from the date they are available for use over their estimated useful lives as per below and this is charged to profit or loss on a straight-line basis: ● Customer Contracts – 2 years ● Software – 3 years ● Intellectual Property – 3 years Intangible assets recognised in a business combination Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date. Amortisation is charged to profit or loss on a straight-line basis (Within administration expenses) over the estimated useful lives of the intangible asset unless such lives are indefinite. These charges are included in other expenses in profit or loss. Intangible assets with an indefinite useful life are tested for impairment annually. Other intangible assets are amortised from the date they are available for use. The useful lives are as follows: Property, plant and equipment ● Customer Contracts – 2 years Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. Investments Depreciation is calculated under the straight-line method to write off the depreciable amount of the assets over their estimated useful lives. Depreciation of an asset does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. Investments are recorded at cost. Investments are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Investments in subsidiaries are stated at cost and reviewed for impairment on an annual basis. Land Building improvements Fixtures, fittings & infrastructure IT hardware and software Motor vehicles Rental Stock 0% on cost 20% on cost 10%–25% on cost 25% on cost 25% on cost 25% on cost The depreciation method, useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporting year to ensure that the amounts, method and years of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of the property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when the cost is incurred and it is probable that the future economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably. The carrying amount of parts that are replaced is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. The depreciation policy was amended in the year due to a revision of the asset useful life in relation to our fixed wireless assets in the UK and Norway. The amendment in policy was as follows: ● UK reduced to 4 years from 6 years (25% pa) ● Norway reduced to 10 years from a range of 5 to 15 years (10% pa) Gains or losses on disposal are included in Statement of Comprehensive Income. Goodwill Goodwill on acquisitions comprises the excess of the aggregate of the fair value of the consideration transferred, the fair value of any previously held interests, and the recognised value of the non-controlling interest in the acquiree, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. Goodwill is carried at cost less accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate a potential impairment. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Inventories Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in-first-out basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs to make the sale. Trade and Other Receivables Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade and other receivables are measured at amortised cost less impairment losses. The collectability of debt is assessed on a monthly basis such that individual and collective impairment provisions are made as and when required. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Trade and Other Payables Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payables are classified as current liabilities if payment is due within one year. If not, they are presented as non- current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 53 Impairment of Non-Financial Assets Current and deferred taxation The tax expense for the year comprises current and deferred tax. Tax is recognised in the Statement of Comprehensive Income, except that a charge attributable to an item of income and expense recognized as other comprehensive income or to an item recognized directly in equity is also recognised in other comprehensive income or directly in equity respectively. The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the Group operates and generates income. Deferred tax balances are recognized in respect of all timing differences that have originated but not reversed by the Statement of Financial Position date, except that: ● The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits; and ● Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met. Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred tax is determined using rates and laws that have been enacted or substantively enacted by the reporting date. Employee Entitlements Liabilities for wages and salaries, including non-monetary benefits for annual leave, which is expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employee’s services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. The liabilities for employee entitlements are carried at the present value of the estimated future cash flows. Pensions The Group operates a defined contribution scheme, the pension cost charge represents the contributions payable. Research & Development Expenditure incurred at the research stage is written off to the income statement as an expense when incurred. An intangible asset arising from development is capitalised when the Company demonstrates technical feasibility of completing the intangible asset, intention to complete and use or sell the asset, ability to use or sell the asset, existence of a market or, if to be used internally, the usefulness of the asset, availability of adequate technical, financial, and other resources to complete the asset and the cost of the asset can be measured reliably. Government Grants Grants are received as a subsidy towards both assets and expenditure. Grants in relation to assets are initially recognised as deferred income and released to the Statement of Comprehensive Income over the useful life of the asset. Grants in relation to expenditure are initially recognised as deferred income and released to the Statement of Comprehensive Income to match the related costs. The Group assesses annually whether there is any indication that any of its assets have been impaired. If such indication exists, the asset’s recoverable amount is estimated and compared to its carrying value. Where it is impossible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the smallest cash-generating unit to which the asset is allocated. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount an impairment loss is recognised immediately in profit or loss, unless the asset is carried at a revalued amount, in which case the impairment loss is recognised as revaluation decrease. For goodwill, intangible assets that have an indefinite life, and intangible assets not yet available for use, the recoverable amount is estimated annually and at the end of each reporting year if there is an indication of impairment. Financial Instruments The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial instruments are recognised initially at fair value plus transactions costs that are directly attributable to the acquisition or issue of the financial instrument, except for financial assets at fair value through profit or loss, which are initially measured at fair value, excluding transaction costs (which is recognised in profit or loss). Financial assets are de- recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risk and rewards of ownership. Equity Instruments Equity instruments issued by the Group are recorded at the value of proceeds received, net of costs directly attributable to the issue of the instruments. BGF Convertible Loan The Company’s subordinated and unsecured convertible £2.4m 2024 loan facility with the BGF has been accounted for using split accounting to recognise separate debt and equity components. The debt component is recognised on the date of inception or modification at the fair value of a similar liability that does not have an equity conversion option. The equity element is recognised as the difference between the fair value of the financial instrument as a whole and the fair value of the debt component. Any directly attributable transaction costs are allocated to the equity and debt components in proportion to their initial carrying amounts. Subsequently, the debt component is measured at amortised cost using the effective interest rate method. A redemption premium interest reserve is accrued monthly at £57k, over 60 months, repayable in 2021. Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor or lessee, are classified as operating leases. BBB, the lessor, owns rental stock where these assets are rental by its customers, the lessee. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Statement of Comprehensive Income on a straight-line basis over the life of the lease. Finance leases are recognised as assets and liabilities in the statement of financial position at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease. Minimum lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate on the remaining balance of the liability. 54 Bigblu Broadband plc | Annual Report & Accounts 2018 Critical accounting judgements and key areas of estimation uncertainty 2. Revenue Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances (a) Revenue recognition If the consideration promised by a customer is variable, a company will estimate it using either the expected value or the most likely amount, depending on which amount better predicts the amount of consideration to which the company will be entitled. Some or all of the estimated amount of variable consideration is included in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. (b) Property, plant and equipment Depreciation is derived using estimates of its expected useful life and residual value, which are reviewed annually. Management determines useful lives and residual values based on experience with similar assets. (c) Share based compensation The Group issues equity settled share based payments to certain Directors and employees, which have included grants of shares, warrants and options in the current year. Equity settled share based payments are measured at fair value at the date of grant, with the charge being recognised within the statement of comprehensive income over the year of service to which the grant relates. The fair value is measured using a Black-Scholes framework. The Directors have used judgement in the calculation of the fair values of the share based compensation which has been granted during the year, and different assumptions in the model would change the financial result of the business. (d) Forecasting The Group prepares medium-term forecasts based on Board approved budgets and 3-year financial models. These are used to support judgements in the preparation of the Group’s financial statements including the decision on whether to recognise deferred tax assets and for the Group’s going concern assessment. (e) Goodwill and other intangible assets Judgement is required in the annual impairment test of goodwill to ascertain if there are any signs of impairment. This test covers the future EBITDA performance against the carrying value of the Goodwill. The Group values other intangibles based on the following: ● Intellectual property based on estimated fair value ● Customer contracts have been valued by taking an average length of contract multiplied by an average margin per month. A discount rate has been applied to the calculated value to reflect customer churn and doubtful debts. The margin and applied discount will vary dependant on the customer base which factors in location, economy and history of the previous business.The contract value will be reviewed annually for impairment. (f) Trade and other receivables Judgement is required in ascertaining the collectability of debt and impairment provisions are made accordingly. Impairment is determined on the age of the debt and suitable provisions are then provided where appropriate. Notes to the Financial Statements 2018 £’000 45,104 4,921 5,326 55,351 2017 £’000 39,625 1,615 2,652 43,892 Recurring revenue- airtime Recurring revenue – other Other non recurring revenue Other non-recurring revenue includes government grant income. Segmental split of revenue: The Group’s operations are located throughout Europe and in Australia, with the head office located in the United Kingdom. The assets of the Group, cash and cash equivalents, are split across each of the regions, with the non-current assets shown below. The Group currently has one reportable segment – provision of broadband services – and categorises all revenue from operations to the segment. The chief operating decision maker is the Chief Financial Officer. The Group’s revenue from external customers, and the non- current assets by geographical location is detailed below: External revenue by location of customer Non-current assets by location of assets 2018 £’000 16,405 23,780 15,166 55,351 2017 £’000 14,083 14,450 15,359 2018 £’000 2017 £’000 29,684 22,900 8,650 3,323 8,767 6,219 43,892 41,657 39,886 United Kingdom Europe Rest of World 3. Loss from Operations The loss before tax has been arrived at after charging the following: 2018 £’000 2017 £’000 Depreciation of property plant & equipment 6,629 3,287 Amortisation of intangible assets (Note 11) 7,491 8,049 Operating lease payments (Note 20) Operating lease receipts Share based payments (Note 22) 680 298 395 514 306 353 Wages & salaries and social security costs (Note 5) 12,409 8,082 Pension costs (Note 5) Loss on disposal of Fixed Assets Foreign exchange differences 287 63 394 17 16 66 4. Auditor’s Remuneration Audit services Fees payable to the Group’s auditor for the audit of the Group’s annual accounts 45 44 2018 £’000 2017 £’000 Fees payable to the Group’s auditor for other services: Audit of the accounts of subsidiaries Tax fees 57 10 112 68 8 120 55 5. Staff Costs The aggregate remuneration of all employees (including directors) comprised: Wages and salaries Social security costs Pension costs b) Tax reconciliation 2018 £’000 2017 £’000 The taxation credit on the loss for the year differs from the amount computed by applying the corporation tax rate to the loss before tax for the following reasons: 11,241 1,168 287 12,696 7,602 480 17 8,099 Loss on ordinary activities before tax 2018 £’000 2017 £’000 (15,166) (10,080) Tax at UK corporation tax rate of 19% (2017: 19%) (2,882) (1,195) Tax effect of expenses that are not deductible in determining taxable profit 2,650 1,640 The average monthly number of people (Including the Executive Directors) employed during the year by category of employment: Non-taxable income Fixed asset differences R&D adjustment Number Number Adjustment for period periods Operating staff Sales staff Management and administrative staff 6. Directors’ Remuneration Salaries Fees Benefits Pension costs 137 32 71 240 2018 £’000 882 115 43 17 1,057 134 26 32 192 2017 £’000 788 92 60 7 947 The highest paid director’s aggregate remuneration was £340k (2017: £330k). Details of directors’ remuneration, including pension contributions, are set out in the Directors’ Report on page 20. 7. Finance Costs BGF unsecured loan interest payable Bank loan interest payable Revolving Credit Facility interest payable Hire purchase and finance lease interest payable Total interest payable BGF redemption premium and finance charges Total finance costs 2018 £’000 1,200 59 182 7 1,448 689 2,137 2017 £’000 1,060 44 121 2 1,227 830 2,057 Interest is payable on the BGF Unsecured Loan, Revolving Credit Facility and Bank Loan at 10%, 4.346% and 4.3% respectively. Hire purchase and finance lease interest is payable at 6%. Interest paid in the year amounts to £1,478k. - 155 (155) (233) (1,239) (227) 61 (44) (64) - - (1,549) (1,298) 59 Deferred tax not recognised Other timing differences Changes in deferred tax rate Tax credit at effective tax rate for the year (1,870) (2,451) c) Deferred Tax The deferred tax included in the balance sheet is as follows: Deferred tax asset Deferred tax liability 2018 £’000 882 (657) 225 2017 £’000 648 (1,292) (644) 9. Loss Per Share Basic earnings per share is calculated by dividing the loss attributable to shareholders by the weighted average number of ordinary shares in issue during the year. IAS 33 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease earnings per share, or increase the loss per share. For a loss-making Group with outstanding share options, net loss per share would be decreased by the exercise of options. Therefore, as per IAS33:36 the antidilutive potential ordinary shares are disregarded in the calculation of diluted EPS. Reconciliation of the loss and weighted average number of shares used in the calculation are set out below: On 28 May 2018 the Company reorganised its share capital by way of a consolidation (the “Consolidation”). Upon implementation of the Consolidation, every 15 ordinary shares of 1p each in the capital of the Company (“Existing Ordinary Shares”) then in issue were consolidated into 1 new ordinary share of 15p (“New Ordinary Share”). The weighted average number of shares for last year has been restated to reflect the consolidation. 30 November 2018 Loss £’000 Weighted Average No. of Shares Per Share Amount Pence 2018 £’000 (448) 30 (1,452) (1,870) 2017 £’000 - - (2,451) (2,451) Basic and diluted EPS Loss attributable to shareholders (13,296) 51,551,407 (25.8) 30 November 2017 Loss £’000 Weighted Average No. of Shares Per Share Amount Pence Original Basic and diluted EPS Loss attributable to shareholders (7,629) 579,563,625 (1.57) 30 November 2017 Loss £’000 Weighted Average No. of Shares Per Share Amount Pence Restated Basic and diluted EPS Loss attributable to shareholders: (7,629) 38,637,575 (19.7) 8. Taxation a) Tax credit for the year UK Corporation tax Overseas corporation tax Deferred tax credit Current tax credit 56 Bigblu Broadband plc | Annual Report & Accounts 2018 Notes to the Financial Statements 10. Property, Plant & Equipment - Group Land & Buildings £’000 Fixtures, Fittings & Infrastructure £’000 IT Hardware & Software £’000 Motor Vehicles £’000 Rental Stock £’000 Cost Restated at 1 December 2016 Additions Disposals Acquired through business combinations Restated at 30 November 2017 Exchange Differences Additions Disposals Acquired through business combinations At 30 November 2018 Accumulated Depreciation Restated at 1 December 2016 Depreciation on Acquisition Depreciation charge Disposals Restated at 30 November 2017 Exchange Differences Depreciation on Acquisition Depreciation charge Disposals At 30 November 2018 Net book value At 30 November 2018 Restated at 30 November 2017 - - - 229 229 - - - - 229 - 38 30 - 68 - - 23 - 91 138 161 7,013 1,143 - 3,643 11,799 54 1,505 (49) 140 13,449 1,267 1,370 2,225 - 4,862 131 96 5,553 (24) 10,618 2,831 6,937 1,208 163 - - 1,371 14 43 (1) 178 1,605 411 - 63 - 474 3 127 175 (1) 778 827 897 64 16 (28) 104 156 2 112 (116) 43 197 39 25 17 (13) 68 4 33 48 (78) 75 122 88 854 1,504 - - 2,358 15 622 - 769 3,764 142 - 952 - 1,094 15 226 830 - 2,165 1,599 1,264 Total £’000 9,139 2,826 (28) 3,976 15,913 85 2,282 (166) 1,130 19,244 1,859 1,433 3,287 (13) 6,566 153 482 6,629 (103) 13,727 5,517 9,347 Due to a revision of the asset useful life in relation to fixed wireless assets in the UK, and in Norway, an additional £3.1m of depreciation was provided in FY 2018. This was due to a full review of the useful economic life of such assets. The restatement in 2017 was due to the result of the grossing up of the deferred grant income between Property, Plant and Equipment and Other Payables. Leased assets Motor vehicles includes the following amounts where the group is a lessee under a finance lease. Cost Accumulated depreciation Net book value 2018 £000 169 (59) 110 2017 £000 161 (92) 69 11. Intangible Assets - Group Cost At 1 December 2016 Additions Exchange Differences Acquired through business combinations At 30 November 2017 Additions Transfers in from Investments Reclassification to deferred tax Reclassification of goodwill Exchange Difference Acquired through business combinations At 30 November 2018 Accumulated amortisation At 1 December 2016 Amortisation At 30 November 2017 Exchange Differences Amortisation At 30 November 2018 Net book value At 30 November 2018 At 30 November 2017 Goodwill £’000 Customer Contracts £’000 Software £’000 Intellectual Property £’000 14,687 - - 6,272 20,959 - - - (528) 467 8,169 29,067 1 - 1 - 110 111 28,956 20,958 14,280 - 328 2,834 17,442 474 292 (547) 528 119 2,880 21,188 3,168 7,834 11,002 29 6,743 17,774 3,414 6,440 280 307 - - 587 960 - - - - - 1,547 27 215 242 - 628 870 677 345 1,243 - 127 1,081 2,451 49 - - - (1) 551 3,050 - - - - 10 10 3,040 2,451 Total £’000 30,490 307 455 10,187 41,439 1,483 292 (547) - 585 11,600 54,852 3,196 8,049 11,245 29 7,491 18,765 36,087 30,194 57 Additons Goodwill arising on acquisition Goodwill arising from acquisitions made in the year was as follows: Consideration Fair value of assets & liabilities acquired Goodwill Sat Internet Services GmbH £’000 5,272 (660) 4,612 Open Sky S.R.L £’000 5,744 Total £’000 11,016 (2,187) (2,847) 3,557 8,169 The above consideration includes deferred consideration of £2.8m. Revenue and Profits from acquisitions in the year Revenue and profit after tax included in the Consolidated Statements of Comprehensive Income for the year ended 30 November 2018, from the acquisitions in the year are as follows: Post-acquisition Revenue Profit after tax Like for like revenue Sat Internet Services GmbH £’000 Open Sky S.R.L £’000 1,689 438 3,549 4,152 483 7,871 Total £’000 5,840 921 11,420 Like for like revenue represents income of the Group as though acquisitions took place at the beginning of the year. 12. Investments Subsidiaries Customer Contracts Group Company 2018 £’000 2017 £’000 2018 £’000 2017 £’000 - 53 53 - 5,625 5,625 345 345 - - 5,625 5,625 Opening balance: 345 53 5,625 5,625 Additions during the year: Netipsat customers Internet Anywhere customers - - Reclassification to intangible assets (292) 218 74 - - - - - - - Closing balance 53 345 5,625 5,625 (1) Sat Internet Services GmbH - On 15 May 2018, Bigblu Operations Limited, a wholly owned subsidiary of Bigblu Broadband plc, acquired the entire share capital of Sat Internet Services GmbH. The book value at acquisition, which is equivalent to fair value of the assets, was as follows: Goodwill Property, plant and equipment Inventory Other current assets Liabilities Fair value adjustments Intellectual Property Customer Contracts Deferred Tax Total consideration Satisfied by: Cash Shares Deferred consideration – see below Fair Value £’000 4,612 111 98 382 (767) (379) 264 1,200 (249) 5,272 3,789 877 606 5,272 Deferred consideration of £606k is calculated based on future earnings over a one year period. This is payable based on an agreed sum in year 1 and the balance based on profitability over the deferred consideration period post acquisition, which is based on EBITDA. The number of shares issued as part of the purchase price was 10,319,917, representing a value of £877k. (2) Open Sky S.R.L. - On 15 May 2018, Bigblu Operations Limited, a wholly owned subsidiary of Bigblu Broadband plc, acquired the entire share capital of Open Sky S.R.L. The book value at acquisition, which is equivalent to fair value of the assets, was as follows: Goodwill Property, plant and equipment Inventory Other current assets Liabilities Fair value adjustments Intellectual Property Customer Contracts Deferred Tax Total consideration Satisfied by: Cash Shares Deferred consideration – see below Fair Value £’000 3,557 627 283 3,044 (2,739) (661) 287 1,680 (334) 5,744 2,644 877 2,223 5,744 Deferred consideration of £2,223k is calculated based on future earnings, with £877k payable in 6 months, and the balance within one year of acquisition. This is payable based on an agreed 6 monthly period and the balance based on profitability over the deferred consideration period post acquisition, which is based on EBITDA. The number of shares issued as part of the purchase price was 10,319,917, representing a value of £877k. 58 Bigblu Broadband plc | Annual Report & Accounts 2018 Subsidiary Undertakings Bigblu Broadband plc and its subsidiaries hold more than 20% of the share capital of the companies below: Notes to the Financial Statements Class of Share Parent Company No of Shares % held by parent Ordinary Bigblu Broadband plc 20,266 of £0.01 each 100% Bigblu Operations Limited (Formerly Satellite Solutions Worldwide Limited) Bigblu Ireland Limited (Formerly Europasat Satellite (Ireland) Limited) Europasat (France) SAS Europasat Sp Z.o.o. Bigblu Services Holdings Limited (Formerly Avonline Satellite Services Holdings Ltd) Bigblu Services Limited (Formerly Avonline Satellite Services Ltd) Breiband.no.as SkyMesh Pty Ltd BorderNET Internet Pty Ltd Quickline Communications Ltd Clannet Broadband Ltd Address & Country of Incorporation Broadband House, 108 Churchill Road, Bicester, Oxfordshire OX26 4XD England Century House, Harold's Cross Road, Dublin 6W Ireland Atelier Village PMI 3-38 Rue Jean Jacques Mention Espace Industriel Nord 80000 Amiens France Połczyńska 31A, 01-001 Warszawa Poland Broadband House, 108 Churchill Road, Bicester, Oxfordshire OX26 4XD England Broadband House, 108 Churchill Road, Bicester, Oxfordshire OX26 4XD England Høgdaveien 1, 1540 Vestby Norway 37 Baxter Street, Fortitude Valley QLD 4006, Brisbane Australia 37 Baxter Street, Fortitude Valley QLD 4006, Brisbane Australia Broadband House, 108 Churchill Road, Bicester, Oxfordshire OX26 4XD England Broadband House, 108 Churchill Road, Bicester, Oxfordshire OX26 4XD England Sat Internet Services GmbH Getinternet GmbH Orbitcom GmbH Satellite de Sabedoria Lda Europasat Iberica Sociedad Limitada Justus-von-Liebig Straße 26 Neustadt am Rübenberge Germany Justus-von-Liebig Straße 26 Neustadt am Rübenberge Germany Justus-von-Liebig Straße 26 Neustadt am Rübenberge Germany Rua Comendador Armindo da Fonseca 6A 3100-436 Pombal Portugal Calle Estrasburgo, 5 - NAV 7, las Rozas de Madrid, 28232 , Madrid Spain Ordinary Bigblu Operations Limited 100 of €1 each 100% Ordinary Bigblu Operations Limited 5,000 of €1 each 100% Ordinary Bigblu Operations Limited 100 of PLN0.02 each 100% Ordinary Bigblu Operations Limited 50,000 of £1.60 each 100% 50,000 of £1 each 50,000 of £18.80 each Ordinary Bigblu Services Holdings Limited 2 of £1 each 100% Ordinary Bigblu Operations Limited 1,700,412 of 1.40Nok each 100% Ordinary Bigblu Operations Limited 20,898,680 of £0.196 100% Ordinary SkyMesh Pty Ltd Ordinary Bigblu Operations Limited each 2,863,105 of £0.09 each 28,571,428 of £0.07 each 100% 100% Ordinary Quickline Communications Ltd 4 of £1 each 100% Ordinary Sat Internet Services GmbH 25,000 shares of 1€ 100% each Ordinary Sat Internet Services GmbH 25,000 shares of 1€ 100% each Ordinary Sat Internet Services GmbH 1 share of 5,000€ 100% Ordinary Bigblu Operations Limited 300 of €10 each 100% Open Sky S.R.L. Corso San Felice e Fortunato 105 36100, Vicenza Italy Ordinary Bigblu Operations Limited Ordinary Bigblu Operations Limited 30,000 shares of 1€ each 25,000 shares of 1€ each 100% 100% 13. Inventory Group Finished goods 2018 £’000 1,950 2017 £’000 1,476 14. Trade and other receivables Trade receivables Other receivables Prepayments and accrued income Amounts due from group undertakings Group Company 2018 £’000 4,811 2,707 2017 £’000 3,018 729 2,375 1,960 2018 £’000 2017 £’000 - 68 86 - 35 61 - - 26,526 39,298 9,893 5,707 26,680 39,394 59 Movement in provision for impairment of receivables Individually impaired As at 1 December 2017 Charged to Income statement Utilised As at 30 November 2018 2018 £’000 613 1,273 (557) 1,329 2017 £’000 422 321 (130) 613 The Unsecured Loan is subordinated and repayable in May 2021. Interest is charged quarterly at a fixed rate of 10% pa. The unsecured Revolving Credit Facility obtained during the year is repayable by May 2024, and attracts interest at a fixed rate of 4.346%. Finance leases attract interest at a rate of 6%. Other payables relate to deferred consideration payable greater than one year. Maturity of finance leases The average credit days taken on sales of goods and services is 32 days (2017: 25 days). No interest is charged on receivables. Trade receivables are provided for based on estimated irrecoverable amounts from the sale of goods and services, determined by reference to past default experience and likelihood of recovery as assessed by the directors. Included in the Group’s trade receivable balance are debtors with a carrying amount of £826k (2017: £432k) which are past due at the reporting date. The directors consider that the carrying amount of trade receivables approximates to their fair value. Due less than 1 year Due 1 – 2 years Due 2 – 5 years Total Maturity analysis Amounts receivable ageing: Current 30-60 days 60-90 days 90-120 days As at 30 November 2018 Individually Impaired 2018 £’000 Individually Impaired 2017 £’000 Due 1 – 2 years Due 2 – 5 years 3,057 389 204 1,161 4,811 1,555 Due over 5 years Total 620 221 622 3,018 2018 £’000 43 35 61 139 2017 £’000 63 - - 63 Group 2018 £’000 447 11,728 4,900 17,075 As restated Group 2017 £’000 Company 2018 £’000 Company 2017 £’000 846 12,590 4,500 17,936 - 11,728 4,900 16,628 - 11,728 4,500 16,228 BGF loan and equity warrants A fully subordinated £12m 2024 unsecured loan note facility and associated equity warrants (the ‘BGF loan and option’) were received from BGF in 2016. These instruments are accounted for using split accounting which involves first determining the carrying amount of the debt component. This is done by measuring the net present value of the discounted cash flows of interest and capital repayments, ignoring the possibility of exercise of the equity warrants. The discount rate is the market rate at the time of inception for a similar liability that does not have an associated equity instrument. On this basis the debt component, held within ‘other non-current liabilities’, had a fair value as at 30 November 2018 of £11.7m (2017: £11.7m), and the equity component, held within ‘other equity reserves’, a fair value of £0.3m (2017: £0.3m). As at 30 November 2018, the fair value of the debt component had increased due to the unwinding of the interest rate discount over time, with a £830k (2017: £830k) charge going to finance costs in the income statement. This charge is split £141k (2017: £146k) within underlying interest charges and £689k (2017: £684k) within non- underlying finance costs, the latter amount being the additional annual charge associated with the redemption premium. 15. Trade and other payables Current Trade payables Amounts due to group undertakings Other taxes and social security Other payables Accruals and deferred income Finance leases Group 2018 £’000 9,677 - 2,954 9,226 9,413 43 31,313 As restated Group 2017 £’000 Company 2018 £’000 Company 2017 £’000 7,176 - 2,012 6,823 266 108 - 206 294 250 - - 4,657 2,052 1,169 63 20,731 - 2,632 - 1,713 Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average creditors days taken for trade purchases is 107 days (2017: 95 days). The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame. Within other payables is £6.4m (FY2017: £3.5m) of deferred consideration which relates to future years profits in relation to acquisitions made during the year. The directors consider that the carrying amount of trade and other payables approximates to their fair value. 16. Non-current liabilities Group 2018 £’000 11,728 As restated Group 2017 £’000 Company 2018 £’000 Company 2017 £’000 11,728 11,728 11,728 4,900 4,500 4,900 4,500 351 16,979 96 313 17,388 - - - 16,228 16,628 16,228 - 3,586 19,814 - - - - 16,628 16,228 Unsecured Loan Revolving credit facility Other loans Total loans Finance leases Other payables Total 60 Bigblu Broadband plc | Annual Report & Accounts 2018 Notes to the Financial Statements 17. Deferred Taxation 20. Operating Lease Arrangements At 1 December 2018 £’000 644 2017 £’000 3,545 The Group as lessee 2018 £’000 2017 £’000 Transfer to Statement of Comprehensive Income (1,452) (2,451) Deferred taxation adjustment on prior year acquisition - (1,229) Minimum lease payments under operating leases recognised as an expense in the year 680 514 Deferred taxation transfer Other differences At 30 November Deferred tax is provided as follows: Accelerated capital allowances Intangible assets Geographical split of deferred tax asset: United Kingdom Europe Rest of the World 18. Share Capital 583 - (225) 664 115 644 882 648 (657) (1,292) 225 (644) 68 803 11 882 78 523 47 648 At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non- cancellable operating leases, which fall due as follows: Within one year Within 2 – 5 years 2018 £’000 2017 £’000 466 557 1,023 439 684 1,123 2018 2017 £’000 £’000 The Group as lessor Minimum lease receipts under operating leases recognised as income in the year 298 306 No. of Shares No. Share Capital £ Share Premium £ At the balance sheet date, the Group had outstanding commitments for future minimum lease receipts under non-cancellable operating leases, which fall due as follows: At 30 November 2017 45,507,350 6,826,103 23,900,242 Shares issued in the year Shares issued at 15p each 10,802,656 1,620,396 Shares issued at 15p each 394,072 59,110 - - At 30 November 2018 56,704,078 8,505,609 23,900,242 Within one year Within 2 – 5 years 2018 £’000 2017 £’000 66 6 72 74 7 81 On 28 May 2018 the Company reorganised its share capital by way of a consolidation (the “Consolidation”). Upon implementation of the Consolidation, every 15 ordinary shares of 1p each in the capital of the Company (“Existing Ordinary Shares”) then in issue were consolidated into 1 new ordinary share of 15p (“New Ordinary Share”). The number of shares and the share capital as at 30 November 2017 has been restated to reflect this consolidation All issued share capital is fully paid up. All ordinary shares have a par value of £0.15. 19. Other Capital Reserves – Group Listing cost reserve 21. Related Party Transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Remuneration of key management personnel The remuneration of the directors, and the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures The listing cost reserve arose from expenses incurred on AIM listing. Short- term employment benefits Pension costs Share based payments Foreign exchange translation reserve The foreign exchange translation reserve is used to record exchange difference arising from the translation of the final statements of foreign operations. Share option reserve The share option reserve is used for the issue of share options during the year and charges relating to previously issued options. Merger relief reserve The merger relief reserve relates to share premium attributable to shares issued in relation to the acquisition of Bigblu Operations Limited in May 2015, and the current year acquisitions. Costs of £0.4m (2017: £nil) were offset against the merger relief reserve during 2018 in relation to the share issue for acquisition consideration. Other Equity Reserve Other Equity relates to the equity element of the BGF Convertible Loan described in note 16. Share Premium Share premium represents the excess consideration over nominal value net of issue costs and amounts to £23.9m (2017: £23.9m). Costs of £Nil (2017: £0.5m) were offset against the share premium account during 2018 in relation to funds raised from the issue of shares. 2018 £’000 1,093 17 395 1,505 2017 £’000 947 17 353 1,317 61 22. Share-Based Payments Warrants Share Options The Group has share option schemes for employees of the Group. Options are exercisable at the price agreed at the time of the issue of the share option. The performance conditions vary between employees. If the options remain unexercised after a period of 5 years from date of grant the options expire. Options are forfeited if the employee leaves the Group before the options vest unless agreed by the board. Details of the share options granted during the year are as follows: The Group has issued warrants to investors. Warrants are exercisable at the price agreed at the time of issue and can be exercised from 6 months following admission to AIM for a year of 3 years. There are no performance conditions attached. If the warrants remain unexercised after a year of 3 years from date of grant the warrants expire. Details of the warrants granted during the year are as follows: 2018 2017 Number of Share Options Weighted Average Exercise price Number of Share Options Weighted Average Exercise price 2,995,242 88.15p 1,828,575 70.30p (140,000) 114.45p (44,000) 70.31p Outstanding at beginning of year Outstanding at end of year Exercisable at end of year 2018 2017 Weighted average Exercise price Number of Warrants Weighted average Exercise price Number of Warrants 108,464 15.0p 108,464 15.0p 108,464 108,464 108,464 108,464 2,388,227 113.50p 1,210,667 114.45p 5,243,469 98.99p 2,995,242 88.15p The warrants outstanding at 30 November 2018 had a weighted average exercise price of 15.0p (2017: 15.0p), and a weighted average remaining contractual life of 1 year. (2017: 2 years). The inputs into the Black-Scholes model are as follows: Outstanding at beginning of year Cancelled during the year Granted during the year Outstanding at end of year Exercisable at end of year 1,337,242 81.65p 690,575 47.70p The options outstanding at 30 November 2018 had a weighted average exercise price of 98.99p (2017: 88.15p), and a weighted average remaining contractual life of 2 years (2017: 2 years). The inputs into the Black-Scholes model are as follows: Weighted average share price Weighted average exercise price Expected volatility Expected life Risk-free rate Long Term Incentive Plan 2018 2017 118.05p 108.75p 114.45p 87.45p 50% 3yrs 5% 50% 2yrs 5% During the year an executive long-term incentive plan (LTIP) was put in place following consultation with a number of shareholders with performance criteria based on 2 key metrics: 50% based on how the BBB share price performs and 50% based on how BBB performs against a basket of similar companies. Due to there being no share scheme in operation in 2017, an exceptional initial LTIP award of 200% of salary was agreed for participants on launch of the scheme. It was agreed that awards would be considered annually by the Remuneration committee but that future awards would be 100% of salary. Awards would be granted annually as part of a formal, annual, grant policy: ● within six weeks following the announcement of results; or ● when exceptional circumstances exist (e.g. the normal grant is delayed for some reason or an out of policy award needs to be granted). Detailed Plan Rules The Plan is being offered for the first time in 2018 and the remuneration committee of the Board of the Company shall have the right to decide, in its sole discretion, whether or not further awards will be granted in the future and to which employees those awards will be granted. The rules were clear that grants were at the discretion of the board including TSR (Total Shareholder Return) considerations that needed to be taken into account before further awards could be made. 62 Weighted average share price Weighted average exercise price Expected volatility Expected life Risk-free rate 2018 67.5p 15.0p 50% 2 yrs 5% 2017 67.5p 15.0p 50% 2 yrs 5% Expected volatility was determined by assessing the movements of the share price since the readmission to AIM in May 2015. The group recognised total expenses of £395k (2017: £353k), related to equity- settled share-based payment transactions as follows: Share option charge 2018 £’000 395 2017 £’000 353 23. Financial Risk Management Background In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout the financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. The “financial instruments” which are affected by these risks comprise borrowings, cash and liquid resources used to provide finance for the Group’s operations, together with various items such as trade debtors and trade creditors that arise directly from its operations, inter-company payables and receivables, and any derivatives transactions (such as interest rate swaps and forward foreign currency contracts) used to manage the risks from interest rate and currency rate volatility. General objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Board receives monthly reports through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below: Bigblu Broadband plc | Annual Report & Accounts 2018 Capital risk management Non-interest bearing liabilities Notes to the Financial Statements Details of trade and other payables falling due within one year are set out in Note 15. Currency risk The main currency exposure of the Group arises from the ownership of its subsidiaries in Europe and Australia. It is the Board’s policy not to hedge against movements in the Sterling/Australian Dollar, Sterling/ Norwegian Kroner and Sterling/Euro exchange rate. Other currency exposure derives from trading operations where goods and services are exported or raw materials and capital equipment are imported. These exposures may be managed by forward currency contracts, particularly when the amounts or periods to maturities are significant and at times when currencies are particularly volatile. Trading It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. 24. Financial instruments The Group has the following financial instruments: Financial assets Cash & cash equivalents Trade receivables Amounts owed by group undertakings Other receivables Total Financial liabilities Trade payables Amounts owed to group undertakings Accruals Other creditors Finance leases Total Group 2018 £’000 Group 2017 £’000 Company 2018 £’000 Company 2017 £’000 5,067 4,811 3,452 3,018 915 - 625 - - - 26,526 39,298 2,707 12,585 729 7,199 68 35 27,509 39,958 9,677 7,176 - - 5,853 9,226 139 1,633 6,823 63 266 108 2,052 - - 294 250 1,169 - - 24,895 15,695 2,426 1,713 The carrying value of financial instruments is a reasonable approximation of fair value due to the short-term maturities of these instruments. The Group manages its capital to ensure that entities in the Group will be able to meet their financial obligations as they arise while maximising the return to stakeholders. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in Notes 18 to 19. The Group raised £12.0m in May 2018 from the issue of new shares and a further £0.4m by way of revolving credit facility with HSBC. The Group utilised the majority of these funds to invest in future growth by acquiring a number of companies and businesses. Credit risk The Group’s principal financial assets are bank balances and cash, trade and other receivables and investments. The Group’s exposure to credit risk is primarily attributable to its trade receivables. Credit risk is managed locally by the management of each business unit. Prior to accepting new customers, credit checks are obtained from reputable external sources. The amounts presented in the balance sheet are net of allowance for doubtful receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction on the recoverability of the cash flows. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with low credit risk assigned by international credit-rating agencies. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The Group has no significant concentration of credit risk, other than with its own subsidiaries, the performances of which are closely monitored. The Directors confirm that the carrying amounts of monies owed by its subsidiaries approximate to their fair value. Liquidity risk Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, the cash position is continuously monitored to ensure that cash balances (or agreed facilities) meet expected requirements for a period of at least 90 days. The Board monitors annual cash budgets and updated forecasts against actual cash position on a monthly basis. At the balance sheet date, these projections indicated that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances. The maturity of financial liabilities is detailed in Note 16. Market risk Market risk arises from the Group’s use of interest bearing and foreign currency financial instruments. It is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk) or foreign exchange rates (currency risk). Interest rate risk The Group finances its operations through a mixture of retained profits, equity capital and bank facilities, including hire purchase and lease finance. The Group borrows in the desired currency at floating or fixed rates of interest and may then use interest rate swaps to secure the desired interest profile and manage exposure to interest rate fluctuations. Borrowings contractual maturities and effective interest rate analysis In respect of interest bearing financial liabilities, the table in note 16 indicates the undiscounted amounts due for the remaining contractual maturity (including interest payments based on the outstanding liability at the year end) and their effective interest rates. The ageing of these amounts is based on the earliest dates on which the Group can be required to pay. The HSBC facility is reported quarterly to the bank in the form of convenat complicance reporting, which monitors actuals performance by a number of specific monetary measurements. 63 25. Post Balance Sheet Events Eurobroadband Infrastructure In December 2018, the Company announced Eurobroadband Infrastructure (“EBI”), a subsidiary of Eutelsat (NYSE/Euronext: ETL), had selected the Company as its preferred partner in its program to launch a market leading superfast satellite broadband service to consumers and businesses across Europe at download speeds of up to 50 Mbps. Under this commercial arrangement, EBI will provide satellite network capacity, as well as assist with subscriber premises equipment, installation and marketing to support the ‘Konnect’ brand. The Company will promote and sell satellite broadband services while managing all activities related to subscriber management including installation, billing and support. Based on a shared growth model, the Company will be an integral part of EBI’s strategy of revitalising the distribution network over its KA-SAT satellite to boost the deployment of internet access via satellite across Europe in line with EU 2020 targets. Whilst the preferred partner program (PPP) agreement was only signed in December 2018, tangible progress has already been made and the Board expects EBI to contribute significantly to its accelerated organic revenue growth in 2019 and beyond. Quickline In January 2019, Quickline, a subsidiary of the Company, acquired 100% of JHCS, for a consideration of £0.3m. JHCS is a wireless network provider that supplies fast broadband to homes and businesses in rural Nottinghamshire and Lincolnshire. The network will be managed by Quickline without any disruption to the service. Over the years, Quickline has been working hard to bring superfast internet to rural and remote areas, which includes its key role in the development of 5GRIT – the 5G Rural Integrated Testbed. The acquisition of JHCS was an important step in this ongoing mission to deliver fast, reliable and secure broadband to small villages, farms, holiday parks and other sites that are often ignored by larger service providers. By offering speeds of up to 100 Mbps, the company is helping rural businesses enhance the way they operate on a daily basis. 64 Bigblu Broadband plc | Annual Report & Accounts 2018 Broadband House 108 Churchill Road Bicester Oxon OX26 4XD United Kingdom Tel: +44 (0)1869 222 900 Fax: +44 (0)1869 722 799 www.bbb-plc.com