Clear Secure Annual Report 2018

Plain-text annual report

Y o u G o v A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 8 Activating data Annual Report and Accounts 2018 YouGov is an international data and analytics group. Our core offering of opinion data is derived from our highly participative panel of 6 million people worldwide. We combine this continuous stream of data with our deep research expertise and broad industry experience into a systematic research and marketing platform. YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Contents 1 Strategic report Chair’s statement Our strategy Our business model Our reach Our media presence Our products and services Chief Executive’s review Chief Financial Officer’s report Principal risks 2 Governance report Chair’s Introduction and Corporate Governance Statement Board of Directors Corporate Governance Report Remuneration Report Directors’ Report Directors’ Responsibilities Statement Independent Auditors’ Report to the Members of YouGov plc on the Group Financial Statements 4 6 8 9 10 12 26 29 36 40 42 44 50 55 58 59 3 Financial statements Consolidated Income Statement 66 Consolidated Statement of Comprehensive Income 67 Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Principal Accounting Policies of the Consolidated Financial Statements Notes to the Consolidated Financial Statements Independent Auditors’ Report to the Members of YouGov plc on the Parent Company Financial Statements Parent Company Statement of Financial Position Parent Company Statement of Changes in Equity Parent Company Statement of Cash Flows 68 69 70 71 82 108 111 112 113 Notes to the Parent Company Financial Statements 114 4 Additional information Notice of Annual General Meeting Notes to the Notice of Annual General Meeting 128 130 For more information visit: yougov.co.uk/about/investors Financial & operational highlights • Group revenue increased by 9% to £116.6m (12% on a constant currency basis) • Adjusted operating profit up by 35% to £19.7m, adjusted profit before tax up 42% to £23.3m and adjusted earnings per share up by 52% to 16.6p • Cash generated from operations (before paying interest and tax) increased by 25% to £23.6m (2017: £18.9m) • Strong cash conversion1 of 119% of adjusted operating profit (2017: 130%) • Net cash balance of £30.6m (2017: £23.2m) • Recommended dividend increased by 50% to 3.0p per share • Data Products and Services revenue up by 25% to £59.4m (28% on a constant currency basis); now represents 50% of Group total (2017: 44%) – Data Products revenue increased by 26% (30% at constant currency) to £30.4m – Data Services revenue increased by 24% (26% at constant currency) to £29.0m • Data Products and Services adjusted operating profit increased by 54% • Custom Research revenue down by 3% (static at constant currency) to £58.7m as expected due to strategic focus on higher margin work; resulting in adjusted operating profit of £14.1m, an increase of 59% • US remains largest profit generator with adjusted operating profit increasing by 78% to £16.6m Summary of financial results Turnover £116.6m 2017: £107.0m Adjusted earnings per share1 16.6p 2017: 10.9p Adjusted operating profit1 Statutory profit before tax £19.7m 2017: £14.5m £11.8m 2017: £7.9m Operating cash generation Statutory operating profit £23.6m 2017: £18.9m £11.8m 2017: £7.6m Adjusted profit before tax1 Statutory earnings per share £23.3m 2017: £16.4m 7.7p 2017: 4.4p 1 Defined in the explanation of alternative performance measures on page 35. 1 1 2 YouGov Annual Report and Accounts 2018 Strategic report Chair’s statement Our strategy Our business model Our reach Our media presence Our products and services Chief Executive’s review Chief Financial Officer’s report Principal risks 4 6 8 9 10 12 26 29 36 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 3 STRATEGIC REPORT Chair’s statement for the year ended 31 July 2018 It has been another year of strong organic growth in revenue well above the average across our industry market rate1, with an improvement in margins and a resulting increase in profitability. YouGov has one of the world’s top international market research and data analytics networks. We now operate from 35 offices in 22 countries. This enables us to serve clients in more than 50 national markets. We operate a global panel of over 6 million engaged panellists who share their data with us in ways that are fully compliant with data protection and data privacy laws, including the new European Union General Data Protection Regulation (“GDPR”) which came into force during the year bringing with it a higher standard for compliance. Results and dividend Group revenues of £116.6m were 9% up on the previous financial year in reported terms and 12% up in constant currency. Adjusted operating profit2 was up by 35% to £19.7m. This reflects improved margins which resulted both from operating efficiencies and a planned change of business mix in line with our strategy to focus on subscription data products. We ended the financial year in July with a net cash balance of £30.6m. The Board is pleased with operating performance, which is at the top end of the current five-year plan with a year to go, and remains confident of future growth potential. Accordingly, we are pleased to recommend a dividend increase of 50% to 3.0 pence per share payable on 17 December 2018. Strategy and the next five-year plan The YouGov Board adopts a long-term planning process to allow us to address changing market needs and to invest to have the right skills, technology and resources to support our ambitions for the business. Our first five-year plan, which started on 1 August 2014 and will end on 31 July 2019, gave priority to shifting the balance of the business from one-off custom research to syndicated data products provided on a subscription basis. This required us to move further away from the traditional market research model – a consulting model – to a real-time data analytics model. We believe this syndicated-data subscription approach provides us with a higher quality of earnings and is a better fit for the needs of clients who increasingly demand rapid analysis of real-time data on an international basis. The Board is currently finalising our second five-year plan, which will run for the period from 1 August 2018 to 31 July 2023. The two plans will overlap for one year to avoid a “cliff-edge” of incentives and thus avoid short-termist behaviour. We intend to share the details of the new five-year plan with the Company’s major shareholders, and to seek their feedback on a new long-term incentive plan tied to it, in the spring of 2019. 1 According to the ESOMAR Global Market Research Report published in September 2018, the global research market grew by 3.3% in 2017 (or by 1.0% after inflationary effects are factored in). 2 Defined in the explanation of alternative performance measures on page 35. 4 YouGov Annual Report and Accounts 2018 Turnover £m £116.6m + 9% 67.4 76.1 88.2 107.0 116.6 2014 2015 2016 2017 2018 Adjusted operating proﬁt1 £m £19.7m + 35% 7.4 8.6 10.9 14.5 19.7 2014 2015 2016 2017 2018 Operating cash generation £m £23.6m + 25% 9.0 10.4 14.1 18.9 23.6 2014 2015 2016 2017 2018 Adjusted earnings per share2 pence 16.6p + 52% 6.1 7.0 8.8 10.9 16.6 2014 2015 2016 2017 2018 Adjusted proﬁt before tax2 £m £23.3m + 42% 7.7 9.1 13.3 16.4 23.3 2014 2015 2016 2017 2018 Statutory operating proﬁt £m £11.8m + 56% 1.0 2.9 4.3 7.6 11.8 2014 2015 2016 2017 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n The success of our initial five-year plan can be seen in the outcome of this the fourth year we have reported.” Board composition and governance framework The past year has seen changes as we have strengthened our Board. In December 2017, we appointed two new Executive Directors. Alex McIntosh, previously the Group’s Chief Strategy Officer, was promoted to the role of Chief Financial Officer and took over from Alan Newman who retired in December 2017. Sundip Chahal, the Group’s Chief Operating Officer since 2014, joined the Board reflecting the increased scope of his role. Doug Rivers, Chief Scientist, stepped down from the Board but continues in his full- time senior executive role with an expanded remit for managing the Group’s global technology development teams. Additionally in December 2017, Andrea Newman joined us as a Non-Executive Director. As the Global Head of Marketing – Wealth and Brand Communications at HSBC Holdings plc she brings great experience and insight into the needs of international marketing clients. After the start of the new financial year, in September 2018, Ashley Martin joined us as a Non-Executive Director. With effect from 1 November 2018, Ashley will chair the YouGov Board’s Audit & Risk Committee, taking over from Nick Jones who will be remaining on the Committee and continuing in his role as Senior Independent Director. To support our newly composed Board, during the year we added additional resource to the Corporate Secretariat and reviewed and updated our board evaluation and succession planning procedures. We have been following the Quoted Companies Alliance Corporate Governance Code since 2014. We were pleased to adopt the revised code during the year (the “QCA Code 2018”) and are confident in our application of its ten principles in our governance framework. In line with the revised code, it is intended that from the 2019 AGM onwards all Directors will retire and be subject to re-election by the Shareholders at each AGM. With six independent Non-Executive Directors of varied professional backgrounds, and three experienced Executive Directors, we feel the YouGov Board exhibits a good balance of skills and knowledge combined with the necessary challenge and external perspective to support the increased scale and ambition of our business. Roger Parry Chair 9 October 2018 5 STRATEGIC REPORT STRATEGIC REPORT Our strategy In the early 2000s, then a fledgling UK-based market research firm, YouGov pioneered the use of the internet to undertake surveys and collect the results. The YouGov model was founded on our belief that, done properly, internet-based research is more accurate than traditional market research methods, while being faster, more flexible and richer in data. Our traditional competitors have, mostly, recognised this and also moved to internet-based research. Our business model has evolved in keeping with the growth of internet usage, the advancement of big data analytics, and the changing needs of our clients. In 2014, we adopted an ambitious five-year plan for transitioning YouGov from a market research business to a research data and analytics business. Key to the transition plan have been the objectives of significantly growing our Data Products and Services divisions, and better aligning our Custom Research division with Data Products and Services. In order to achieve these objectives we have invested in developing not only our suite of products and services (see pages 12 to 21), but also the technical infrastructure which underpins it (see pages 22 and 23), as well as continuing to innovate (see pages 24 and 25). We are successfully implementing our clearly defined strategy of developing smarter alternatives to traditional market research – based on connected data, new analytical tools and innovative applications – and bringing it all together into a single system for applied research. As we move towards announcing our next five-year plan, we are confident we have a clearly superior product that is becoming ever more relevant to the market as we continue to scale and innovate. Marketers are in a constant arms race with each other for greater efficiency in reaching their target groups and greater effectiveness in converting them to buying. The key elements of this arms race are the richness, relevance and accuracy of marketing data, and the tools to activate data. Fall behind in this race and you are taking a big risk as markets often change quickly, decisively, and unexpectedly. YouGov has continued to build a market leading position in each of these elements. We have the best data and the best tools in the market. • The richness of our data – held in the Cube, our unique data library – provides our clients with exceptionally granular insights on their target audiences. The Cube holds more than 200,000 variables of data that are continuously being updated. • The relevance of our data – collected from a proprietary panel of over 6 million engaged members worldwide – means that it can effectively be put to use in live marketing campaigns. The panel provides single-source data collected across multiple devices, media and environments to give the best insights. • The accuracy of our data means that it is reliable, even at the most granular level. This can often only be achieved using advanced data analytics such as MRP (Multilevel Regression with Post-stratification), an advanced statistical methodology which YouGov pioneered and demonstrated to great success in the 2017 UK General Election. We are now applying MRP to other kinds of data, giving us a further competitive edge. In addition to focussing on the quality of our data, we have continued to make targeted investments in research and development to develop innovative tools. For example, Crunch allows users to process large data sets and conduct complex analysis with drag-and-drop ease at browsable speeds. It is becoming increasingly embedded in the workflows of our leading clients. Another example is Collaborate, our new self- service tool, which allows users to produce survey questionnaires quickly and efficiently and enhances the commissioning of research. 6 YouGov Annual Report and Accounts 2018 From A/B Testing to Artificial Intelligence, the technology of decision-making is becoming ever more important to marketing professionals. In response to this trend, YouGov is creating data products that are less like conventional market research studies and more like direct data applications – sophisticated tools allowing rich, relevant and accurate data to be usable in real-time. We are shortly launching YouGov Ratings, our new popularity and awareness metric for thousands of entities including celebrities, politicians, sports teams, music acts and brands – available for free on our website. Ratings has been designed as a showcase for the quality and breadth of our data, to put YouGov at the heart of everyday conversations. YouGov has increasingly been supporting brands and media agency clients with improved ad targeting. We have done this through a new proposition, YouGov Audience Data, which fuses YouGov Profiles with trusted partners that on-board our data into the digital ecosystem. YouGov is further evolving the model through the development of our new blockchain-based platform, YouGov Direct. A prototype of the YouGov Direct platform will be operational with a test panel and small group of pioneer clients within this calendar year. To create high-quality, in-depth, connected data – especially since the introduction of the GDPR – one needs panellists who are highly engaged and have granted (and frequently updated) permissions for the use of their personal data by third parties. In response to this, YouGov is innovating with blockchain technology to deliver a way to permit and verify the data exchange between our panellists and advertisers. Through the design of a platform intended to make data users (companies) accountable to individual data suppliers (panellists), we are creating new opportunities for research, activation and direct marketing. In addition to these innovations, we have continued to focus on improving the connectedness and interoperability of our products and services aligning them in a single connected system to support all stages of the marketing workflow. As our system develops, so does the opportunity within our markets. We envisage further growth opportunities for YouGov as we begin to play an upstream role in the marketing ecosystem, details of which will be provided when we announce our new five-year strategic plan in Spring 2019. Stephan Shakespeare Chief Executive Officer 9 October 2018 YouGov ranked in the top ten fastest growing businesses in the MRS Research Live Industry Report 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 7 STRATEGIC REPORT Our business model YouGov is an international research data and analytics group. Our value chain is a virtuous circle consisting of a highly engaged online panel, innovative data collection methods, powerful analytics technologies and sophisticated research methodologies, delivery of high-margin syndicated data products and services, expert insights and an authoritative media presence. Our reach – page 9 Our media presence – pages 10 and 11 Our products and services – pages 12 to 21 Our data infrastructure – pages 22 and 23 Our data innovations – pages 24 and 25 Our core offering of opinion data is derived from our highly participative panel of over 6 million people worldwide who provide us with live, continuous streams of data. We capture these streams of data via our variety of data collection platforms and collect them together in the YouGov Cube, our unique connected data library. We maximise the value of all this connected data through the application of leading-edge analytics and research methodologies, allowing us to offer to our clients an innovative and systematic research products and services which together provide a platform which can be used to plan, manage and refine all types of marketing campaigns. Rich interaction with our panel Authoritative media presence Partnerships with clients Variety of data collection platforms Leading-edge analytics technology Integrated suite of data products and services Expert researchers 8 YouGov Annual Report and Accounts 2018 Our reach YouGov has one of the world’s top international market research and data analytics networks. We have over 6 million panellists covering 42 countries. We have offices in 34 cities across Europe, USA, the Middle East and Asia Pacific. over 6mpanellists Panellists in 42countries i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i 18 17 16 24 19 23 21 20 22 11 4 8 9 5 6 2 3 1 13 7 10 12 14 15 26 25 27 29 28 32 33 30 31 Cities in which we have offices 1. London 2. Manchester 3. Guildford 4. Cologne 5. Berlin 6. Frankfurt 7. Barcelona 8. Milan 9. Copenhagen 10. Helsinki 11. Oslo 12. Stockholm 13. Paris 14. Warsaw 15. Bucharest 16. Redwood City, CA. 17. San Francisco, CA. 18. Portland, OR. 19. Cheshire, CT. 20. New York, N.Y. 21. Herndon, VA. 22. Washington D.C. 23. Chicago, IL. 24. Boston, MA. 25. Dubai 26. Erbil 27. Mumbai 34 28. Hong Kong 29. Shanghai 30. Singapore 31. Jakarta 32. Bangkok 33. Kuala Lumpur 34. Sydney l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 9 STRATEGIC REPORT Our media presence How your motivations in life change as you get older, according to new study It’s only natural that what motivates you in life should change as you age, but a new YouGov study shines a light on just how that manifests itself. The research confirms that younger people are more likely to feel motivated by goals, money and enthusiasm from others, whereas older generations are more inspired by their partners, family and nature. The Independent, 5 July 2018 Indonesians have no stomach for artificial meat, study shows Indonesian consumers have not recognized the benefits of artificial meat, data from UK-based research firm YouGov indicates. YouGov gathered data from 1,002 respondents in Indonesia between Dec. 5 and 12 last year via its YouGov Omnibus research service. The Jakarta Post, 13 March 2018 Brexit YouGov Opinion Poll Shows Increasing Numbers Regret Decision To Leave EU An increasing number of people regret Britain’s decision to leave the EU, an opinion poll has found. More respondents to the latest YouGov survey on Brexit said the UK’s decision to leave was wrong than at any point since the June 2016 referendum. Some 47 percent of the 1,680 adults surveyed (pdf) said it was wrong to leave the EU in hindsight, compared with 42 percent who said it was right to leave. The Huffington Post, 14 October 2017 10 YouGov Annual Report and Accounts 2018 Music Piracy is Down in the UK, According to YouGov The past few years has seen an explosion in different ways to access media content easily and legally. Now the latest YouGov study has found fewer British people are pirating their music compared to five years ago. Gizmodo, 2 August 2018 Two-thirds of children don’t know what a floppy disk is, survey reveals It’s the universal icon for ‘Save’, but it seems that many youngsters have no idea what a floppy disk actually is. A new YouGov survey of 2,011 children aged 6-18 examined how familiar kids are with technology from previous generations. Results revealed that two-thirds of the children either didn’t know what a floppy disk was, or incorrectly identified it. The Mirror, 12 May 2018 Liverpool fans are noisiest in Premier League, says fan poll Liverpool fans have been voted as the Premier League’s noisiest – with Manchester United supporters even conceding the Anfield club have their favourite rival song. The findings were made in a poll of over 4,000 followers of top-flight teams, former players and managers conducted by Barclays and YouGov. SkySports, 13 April 2018 Majority of Leave voters think Britain should quit Eurovision Forget about leaving Europe – what about the far more serious matter of whether Britain should leave Eurovision? That’s the big question YouGov has been asking and, much like the issue of whether or not we should quit the EU, it’s divided opinion. Perhaps not too surprisingly, the majority of Leave voters think the song contest is another European institution we can do without. Yahoo News, 11 May 2018 Bill Gates and Angelina Jolie top a global survey of the most admired people Microsoft co-founder Bill Gates has been named the world’s most admired man and Academy Award-winning actress Angelina Jolie the most admired woman in a YouGov survey. Philanthropist Gates and humanitarian Jolie have topped the poll in each of the annual surveys, since the study introduced separate rankings for the sexes in 2015. For its latest survey, the market researcher interviewed over 37,000 people from 35 countries, with the final figures calculated by the percentage share of admiration each person received overall. CNBC, 12 April 2018 Chi sono le 20 donne più ammirate al mondo: al primo posto Angelina Jolie, poi Michelle Obama e Oprah Winfrey YouGov ha stilato la classifica delle personalità più considerate in 35 Paesi nel 2018. Tra le new entry, Theresa May, artiste asiatiche e attrici indiane. Corriere, 12 April 2018 The Spice Girls: The UK’s favourite band member REVEALED in NEW poll One of the biggest girl bands of all time might be making a comeback later this year. But of Victoria Beckham, Mel B, Mel C, Geri Horner and Emma Bunton, who is the UK’s favourite member of The Spice Girls? Now in a new YouGov poll the nation’s favourite has been revealed as Baby Spice herself. Of 31,000 Brits polled, Bunton took up 37% of the vote followed by Sporty (Mel C) at 23%, Ginger (Geri) at 19%, Posh (Victoria) at 12% and Scary (Mel B) at 9%. The Express, 9 April 2018 IHOP’s name change stunt was a flop It’s been more than a week since IHOP teased the public about its name change to IHOb – and while lots of people are talking about the pancake joint, the publicity stunt has not resulted in more diners in its 1,750 eateries, according to research. Interest in dining at IHOP has remained relatively unchanged, according to YouGov BrandIndex, which is releasing a survey on Wednesday about the campaign. New York Post, 19 June 2018 Young India not so hopeful about job prospects India’s urban youth remains overwhelmingly pessimistic about job prospects, shows a recent survey conducted by market research firm YouGov in collaboration with Mint. Mint, 3 September 2018 1st YouGov is the most quoted market research source in the UK i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 11 STRATEGIC REPORT Our products and services Our suite of products and services Using the YouGov system, our clients can: YouGov’s suite of products and services consists of three divisions: •  Identify consumer segments that represent opportunities for growth; • Data Products (includes our BrandIndex and Profiles products) •  Profile those segments to help create content and messaging • Data Services (includes our fast-turnaround Omnibus service) that will resonate; • Custom Research (quantitative and qualitative research services) Through the continued development of innovative data solutions and expansion of our data infrastructure, we are improving the interoperability and connectedness of all of our products and services. Together, our proprietary decision-making product tools, services and resources provide a system which supports key players in the advertising and marketing eco-system – including brand owners, media agencies, advertising agencies, public relations firms and media owners – to manage their entire marketing workflow. •  Target those segments based on our media profiling data and reach them using our digital advertising partnerships; •  Track the performance of a campaign once it has launched and see its impact on key brand metrics; •  Measure the impact of a campaign and understand how it resonates with the target audience; and •  Evaluate why consumers are responding as they are and apply campaign learnings to future tactical marketing decisions. t e a E v a l u Identify e r u s a e M YouGov’s complementary suite of data products and services can support clients with all stages of the marketing workflow e l f o r P Tra ck e t g r T a Data Products – pages 14 to 17 Data Services – pages 18 and 19 Custom Research – pages 20 and 21 Data Infrastructure – page 22 and 23 Data Innovations – page 24 and 25 12 YouGov Annual Report and Accounts 2018 Case study: Using YouGov’s suite of Data Products and Services to identify a competitive edge With many iconic brands in jeopardy in an increasingly competitive US retail market, staying relevant to consumers has never been more important to retailers. A major US clothing and accessories retail brand asked YouGov to determine the attributes that were most associated with the brand and indicative of its relevance and success in the marketplace. The retailer hoped to identify what consumer perceptions have led to its sustained growth, and to use these insights to continue to outperform its competitors. A fast-turnaround YouGov Omnibus survey was undertaken to determine which attributes people most associated with the retailer’s brand. A qualifier was added to the survey to ensure that only customers of the retailer were interviewed. The respondents were asked to select which attributes they associated with the retail brand such as “Cool”, “Fun”, “Boring”, “Inspiring” and “Changing for the better”. The results were loaded into YouGov’s consumer segmentation tool, YouGov Profiles, for more granular examination. By connecting the collected attributes to other key variables in YouGov Profiles, the retailer was able to create segmentations of potential target consumer groups. These segmentations could then be used to assess where the group should focus its marketing budget to achieve maximum return on investment. The combined data showed that respondents who said the clothing brand was “Cool” were extremely likely to be in the market to purchase clothes in the next 90 days, and significantly over- indexed in their intent to purchase merchandise from the retailer. This suggested that the group who rated the retailer as “Cool” would be a critical target audience for future campaigns. Using this same process, it was determined that “Cool” was also the top ranking attribute for two of the retailer’s closest competitors. The retailer then took a deeper look at their newly established key target group – those who think their company is “Cool”. Using the variety of demographic, psychographic, attitudinal, lifestyle, and media consumption data available around this audience through Profiles, the retailer was able to determine the best channels by which to reach this target group and re-enforce their status as “Cool”. The retailer used this wealth of data to identify key retail therapy moments and evaluate the best messaging to accompany these moments. The retailer could then track results on key brand metrics (e.g. Purchase Consideration, Willingness to Recommend) to measure the impact of its marketing efforts. By determining a key target group based on a perceived company attribute and analysing the profile of this critical group, the retailer was able to create a new, effectively targeted, end-to- end marketing plan to help maintain their status as a key player in the competitive retail market. Getting to know the audience segment that thinks the retailer is “Cool”* 35-44 years old Lives in the Northeast Female Lives in a City “I tend to avoid super stores like Walmart or Target.” “I like to think of myself as well-dressed.” “I keep up to date with current fashion trends.” 18.1m Members of the target $165 Spent on clothing for self group in the market in the last three months 63% Don’t buy any clothing online 1 Time per month average frequency of purchasing clothes from a store *YouGov Profiles Data i i S S t t r r a a t t e e g g c c r r e e p p o o r r t t G G o o v v e e r r n n a a n n c c e e i i F F n n a a n n c c a a i i l l s s t t a a t t e e m m e e n n t t s s A A d d d d i i t t i i o o n n a a l l i i n n f f o o r r m m a a t t i i o o n n 13 STRATEGIC REPORT Our products and services Data Products The Data Products division is comprised of our syndicated data tools, which are available to clients on a subscription basis. 14 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Our solution to help marketers plan and execute their campaign strategy and track its success Increasing the interoperability between YouGov BrandIndex and YouGov Profiles has allowed us to develop the YouGov Plan & Track solution, which combines the benefits of both products. Plan & Track offers audience analysis, media targeting, campaign effectiveness and brand health monitoring, all under the one proposition. Using Plan & Track, our clients can understand and target key consumer segments, create content that will resonate with that audience, effectively target that audience in the media, track the effectiveness of advertising, marketing and public relations strategies and campaigns, and measure how advertising and marketing investments are impacting consumer perception of their brand. The breath of the solution facilitates collaboration among brands, media owners and agencies to help bring transparency and clarity to what can be a challenging marketing and media landscape. With YouGov Profiles, Plan & Track taps into the YouGov Cube – our data vault of over 200,000 variables on consumers including brand usage and perception, interests, media consumption and social media activity – to provide a detailed portrait of consumer segments. With YouGov BrandIndex, Plan & Track subscribers get access to continuous monitoring of brand fundamentals including brand awareness, advertising awareness, word of mouth, brand health, consideration, purchase intent, and customer satisfaction. Whether planning a campaign, mitigating an issue, or developing new products, the data available through under Plan & Track provides a leading edge. Plan Track Planning a campaign requires setting a goal, selecting the appropriate audience, and determining the best way to target that audience. YouGov’s solution assists with understanding how a brand is perceived across a wide range of variables and consumer segments, which can be instrumental in setting relevant goals while helping to reinforce brand strengths and address brand weaknesses. Our ground breaking connected data set for audience profiling and segmentation, YouGov Profiles, enables clients to find and engage the best audience to help them reach their goal. Clients are able to identify and analyse their target audiences across multi-channel data sets from a single source. Determining a campaign’s value requires understanding what worked and what did not, helping to produce an even stronger campaign next time. YouGov’s flagship brand intelligence service, YouGov BrandIndex, informs clients what the world thinks of their brands and competitors at any given moment, allowing them to track changes in perception during and following a campaign, as well as alerting them of any unexpected changes that could reflect brand crises. Identify Describe Target Measure Evaluate Identify who the right audience is Describe them with depth and breadth Understand when and where to meet them Track key measures over time Evaluate campaign success 15 STRATEGIC REPORT Our products and services Our daily brand perception tracker Our new data product for the sports sector During the year we expanded our sports sector expertise with the acquisition of SMG Insight, the global sports research agency. The acquisition has provided YouGov with the opportunity to extend our syndicated data products for the sports industry by applying SMG Insights’ specialist sector expertise to YouGov’s existing data products infrastructure. YouGov’s sports research capability now includes YouGov SportIndex, the ultimate “always on” measure of quality, performance and market potential for the most relevant sports leagues and events around the world. SportsIndex uses 16 BrandIndex-style metrics to track public perception of more than 200 sport-related properties covering 30 sports on a daily basis. This sports data now feeds into our Profiles and Plan & Track solutions as well. BrandIndex, YouGov’s flagship brand intelligence service, tells our clients what the world thinks of their brands and their competitors at any given moment and helps our clients to understand the link between their media and advertising efforts, brand perception, and consumer response. BrandIndex data is updated daily (or bi-weekly or weekly in some developing markets) and includes up to 11 years of historical data which is all available 24/7 to our clients through our user-friendly BrandIndex portal. BrandIndex serves major accounts among both advertising and media planning agencies on the one hand, and brand owners and advertisers on the other. It is offered to the market as a subscription service with clients accessing the data through a dedicated online portal. During the year, BrandIndex was rolled out in five new markets (Argentina, Belgium, Chile, Colombia and Peru) and is now available in 37 markets including Australia, Brazil, China, Denmark, Finland, France, Germany, Indonesia, Ireland, Italy, Japan, Malaysia, Mexico, Netherlands, Norway, Philippines, Saudi Arabia, Singapore, Spain, Sweden, Taiwan, Thailand, United Arab Emirates, UK, USA and Vietnam. Every day we survey over 10,000 consumers across these territories – conducting more than 5 million BrandIndex interviews every year against YouGov’s proprietary panel. Over 13,500 brands indexed Over 10,000 consumers surveyed daily Available across 37 markets YouGov BrandIndex BestBrand YouGov BrandIndex BestBrand rankings are released twice a year. In July, we release an Index-based ranking and in January we release a Buzz-based ranking. Additionally, we now release category rankings regularly throughout the year. Categories have included rankings in particular sectors and key demographic groups (e.g. women, LGBT consumers). BestBrand overall and category winners are acknowledged with a personalised letter from YouGov and provided with a marketing pack which they can use in their advertising. This approach has worked well with many brands citing placement on BestBrand in their marketing collateral. 16 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Our media planning and audience segmentation tool Our add-on solutions for data products subscribers The newly enhanced linkage of BrandIndex and Profiles has enabled us to offer clients new ways to get more value out of their data product subscriptions. We have packaged a number of the use cases that go “beyond the login” of our data products to create the YouGov Data Applications series. Some Data Applications are available as self-serve modules that can be accessed inclusive of the subscription price, while others are sold in addition to subscriptions. With YouGov Data Applications, we are showcasing the strategic application of our syndicated data products and connected data solutions for solving our clients’ most important business challenges. Our current Data Applications series: • YouGov Audience Data Reach target audience by creating seed audiences from which to scale the programmatic buy with industry Data Management Platforms (DMPs) and Data Houses. • YouGov Digital Tracking Validate audiences reached by campaigns, and evaluate the effectiveness of digital advertising, by tracking who has been exposed to a campaign. • YouGov Dynamic Segmentation Segment audiences and plan campaigns effectively with a constantly refreshed portrait of target demographics. YouGov Profiles is our groundbreaking tool for audience profiling, segmentation and media planning. The product allows users to profile their target audience across multi-channel datasets from a single source, with greater granularity and accuracy than ever before. Profiles offers the largest, most detailed and real-time consumer database updated weekly. Leveraging the YouGov Cube, Profiles connects data on demographics and lifestyle, brand, sector, and media, digital and social data all in one place, combining that with attitudes, interests, views and likes. The tool holds over 200,000 separate data variables collected from YouGov panellists in a given country. Launched in 2014, Profiles is now available in 19 markets and is shortly to be launched in two further markets (Italy and Spain). Profiles improves the ability of marketers to understand the people and audiences that matter to them, while enabling media owners to identify potential advertisers and make more informed content and scheduling decisions so as to deliver the target audience that advertisers require. In this respect, Profiles can support programmatic advertising processes and this use is proving increasingly popular with digital media agency clients. Profiles is offered to the market as a subscription service with clients accessing the data through a dedicated online portal. The Profiles portal gives users access to a wide range of detailed and connected data and provides analytics methods with which to interrogate and interpret the data. Migration of the portal onto the Crunch platform was completed during the year, eliminating our dependence on a third-party to host the platform. 17 STRATEGIC REPORT Our products and services Data Services The Data Services division provides clients with fast-turnaround services. 18 YouGov Annual Report and Accounts 2018 Our fast-turnaround service, delivering next-day answers Our deep dive service for data products subscribers i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Our new Re-Contact service works in conjunction with our subscription data products. The service provides subscribers with the opportunity undertake one or multiple fast-turnaround Omnibus surveys to augment their syndicated data. Through Re-Contact surveys, clients can obtain additional data tailored to their needs from segments of the panel with specific profile characteristics, selected using Profiles. . YouGov’s very first service, YouGov Omnibus, is the clear market- leading online omnibus service in the UK and a high performer in our other territories. Omnibus is the perfect vehicle to find out people’s opinions, attitudes and behaviours – quickly and cost-effectively. Our Omnibus surveys are run daily in most territories, providing nationally representative responses to clients within a short timeframe (most countries utilise a 48-hour turnaround, with 24-hour turnaround available in the UK and US). The service can provide clients with data from over 50 countries and client demand for multi-country Omnibus surveys continues to increase. We now conduct over 5 million Omnibus surveys every year across our global operations. The size and diversity of the YouGov panel has also enabled us to extend our Omnibus services to include a number of selected target samples. Omnibus segmental services include International, Children and Parents, B2B, Independent Financial Advisors, Cities and LGBT. We also run regular Omnibus surveys covering influential audiences in the UK, including Members of Parliament. This is the first time I’ve used YouGov Omnibus and I was impressed overall. Despite very tight deadlines, we got the results within days and exactly the format required.” RBS Very slick service handled well through a competent account manager. Great turnaround solutions and clear pricing which sets you apart from the competition.” Zing Insights 19 STRATEGIC REPORT Our products and services Custom Research The Custom Research division offers quantitative and qualitative research services delivered by sector specialists. 20 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Our quantitative and qualitative custom research service YouGov’s Custom Research business conducts a wide range of research, tailored by our specialist teams to meet clients’ specific requirements. Using their in-depth sector knowledge, our custom research specialists employ both quantitative and qualitative methods to identify and analyse markets, clarify opportunities and challenges and generate data that provides clients with actionable information. Our specialists have vast experience in the key areas of market research including UX, audience understanding, testing concepts, platforms, eco-systems, new product design, paid for environments, effectiveness of communications, and brand partnerships. Over the last few years, our Custom Research services have been strategically re-positioned to better align with our syndicated data products and services, with a greater focus on multi-year contracts and the delivery of projects through our data analytics tool, Crunch. The YouGov model allows us to minimise the proactive data collection required for each new custom project while at the same time provide our clients with more connected and tailored data than ever before. With every research project we undertake drawing on – as well as building on – the data that we hold in our data library, the Cube, we are redefining the very nature of custom research. YouGov’s global Custom team works over a breadth of verticals including Financial Services, Consumer, Media, Technology, Political, Corporate Reputation and Sports. The scope, scale and complexity of custom research projects varies significantly and ranges from large-scale national and multinational tracking studies, through to more one-off surveys designed to address a specific commercial, social or political issue for the client. Our custom offerings include: reputation studies; syndicated studies covering sector or product trends; and a full research programme providing a range of research, often on annual contracts, including tracking studies, qualitative research and customer profiling. 21 STRATEGIC REPORT Our products and services Data Infrastructure All of our products and services are underpinned by our unique data infrastructure, the principal elements of which are the Cube, Crunch and Collaborate. 22 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Cube Our connected data library The Cube is our competitive advantage. Our core offering of opinion data is derived from our highly participative panel of over 6 million people worldwide who provide us with live, continuous streams of data from a variety of data collection platforms and devices. In order to store, connect and easily access all these hugely rich datasets, we developed the YouGov Cube, our highly structured and codified multi-dimensional data library. The Cube currently holds over 200,000 variables on consumers – including demographics and lifestyle, brand, sector, and media, digital and social data – which are constantly being updated. The Cube’s unique structure allows us to undertake fast, large-scale analysis of that data. The Cube has facilitated the development of innovative syndicated data products and services, including YouGov Profiles. Crunch Our data analytics and visualisation tool Crunch makes data processing faster, more accurate and gives users control over data analysis. The intuitive tool provides users with a quick and easy way to prepare, analyse and deliver data. With the highly visual interface, users can quickly view top-line results, or dig deeper using drag-and-drop functionality to create tables, charts, filters and dashboards. Datasets in Crunch are stored in a cloud-based, high-performance datastore. Crunch is used internally by YouGov’s research and operations teams, and is also offered to clients for self-service analysis and visualisation of their commissioned research data. Collaborate Our new self-service tool for survey design With Collaborate, we have automated the process of survey design, making the turnaround from the client’s initial request to the delivery of results even faster and more user-friendly. Collaborate users can design their own surveys without any assistance, or get support at any point in the design process from our professional researchers using the “collaboration” feature. Surveys designed in Collaborate are sent to the Omnibus team for pre-launch quality control and approval to field, in order to ensure submissions are in line with research good practice. A linkage to the Cube ensures that the questions prepared through Collaborate tie back to our data library and users benefit from the complete YouGov system. 23 STRATEGIC REPORT Our products and services Data Innovations As the pioneer of online market research, innovation is core to YouGov’s corporate culture and we are constantly looking for new ways to evolve and transform our services. 24 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Direct Our blockchain-based platform for panellist permissioning and effective ad targeting Currently, consumers have little control over their online data, while ineffective targeting of digital advertisements has a negative impact on brands and publishers. YouGov Direct aims to overcome these problems in the digital advertising eco-system by harnessing blockchain technology to verify the data exchange between consumers and advertisers. Consumers using the platform are empowered to choose which attributes they make available to advertisers and to earn rewards for the data they share. Advertisers using the platform gain access to known audience attributes enabling more effective ad targeting and better campaign performance. Permissions and payments are recorded through the blockchain. This transparent and verifiable record of transactions provides assurance that ads are reaching actual people as opposed to bots and supports compliance with data protection legislation including the EU GDPR. The platform is currently in development and a prototype will be operational with a test panel and small group of pioneer clients this year. Our pioneering application of advanced statistical methodology to market research MRP (Multilevel Regression with Post-stratification) is an advanced statistical methodology which YouGov pioneered and demonstrated to great success in the 2017 UK General Election. The methodology allowed us to predict a hung parliament when nearly everyone else – campaigners, commentators, markets, bookies, academics and other pollsters – was confident of an overwhelming Conservative victory. MRP was developed by the Stan Development Team at Columbia University in part with YouGov collaboration. The methodology is grounded on the fact that similar people act in similar ways, irrespective of exactly where they live. Using MRP, YouGov can assess everything we know about the demographics of a particular place and use that information to match individuals from our proprietary panel with the types of people that live there. MRP’s application to market research has great value as it allows us to describe micro-audiences with higher levels of confidence than ever before. Just as we can use it to estimate how a constituency is going to vote, we can also use it to understand what influences their grocery shopping or how they react to different types of advertising. Our new popularity and awareness metric We are shortly launching YouGov Ratings in the UK, our new popularity and awareness metric for thousands of topics including celebrities, politicians, sports teams, music acts and brands. The nationally representative popularity scores cover more than 8,000 topics and are published on a continuous basis. Ratings allows anyone to see what consumers think about almost anything – from pop stars to politicians, sports teams to snack foods, and everything in between. As well as allowing users to see how popular different things are, it also shows the connections between fans of one thing and another. Whether it is the brands that fans of a particular celebrity like, or what TV shows fans of a certain politician prefer, Ratings shows the links. Ratings is robust, searchable, and publicly accessible data. Available for free on our website, it has been designed as a showcase for the quality and breadth of our data, to put YouGov at the heart of everyday conversations. 25 STRATEGIC REPORT Chief Executive’s review for the year ended 31 July 2018 We have delivered revenue and profit growth significantly ahead of our industry and continue to track to meet the financial objectives set out in our five-year plan. The success of that plan has been grounded in a clear vision as we break new ground in our industry. Increasingly, our clients are demanding the rapid analysis of data in real-time and through targeted investments in technology we have built a data engine which serves the modern marketer.” Stephan Shakespeare Chief Executive Officer 26 YouGov Annual Report and Accounts 2018 This is the fourth consecutive year in which YouGov has delivered growth significantly above the market both in revenue and profit. Since we launched our first five-year plan in August 2014, we have shifted our focus from a traditional market research model to a real-time data analytics model. As we move towards announcing our next five-year plan, we are confident we have a clearly superior product that is becoming ever more relevant to the market as we continue to scale and innovate. Operational review Throughout the year we have continued to focus on scaling the business. This has included investing in our technology infrastructure (which includes Cube, Crunch and Collaborate), growing our operations capabilities and expanding into new geographic territories. During the year we have established a new shared services centre in India to complement the existing service centre in Romania and provide 24/7 data processing and analytics coverage. We have also added a commercial arm to this operation, to allow us to offer our data products to the Indian market. We have established new organic operations in Italy and Spain, initially focussed on selling our flagship products BrandIndex and Omnibus, with Profiles shortly to be made available. We have also completed two small acquisitions during the year. We acquired a bolt-on acquisition to our existing operation in Australia (Galaxy DP Pty Ltd) where we saw an opportunity to accelerate our growth in that market. We acquired a sports research agency (SMG Insight Limited) where we saw an opportunity to extend our syndicated data products for the sports sector. Post period-end, we have also completed the acquisition of an audience conversation platform (InConversation Media Ltd), where we saw an opportunity to acquire technology for engaging with hard-to-reach audiences. Turnover £m £116.6m + 9% 67.4 76.1 88.2 107.0 116.6 2014 2015 2016 2017 2018 Adjusted operating proﬁt1 £m £19.7m + 35% 7.4 8.6 10.9 14.5 19.7 2014 2015 2016 2017 2018 1 Defined in the explanation of alternative performance measures on page 35. Segmental review YouGov’s lines of business fall into three divisions: Data Products, Data Services and Custom Research. Data Products Our Data Products division consists of Profiles, YouGov’s audience segmentation and targeting tool, and BrandIndex, YouGov’s flagship daily brand tracking service. Increasingly, these complimentary products are positioned as a single capability, communicated as “Plan & Track” to our prospects and clients. During the year, 25% of new Data Products sales globally constituted Plan & Track sales, demonstrating that the strategy is quickly gaining traction in the marketplace. The Plan & Track solution is instrumental in establishing transparency and a common version of the truth among the key players in the advertising and marketing ecosystem. Advertisers need to find the most attractive avenues through which to grow their brands. Media owners need to demonstrate the desirability and the efficacy of their platforms to brands and their agencies. Agencies are under increasing pressure to justify strategic and tactical investment decisions on behalf of their brand clients. YouGov’s Plan & Track solution addresses all of these needs. The full Plan & Track solution is now available in 13 markets with France, Australia, Hong Kong, Singapore and Thailand launched during the year. With the support of a global media agency as a charter subscriber, we have begun Profiles development in a further eight countries. India, Taiwan, Vietnam and the Philippines will launch by the end of calendar year 2018, along with Italy and Spain, giving us a presence in Europe’s “Big 5” economies, as well as Norway and Finland to complete the Nordic footprint. BrandIndex alone is available in 37 markets, including all 21 current and planned Plan & Track markets, as well as Canada, Mexico, Brazil, Ireland, the Netherlands, Egypt, Saudi Arabia, the United Arab Emirates, Russia, Japan and South Korea. YouGov also offers our Data products subscribers with additional “beyond-the-login” capabilities, under the banner of YouGov Data Applications. These capabilities include: • With YouGov Dynamic Segmentation, clients are able to run their consumer segmentation against the YouGov panel and then bring the segments into the Plan & Track product, gaining a better understanding of those segments via the thousands of variables in the Cube. • With YouGov Audience Data, clients identify and reach target audiences. Seed audiences are created in Profiles and then scaled using look-alike methodology to enable programmatic advertising buys through industry Data Management Platforms (DMPs) and Data Houses. • With YouGov Digital Tracking, clients can conduct analyses to validate that a marketing campaign has reached the correct target audience. Clients can identify and create an audience consisting of consumers who have consumed the relevant media during a particular campaign, then monitor brand KPIs such as brand awareness, advertising awareness and purchase consideration among that exposed audience – and compare that to the general population. These capabilities provide even more value for our subscriber- base, and are helping to increase subscriber renewal rates and drive additional revenue. i S t r a t e g c r e p o r t G o v e r n a n c e New Plan & Track client wins in the year included BBDO, ING, McDonalds, Santander Consumer Bank and Uber. i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Data Services YouGov Omnibus, our popular and fast-turnaround data service, comprises the majority of Data Services revenue. The balance comes from our related Field & Tab service for targeting pre- specified samples of respondents, and from the provision of Sample-Only services in the Nordic and Middle East regions. Our technology investments in the period have included developments which are enhancing the commissioning and delivery of Omnibus surveys. In most geographies, results are now being delivered to clients through Crunch, our data analytics and visualisation tool. Our new self-service survey design tool, Collaborate, automates the way that clients submit and approve Omnibus and Custom Research survey questions. The Collaborate tool makes the turnaround from the client’s initial question generation to YouGov’s survey results delivery even faster and smoother for both clients and staff. Collaborate is currently available in the US and Germany, with roll-out to the UK, Spain and Italy planned for this year. Increasing numbers of clients are taking advantage of our Re- Contact service through which Data Products subscribers can undertake fast-turnaround Omnibus surveys to obtain additional data tailored to their needs from segments of the panel with specific profile characteristics. New Omnibus client wins in the year included DeBeers, eBay, Hiscox, WE Communications and Vodafone. 27 Current trading and outlook The current year has started well and our order book of multi- year subscription contracts across future years is strong, both of which gives us confidence in our prospects for the year ahead and over the medium term. We continue to see opportunities for growing our suite of data products and services and expanding our geographic footprint. Our focus for the coming year includes investing in our technology infrastructure to support this growth, expanding into new geographic markets, and increasing our data products subscription client-base to further strengthen the quality of our revenues. While “Brexit” continues to create uncertainty in the economic and political environment, especially for UK and European businesses, the international spread of our revenues (with a significant US weighting) positions our business well to cope with, or even gain from, potential volatility. In recent years, we have been focussed on implementing the ambitious strategy the Board laid out in our first five-year plan announced in August 2014. As a result, we have delivered consistent recurring revenue and profit growth. In the coming months, the Board will be developing our next five-year plan, one which we will design to ensure YouGov’s position as a significant global player in the field of research data and analytics – and we look forward to sharing the details of that plan with shareholders in the spring of 2019. Trading for the current financial year is in line with the Board’s expectations. Stephan Shakespeare Chief Executive Officer 9 October 2018 STRATEGIC REPORT Chief Executive’s review for the year ended 31 July 2018 continued Custom Research YouGov’s Custom Research business conducts a wide range of quantitative and qualitative research, tailored to meet clients’ specific requirements. The scope, scale and complexity of projects varies significantly and ranges from one-off surveys, through to large-scale national and multinational tracking studies often contracted on an annual basis and often requiring advanced analytics. We have a number of in-house assets – including the Cube, Crunch, Collaborate and MRP methodology – which are a facilitator and differentiator for our Custom Research business. The YouGov model allows us to minimise the proactive data collection required for each new custom project while at the same time deliver our clients with more connected and tailored data than ever before. Recurring, single or multi-country custom tracking studies whose data is delivered through Crunch, are a form of custom research that is particularly profitable for YouGov. We have made good progress against our strategy to focus less on one-off projects and more on tracking studies, to improve the profitability of this division. In the year this included exiting parts of the Germany and Middle East businesses with low margins. New Custom Research client wins in the year included Ikea, Piper-Heidsieck, Pyrex, Revlon and 23andMe. As the technology of decision-making evolves, so must our products and applications. As we continue to invest in our future we are opening new routes to growth, whether that be through scaling our offering in new markets or launching new applications like YouGov Direct which champions privacy in the GDPR age.” 28 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Chief Financial Officer’s report for the year ended 31 July 2018 The 12 months to 31 July 2018 results demonstrate continued progress on the strategic aims of concentrating on higher margin and scalable sales. Total Group Revenue for the period was £116.6m compared to £107.0m in the previous 12-month period. Revenue growth was 9% on a reported basis (12% on constant currency basis). Acquisitions in the period contributed 2% to the overall growth rate. The focus on restructuring lower margin generating business units coupled with the continued growth in our high margin product sales resulted in an increase in gross margins from 80% in 2017 to 82% in 2018. Adjusted operating margins increased from 14% to 17%. Group operating costs (excluding amortisation of intangibles and exceptional items) of £75.4m (2017: £71.2m) increased by 6% in reported terms, and 8% in constant currency terms. The average number of staff (full-time equivalents) employed during the year increased by 37 to 816. Average revenue per head increased to £143,000 from £137,000 and staff costs, net of costs capitalised, as a percentage of revenue decreased by 1% point to 49%. Group Adjusted Operating Profit (before amortisation and separately reported items) increased to £19.7m (35% growth in the period) with strong continued growth in Data Products, coupled with margin improvement in the Custom business. The statutory operating profit (which is after charging amortisation of £7.0m and other separately reported items of £0.9m) increased to £11.8m (2017: £7.6m). Amortisation charges for intangible assets in the period totalled £7.0m (2017: £6.5m) of which £0.7m (2017: £1.0m) related to assets acquired through business combinations, £2.8m (2017: £2.8m) to separately acquired assets and £3.5m (2017: £2.7m) to internally generated assets. The Group recognised net finance expense of £0.1m during the period (2017: income of £0.3m). Central costs increased by 98% in the year. This was primarily due to an increase in the Long Term Incentive Plan (LTIP) charge of £1.8m reflecting the increased likelihood that the “LTIP 2014” plan will pay out in full in November 2019; and a reallocation of £2.5m of costs from Custom Research to Central Costs to reflect that these costs related to wider innovation initiatives. Adjusted profit before tax1 of £23.3m was an increase of £6.9m (42%) on the comparable result of £16.4m for the 12 months to 31 July 2017. The adjusted tax rate decreased from 30% to 25% mainly as a result of a reduction in US tax rates. The adjusted tax rate is higher than the standard rate of corporation tax in the UK as a result of profits arising in countries with a higher tax rate, notably the US. Adjusted earnings per share1 rose by 52% to 16.6p, compared to 10.9p in the 12 months to 31 July 2017. A statutory profit before tax of £11.8m was reported after charging separately reported items, amortisation and share-based payment costs of £11.5m (2017: £8.5m). 1 Defined in the explanation of alternative performance measures on page 35. 29 STRATEGIC REPORT Chief Financial Officer’s report for the year ended 31 July 2018 continued In December 2017, the Group acquired Galaxy DP Pty Ltd (“Galaxy”), an Australian-based opinion polling company. The terms of the transaction included an upfront payment of AUS$1.25m with an earn-out based on future performance over the following two years. In May 2018, a second acquisition was completed for the remaining 80% of the issued share capital of SMG Insight Limited (“SMG”), a sports focussed research agency. The transaction was structured with a payment of £1.0m at completion and an earn-out based on performance over a three-year period. Investment in technology and panel recruitment for the period amounted to £4.4m and £2.8m respectively. In the period we increased the global panel from 5.6m to 6.6m with new panels established in Italy, Spain, Mexico and Taiwan. Our technology investments continue in websites and mobile applications, survey systems, and our data analytics tool, Crunch. £1.0m (2017: £0.8m) was spent on the purchase of property, plant and equipment, resulting in a total investment in fixed assets of £8.2m (2017: £7.8m). Other cash outflows included taxation payments Performance by product and service of £5.5m (2017: £2.5m) and the annual dividend payment of £2.1m (2017: £1.5m) in December 2017. There was a net cash inflow of £7.2m in the period, compared to £7.5m in the 12 months to 31 July 2017. This was increased by a £0.2m gain in the value of non-Sterling cash balances due to foreign exchange movements so that net cash balances of £30.6m were £7.4m higher than at 31 July 2017 and £9.3m higher than the balances of £21.3m as at 31 January 2018. The Group’s results were affected by the net appreciation of GBP as its average exchange rate was 6% higher against the USD and 3% lower against the Euro in the period compared to the 12 months to 31 July 2017. The net impact of foreign exchange on the Group’s adjusted operating profit was a decrease of £0.8m compared to calculation in constant currency terms. The underlying increase in adjusted operating profit, compared to the 12 months ended 31 July 2017, was 41%. Revenue Data Products Data Services Total Data Products & Services Custom Research Intra-group Revenues Group Adjusted Operating Profit Data Products Data Services Total Data Products & Services Custom Research Support Costs Group Year to 31 July 2018 £m Year to 31 July 2017 £m 30.4 29.0 59.4 58.7 (1.5) 116.6 Year to 31 July 2018 £m Year to 31 July 2017 £m 11.7 8.0 19.7 14.1 (14.1) 19.7 7.0 5.7 12.7 8.9 (7.1) 14.5 24.1 23.3 47.4 60.2 (0.6) 107.0 % change 66% 40% 54% 59% (98%) 35% % change 26% 24% 25% (3%) – 9% % change at constant currency 30% 26% 28% 0% – 12% Operating margin % 2018 38% 28% 33% 24% – 17% 2017 29% 24% 27% 15% – 14% 30 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Custom Research Performance in the period was impacted by the reduction of low profit or loss making activities in Germany and the Middle East in the latter half of the last financial year. In the second half of the year, further headcount reductions to the Custom Research division in Germany, Nordics and Middle East resulted in a separately reported charge of £0.7m. Reflecting the reduction of activities in some areas, revenue for the period declined by 3% in reported terms to £58.7m. However, continued focus on a Custom Research offering which utilises our proprietary panel, survey system and Cube data has resulted in a significant increase in profitability in this division. The adjusted operating profit increased by 59% to £14.1m and the operating margin improved by 9% points to 24%. This was also due to operating costs reducing by 18% mainly as a result of the restructuring of underperforming areas. The continued rationalisation of Custom Research led to mixed performances across the geographies. In the UK, where our core panel-based model is most established, revenue grew by 5% (benefitting from several large tracker contracts) although the operating margin decreased from 33% to 31%, due to an increase in operating costs. In the US, revenue grew by 23%, with growth coming both from new business and our existing client portfolio. Operating margin grew to 28% from 16% as a result of continued operational efficiency gains. Middle East and Germany revenue fell by 32% and 37% in local currency terms due to restructuring of operations. Reported revenue also decreased by 15% in the Nordics in local currency terms. Data Products Revenue from Data Products increased by 26% (30% in constant currency terms) in the period. The adjusted operating profit from Data Products increased by 66% to £11.7m and the operating margin increased by 9% points to 38%. The improving margin partly reflects the growing contribution from Profiles as well as a reduction in the use of third party data collection. Our flagship product, BrandIndex, grew revenue by 19% (23% in constant currency terms) to £23.5m (2017: £19.8m). BrandIndex accounts for 20% of total Group revenue in the period and increased its subscriber numbers to 37 markets across the world. Profiles made good progress, with sales in this period together with the subscription growth achieved last year led to global revenue increasing by 81% (87% constant currency) to £6.6m. Geographically, the US remains the largest Data Products market and grew by 17% in GBP terms (23% in local currency). In the UK, revenue grew by 29%, a faster rate than the previous year, due to faster new business sales in the second half of the previous financial year. There was also strong revenue growth in other markets including 25% in Germany (28% in local currency) and 13% in the Nordics (10% in local currency). The newer markets of France and Asia Pacific each grew their revenue in reported terms by over 50%. Increasingly, BrandIndex and Profiles are sold as a combined proposition as “Plan & Track”. BrandIndex is now available in 37 markets and Profiles is available in 19 markets. Going forward, we will report on the combined Plan & Track performance rather than YouGov BrandIndex and YouGov Profiles separately. In December 2017, the YouGov Reports product was discontinued resulting in a restructuring charge of £0.2m. Revenues in the year up to the date of closure were £25,000. Data Services Revenue from Data Services, 94% of which is Omnibus, our online fast turnaround service increased by 24% (26% in constant currency terms) to £29.0m, mainly due to strong growth in international markets. This growth contributed to an increase of 40% in the Data Services operating profit to £8.0m and the operating margin rose from 24% to 28% reflecting investment in the newer markets, notably Asia Pacific delivering growth. This included a 46% increase in reported revenue in USA (53% growth in local currency), and a 59% increase in Asia Pacific (63% in local currency). France and Middle East also grew strongly, by 19% (16% local currency) and 21% (27% local currency) respectively. In the UK, where YouGov Omnibus is the market leader, revenue grew by 12%. 31 STRATEGIC REPORT Chief Financial Officer’s report for the year ended 31 July 2018 continued Performance by geography Revenue UK USA Mainland Europe Middle East Asia Pacific Intra-group Revenues Group Adjusted Operating Profit UK USA Mainland Europe Middle East Asia Pacific Corporate/Unallocated Group Year to 31 July 2018 £m Year to 31 July 2017 £m Revenue growth % 31.3 48.2 21.6 12.1 8.7 (5.3) 116.6 27.1 40.7 21.2 16.3 5.5 (3.8) 107.0 15% 18% 2% (26%) 59% – 9% Revenue growth at constant currency % 15% 24% 2% (22%) 62% – 12% Year to 31 July 2018 £m Year to 31 July 2017 £m Operating profit growth % 12.0 16.6 2.3 3.6 0.8 (15.6) 19.7 8.6 9.3 2.3 2.4 (0.9) (7.2) 14.5 40% 78% (2%) 45% – 117% 35% Operating margin % 2018 38% 34% 11% 29% 10% – 17% 2017 31% 23% 10% 15% (16%) – 14% Restructuring costs of £1.4m in the period were the result of further restructuring undertaken in the UK, Middle East and Germany to align activities with the Group’s strategic objectives. Revenue in the Middle East declined by 26% due to the closure of non-online research activities. The UK and Germany achieved revenue growth of 15% and 18% whilst stopping low margin revenue of £0.7m and £1.9m respectively. Our geographic expansion continued with new offices in Spain, Italy and India bringing the total number of countries the Group operates in to 22. All geographies other than Mainland Europe generated increased adjusted operating profits in the period with the US and UK continuing to be significant contributors with growth rates of 78% and 40% respectively. We are pleased to see the investment in Asia Pacific generating profits in the period whilst we continue investing in research capability in more countries in the region. 32 YouGov Annual Report and Accounts 2018 Panel development by geography Panel size at 31 July 2018 Region Panel size at 31 July 2017 UK USA and Mexico Mainland Europe Middle East Asia Pacific Total 1,355,800 1,182,100 2,415,000 2,152,400 952,000 934,700 946,200 770,100 858,400 673,700 6,603,700 5,636,700 We continue to expand the reach of our global panel, with recruitment launched in Italy, Spain, Mexico and Taiwan during the year. This, along with growth to support increased demand in existing markets, not least the UK, USA and Germany, led to a total increase of 17% in the size of the panel in the period. As at 31 July 2018, the Group’s online panel comprised a total of 6.6 million panellists. The table above shows the breakdown by region. Group financial performance Amortisation of intangible assets In the 12 months to 31 July 2018, amortisation charges for intangible assets of £7.0m were £0.5m higher than the previous year. Amortisation of the consumer panel increased by £0.4m to £2.6m reflecting the additional investment made to grow the panel in the past three years. Amortisation of software increased by £0.5m to £4.0m, £3.5m (2017: £2.7m) of the total charge related to assets created through the Group’s own internal development activities, £0.3m (2017: £0.6m) related to separately acquired assets and £0.2m (2017: £0.2m) was for amortisation on assets acquired through business combinations. i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Other separately reported items Discontinued activities in the UK, Mainland Europe and Middle East and the establishment of centralised support functions resulted in restructuring costs of £1.4m in the year to 31 July 2018 (£2017: £0.6m). In addition, costs of £1.1m were incurred in relation to the acquisitions of Galaxy and SMG during the year, including £0.8m of acquisition consideration treated as employment costs, as well as £0.1m in respect of acquisitions completed after the year-end. These costs were partly offset by a £1.7m fair value gain on the 20% shareholding in SMG held prior to the acquisition of the remaining 80%. Analysis of operating profit and earnings per share Operating profit Amortisation of intangibles Other separately reported items Adjusted operating profit1 Share-based payments Imputed interest Net finance income Share of post-tax (loss)/profit in associates Adjusted profit before tax1 Adjusted taxation1 Adjusted profit after tax1 Adjusted earnings per share (pence)1 31 July 2018 £’000 11,758 7,024 892 19,674 3,571 75 (52) 66 23,334 (5,786) 17,548 16.6 31 July 2017 £’000 7,557 6,483 488 14,528 1,488 20 254 103 16,393 (4,912) 11,481 10.9 1 Defined in the explanation of alternative performance measures on page 35. 33 STRATEGIC REPORT Chief Financial Officer’s report for the year ended 31 July 2018 continued Cash flow The Group generated £23.6m (2017: £18.9m) in cash from operations (before paying interest and tax) including a £0.6m (2017: £2.3m) net working capital inflow; as a result the cash conversion rate (percentage of adjusted operating profit converted to cash) reduced from 130% to 119% of adjusted operating profit. Capital expenditure Internally generated software Panel recruitment Other intangible assets Total expenditure on intangible assets Purchase of property, plant and equipment Total capital expenditure 31 July 2018 £’000 3,928 2,834 455 31 July 2017 £’000 3,385 3,471 112 7,217 6,968 969 8,186 843 7,811 Net expenditure on financing activities increased by £0.8m to £2.1m, including the dividend payment of £2.1m (2017: £1.5m). Net cash balances at the year-end increased by £7.4m to £30.6m. Net cash inflow in the year was £7.2m (2017: £7.5m) and currency fluctuations in the year resulted in an exchange gain of £0.2m (2017: £0.2m). Currency The Group operates across multiple currencies, primarily USD$ and Euros. The appreciation in the US$/GBP£ rate resulted in approximately 5% lower reported revenue growth in the US, Middle East and Asia. Group operating expenses were 2% lower than if calculated in constant currency. Taxation The blended tax rate payable by the Group decreased from 30% to 25% in the period due to a decrease in corporation taxes in the US. The tax charge for the year was £3.6m on a statutory basis (£3.3m in 2017). On an adjusted basis the tax charge for the year was £5.8m (2017: £4.9m) which is a tax rate of 25% on the adjusted profit before tax. Balance sheet As at 31 July 2018, total shareholders’ funds and net assets increased from £80.5m to £92.1m. Net current assets increased from £20.7m to £25.3m. Current assets increased by £11.8m to £66.7m with debtor days decreasing from 58 to 56. Current liabilities increased by £7.2m to £41.4m with creditor days decreasing to 21 days from 24 days at 31 July 2017. The focus on increasing revenues from subscriptions has resulted in an increase of £1.8m of deferred revenue which is included in current liabilities. Non-current liabilities increased by £6.3m to £11.2m partly due to £5.1m of contingent consideration payable in respect of the acquisitions in the year. Proposed dividend The Board is recommending the payment of a final dividend of 3.0p per share for the year ended 31 July 2018. If shareholders approve this dividend at the AGM (scheduled for Wednesday 12 December 2018), it will be paid on Monday 17 December 2018 to all shareholders who were on the Register of Members at close of business on Friday 7 December 2018. Alex McIntosh Chief Financial Officer 9 October 2018 34 YouGov Annual Report and Accounts 2018 Explanation of non-IFRS measures Financial measure How we define it Why we use it Separately reported items Items that in the Directors’ judgement are one- off or need to be disclosed separately by virtue of their size or incidence. Provides a more comparable basis to assess the year-to-year operational business performance. Adjusted operating profit Adjusted operating profit margin Adjusted profit before tax Adjusted taxation Operating profit excluding amortisation of intangible assets charged to operating expenses and separately reported items. Adjusted operating profit expressed as a percentage of revenue. Profit before tax before amortisation of intangible assets charged to operating profit, share-based payment charges, imputed interest and separately reported items. Taxation due on the adjusted profit before tax, thus excluding the tax effect of amortisation and exceptional items. Provides a more comparable basis to assess the underlying tax rate. Adjusted tax rate Adjusted taxation expressed as a percentage of adjusted profit before tax. Adjusted profit after tax Adjusted profit after tax attributable to owners of the parent Adjusted earnings per share Adjusted profit before tax less adjusted taxation. Facilitates performance evaluation, individually and relative to other companies. Adjusted profit after tax less profit attributable to non-controlling interests. Adjusted profit after tax attributable to owners of the parent divided by the weighted average number of shares. Adjusted diluted earnings per share includes the impact of share options. Constant currency revenue change Current year revenue change compared to prior year revenue in local currency translated at the current year average exchange rates. Shows the underlying revenue change by eliminating the impact of foreign exchange rate movements. Cash conversion The ratio of cash generated from operations to adjusted operating profit. Indicates the extent to which the business generates cash from adjusted operating profits. i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 35 STRATEGIC REPORT Principal risks Our approach to risk management During 2018, the Board’s Audit & Risk Committee have led a review of the Risk Management Policy and Procedure (the “Risk Policy”). Primary responsibility for oversight and scrutiny of the internal controls and risk management has been delegated to the Audit & Risk Committee, who report back to the Board on a regular basis. The Audit & Risk Committee’s Terms of Reference have been updated to reflect their additional focus on risk management. The Risk Policy procedures have fed into the Board’s identification of the principal risks and uncertainties facing the Company at 31 July 2018. Summary of principal risks and uncertainties The principal risks and uncertainties identified in the following table are those risks which are considered by the Board to be material to the development, performance, position and/or future prospects of the Company. Whilst the risks have not materially changed since the 2017 Annual Report, the risk factors may have evolved and the categorisation may have changed. These are not the only risks facing the business, but are those which are considered to have a material impact on the business, and therefore are the focus of discussion at the highest levels of the Company. Risk category Competition Description Mitigation Increasing competition from “copycat” products could attract clients away from YouGov. In our fast-paced industry, YouGov’s offering could become outdated and thereby not able to retain clients. Panel members could choose to move away from YouGov and offer their opinions to competitors. • Differentiation from our competitors: the size of our panel and the wealth of data in our proprietary data library are key assets which are difficult for competitors to replicate. • YouGov is continuously innovating to keep our products relevant and at the cutting edge of our industry. • Dedicated Panel team manages the needs of our panellists globally. We continuously innovate to improve the panellist experience. Cyber Top risks identified from Cyber events are: • YouGov’s Business Continuity and Disaster • Inadequacy of IT infrastructure to support the business. For example, an inability to restore business promptly after an outage. • Serious IT failure impacting on business operations such as from deliberate intrusion (i.e. hacking, social engineering or virus), accidental outage due to user error, employee malfeasance or failure of physical IT assets (i.e. data centres and/or hardware). Data protection The occurrence of a data breach incident (i.e. exposure of panellist/client personal information) due to deliberate intrusion (e.g. unauthorised access, hacking, social engineering or virus), accidental data leak, or deliberate de-anonymisation (client takes YouGov data and combines it with their own data to create data from which individuals can be identified). Non-compliance under the EU GDPR or other data protection or privacy legislation leading to significant penalties or reputation damage. Recovery plans are in place and regularly reviewed. • Robust budget planning in place for IT resource requirements, involving key stakeholders from across the business. • Breach Response policy and dedicated team (including Group Head of Infrastructure & System Operations, Group Head of Panel, Group Head of Governance, Group Data Protection Officer and Group Information Security Manager) in place to respond to any breaches. • Intrusion detection systems in place. • IT security practices are externally validated. • Dedicated Data Protection Officer and Information Security Manager roles created in the year. • Management focus on compliance across the Group’s data handling activities. • Compulsory training on IT Security and Data protection for all employees across the Group. • Data Protection Policies and Guidelines are reviewed and updated regularly. • As mentioned above, Breach Response policy and dedicated team in place to respond to any breaches. 36 YouGov Annual Report and Accounts 2018 Risk category Description Mitigation Geopolitical Consequences of the United Kingdom’s exit from the European Union (“Brexit”) cause uncertainty for the economic outlook for UK-based businesses. • The Board and Governance team monitor the political, industry and regulatory changes across the Group in relation to Brexit. • While YouGov is headquartered in the UK, the USA is now the Group’s largest region in terms of revenue and profit and is expected to be largely unaffected by Brexit. Internal controls Unauthorised access to our systems and/or IT infrastructure by ex-employees/contractors and/or unknown third parties. • The HR and IT teams work together to manage access to our systems by known third parties such as contractors and ex-employees. i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Regulatory Reputation Non-compliance with legal and regulatory requirements for a listed company with overseas subsidiaries. This could be due to a lack of knowledge or understanding of relevant legislation, or an inability to follow company policy. Failure to protect the Group’s reputation could lead to a loss of confidence and a decline in our customer base; and affect our ability to recruit and retain employees and panellists. Damage to our reputation could arise from a range of events, for example from our services being of poor quality or the leak of confidential data. • Prevention of access by unknown third parties is the responsibility of the IT team. We employ security systems which are externally validated. • Group activities are subject to scrutiny by the Board, Audit & Risk Committee and external auditors. • Management is supported by a team of qualified professionals, external advisors and in-house Head of Legal. • PR advisors retained who actively monitor the corporate press. Executive management have received media training. • Nominated staff to manage corporate social media relations and nominated spokespersons for media interaction. • Panel team actively monitors panellist feedback by email and surveys; Marketing team actively monitor social media feeds and manage complaints. Strategy Key risks related to Strategy include: • The Board adopts a five-year strategic plan and • Failure to achieve projected growth in line with our annual budget and/or do not meet the strategy objectives in line with market expectations. • Failure to identify or execute a successful strategy for the business leading to loss of client base, inadequate resources to provide new products and/or services, and/or changes in technology result in YouGov’s offering becoming outdated. assesses progress against it annually. • Executive LTIP designed to focus Senior Management on profit growth (see Remuneration Report on page 50 to 54). • Senior Management focus on developing and implementing new strategies, methodologies, technologies, products and services. • Robust planning process in place involving key stakeholders across the business. • Regular review of Company performance against market expectations by the Board. • Management meet regularly with the Company’s broker to review market expectations and messaging. For detailed discussion on the financial risks facing the Group, please see Note 20 on pages 101 to 103. The Strategic Report is approved by the Board and signed on its behalf by: Stephan Shakespeare Chief Executive Officer 9 October 2018 37 2 38 YouGov Annual Report and Accounts 2018 Governance report Chair’s Introduction and Corporate Governance Statement Board of Directors Corporate Governance Report Remuneration Report Directors’ Report Directors’ Responsibilities Statement Independent Auditors’ Report to the Members of YouGov plc on the Group Financial Statements 40 42 44 50 55 58 59 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 39 GOVERNANCE REPORT Chair’s Introduction and Corporate Governance Statement On behalf of the Board, I am pleased to present the YouGov plc Corporate Governance Report for the year ended 31 July 2018. The YouGov plc Board is committed to delivering high standards of corporate governance – commensurate with its size, stage of growth and the nature of the Group’s activities – to its shareholders and other stakeholders including employees, panellists, customers, suppliers and the wider community. Evolving corporate governance at YouGov Since 2014, the Company has followed the QCA Corporate Governance Code as its benchmark for good corporate governance practice. Following the publication of a new QCA Code in April 2018 (the “QCA Code 2018”), the Board formally adopted the new edition. I have overseen the adoption of the QCA Code 2018 into our Corporate Governance model, ensuring that the ten principles are applied and that our corporate governance processes and procedures meet the new requirements. As a Company listed on the AIM sub-market of the London Stock Exchange, we are not required to follow the UK Corporate Governance Code issued by the Financial Reporting Council but we consider it in our corporate governance activities. We continually improve our corporate governance practices with a view to achieving best-practice standards befitting our position as one of the largest AIM-listed companies. During the year, corporate governance activities have included: • Implementation of new risk management policy and procedure (see page 36); • Nomination Committee search for new Directors (see page 46); • Updating Terms of Reference for each of our Committees (see page 45 to 46); • Review of the Board succession planning process (see page 46); and • Review of the Board effectiveness evaluation process (see page 44). We have a growing Governance Team at YouGov who assist the Board of Directors to ensure high standards are maintained. 40 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Corporate culture As the pioneer of online market research, innovation is core to YouGov’s corporate culture. We have retained the progressive and entrepreneurial spirit from YouGov’s early beginnings, developing it into the driven, fast-paced workplace that we have today. As demonstrated by our line of business, YouGov’s culture is one where all opinions are valued and ideas are openly invited. This culture is reflected in our approach to all parts of our business, from employee relations (such as providing agile working opportunities and instilling a focus on inclusion) to panellist relations (such as seeking regular feedback on panellist’s experience and surveying their views on YouGov developments). For information on our employee benefits, and how we interact with our stakeholders, see page 49. The Board monitors corporate culture through regular interaction with senior management and, for the Executive Directors in particular, day-to-day contact with colleagues at all levels throughout the business. In a year in which we oversaw a number of acquisitions and expansion to new geographies, corporate culture has been an area of focus for the Board during 2018. We aim for acquired companies to be integrated into YouGov as swiftly as possible, from both an operational and cultural perspective. Changes to our Board of Directors This financial year has seen a number of changes to our Board of Directors, which are described in my statement in the Strategic Report on page 5 and detailed in this Corporate Governance Report on page 44. We are confident the new composition makes for a high performing Board with the right balance of experience and new ideas for achieving our ambitions for the business. As detailed on page 44, we are undergoing a formal evaluation during 2018/19 to assess the performance of the new Board. This Corporate Governance Report sets out our approach to governance, provides further information on the operation of the Board and its Committees, and explains how the Group complies with the QCA Code 2018. Roger Parry Chair 9 October 2018 41 GOVERNANCE REPORT GOVERNANCE Board of Directors Roger Parry CBE Non-Executive Chair Appointed: Chair of YouGov plc in January 2007 Stephan Shakespeare Chief Executive Officer Appointed: Founded YouGov plc in March 2000 Experience: Roger is Chair of Oxford Metrics and a Non- Executive Director of Uber UK. He was previously Chair of Future Publishing, Johnston Press and Shakespeare’s Globe Trust; a consultant with McKinsey & Co; CEO of More Group, and CEO of Clear Channel International. Roger was educated at the universities of Oxford and Bristol. He is a Visiting Fellow of Oxford University. He was awarded the CBE in 2014. He is the author of five books including The Ascent of Media. Experience: One of the pioneers of internet research, Stephan has been the driving force behind YouGov’s innovation-led strategy. He was Chair of the Data Strategy Board for the Department for Business, Innovation and Skills 2012/13 and led the Shakespeare Review of Public Sector Information. He is a Commissioner for the Social Metrics Commission, an independent charity dedicated to helping UK policy makers and the public understand and take action to tackle poverty. Stephan has an MA in English Language and Literature from Oxford University. Alex McIntosh Chief Financial Officer Sundip Chahal Chief Operating Officer Appointed: Executive Director in December 2017 Appointed: Executive Director in December 2017 Experience: Alex has been with YouGov since 2007, and became Chief Financial Officer in December 2017. Alex initially joined YouGov as Corporate Finance Manager within the finance team focussing on planning, budgeting and corporate development. He became Chief Strategy Officer in 2011 and played a leading role in the development of YouGov’s strategic plans and data product developments. Alex also held the role of Chief Executive Officer of YouGov’s UK business from 2015 to 2016. He previously worked in corporate finance advising a wide range of companies on their growth plans and first worked with YouGov in 2005 while at Grant Thornton when he assisted with the Group’s initial public offering on AIM. Alex holds a BSc (Hons) in Applied Accounting, an MSc in Finance, and is a Fellow of the Association of Chartered Certified Accountants. Experience: Sundip has been with YouGov since 2005 and has been the Group’s Chief Operating Officer since 2014. He initially joined YouGov’s UK business as BrandIndex Sales Director, becoming Managing Director of Data Products in 2008. In 2009, he was appointed as Chief Operating Officer of YouGov’s MENA business and relocated to Dubai to oversee the expansion of YouGov’s core online services across the Middle East, North Africa and Asia. In 2010, he was promoted to Chief Executive Officer of YouGov MENA. Prior to joining YouGov, Sundip gained experience of the market research industry with Ipsos Mori and Research International. 42 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Nick Jones Non-Executive Director S A R Ben Elliot Non-Executive Director Rosemary Leith Non-Executive Director AR Appointed: Senior Independent Director in June 2009 Appointed: Non-Executive Director in August 2010 Appointed: Non-Executive Director in February 2015 Experience: Ben is the Co-Founder of Quintessentially, the global luxury lifestyle company started in December 2000. He is also the Chair of the Quintessentially Foundation, which has raised over £11m for charity since 2008, and a Partner in Hawthorn Advisors, a successful corporate communications business. He is a Trustee for the V&A Museum and Chair of the Philanthropy Board for the Royal Albert Hall, as well as being a Trustee of the Eranda Rothschild Foundation and the Honorary Treasurer for The Centre for Policy Studies. Experience: Nick is Chief Financial Officer of Broadstone, the provider of employee benefits, actuarial and investment services advice to small and medium- sized businesses. Prior to this, he was CFO of Attenda, CFO of Achilles Group, and Global Head of Finance for Reuters plc where he also led the integration of Thomson and Reuters. Nick has held senior financial roles in technology and media businesses in the UK, the US and Europe including Virgin Media, Phillips Electronics and RR Donnelley. Nick is a Fellow of the Chartered Institute of Management Accountants and holds a BA (Hons) in Accounting and Finance. Committees: Chair of Audit & Risk Committee (to become Member on 1 November 2018) Member of Remuneration Committee Experience: Rosemary is a Non-Executive Director and member of the Risk Committee of HSBC UK Bank plc. She is Co-Founding Director of the World Wide Web Foundation and Trustee of the National Gallery, where she is Chair of the Digital Advisory Board and member of the Remuneration Committee. Rosemary is a Fellow at Harvard’s Berkman Klein Center for Internet and Society. Rosemary is an advisor to technology businesses including Motive Partners, Infinite Analytics and Glasswing Ventures, and academic institutions including Queen’s University School of Business and Wolfson College. She was Chair of the World Economic Forum Global Agenda Council on Future of Internet Security. Rosemary holds a Bachelor of Commerce (Hons) in Finance and Accounting from Queen’s University in Canada. Committees: Chair of Remuneration Committee Member of Audit & Risk Committee Key S A R Chair of Committee Senior Independent Director Audit Committee member Remuneration Committee member Andrea Newman Non-Executive Director Ashley Martin Non-Executive Director Appointed: Non-Executive Director in December 2017 Appointed: Non-Executive Director in September 2018 Experience: Andrea is the Global Head of Marketing Wealth & Brand Communications at HSBC Holdings plc. In this role, Andrea is responsible for the management of the HSBC brand globally, as well as all marketing related to HSBC’s Wealth Management propositions. She has been at HSBC for 20 years and during that time has lived and worked in the US and Asia Pacific in addition to the UK. During her tenure with HSBC she has overseen the development of the company’s brand from a federation of over 50 brands to one unified brand, ensuring HSBC’s place as one of the most globally recognised financial services brands. Experience: Ashley joined the Board of YouGov on 1 September 2018. Ashley is also Non-Executive Director and Chair of the Audit & Risk Committee at Zegona Communications plc. Until recently, he served for nine years as Non-Executive Director and Chair of the Audit Committee at Rightmove plc. Ashley has held executive roles at a number of high growth entrepreneurial businesses in the technology, media and communications sector including Tempus Group plc, Rok plc and The Engine Group. He is a Chartered Accountant and a Fellow of the Institute of Chartered Accountants. Committees: To be appointed Chair of Audit & Risk Committee from 1 November 2018 43 GOVERNANCE REPORT Corporate Governance Report for the year ended 31 July 2018 Statement of compliance YouGov plc has adopted the QCA Code 2018. We are compliant with the principles of the Code. Disclosures required by the QCA Code 2018 have been made both in this Annual Report and on our website. The Board Composition At 31 July 2018, the Board consisted of three Executive Directors and five Non-Executive Directors, including a Non-Executive Chair. There were a number of changes to the composition of the Board during the year. On 6 December 2017, Alan Newman retired and was succeeded by Alex McIntosh as Chief Financial Officer and an Executive Director. On the same day, Doug Rivers retired as an Executive Director but remains as Chief Scientist; Sundip Chahal, Chief Operating Officer, became an Executive Director; and Andrea Newman was appointed as a Non-Executive Director. Since the close of the reporting year, on 1 September 2018, Ashley Martin was appointed as a Non-Executive Director. The names of the Directors, their biographies and their respective responsibilities are shown on pages 42 and 43. Independence The Board periodically reviews its composition and succession planning framework to ensure that Board appointments create an appropriate mix of skills and experience, and a level of diversity and independence that supports the Group’s objectives for business growth. The key factors considered by the Board when determining a Director’s independence are their other commitments, their tenure and, significantly, the personal qualities they demonstrate in the boardroom in particular their judgement and the level of engagement and challenge that they provide in Board and Committee discussions. Each of the six Non-Executive Directors, including the Non-Executive Chair, are considered by the Board to be independent. Principle 5 of the QCA Code 2018 confirms that a Director’s independence is a Board judgement. Roger Parry reached 11 years tenure on the Board of the Company in 2018. After evaluation, the Board has determined that Roger remains independent in character and judgement in his role as Non-Executive Director and as Chair of the Board. Nick Jones reached nine years tenure on the Board of the Company in 2018. After evaluation, the Board has determined that Nick remains independent in character and judgement in his roles. Taking into account the length of Nick’s tenure, the Board has decided that Ashley Martin will become Chair of Audit & Risk Committee with effect from 1 November 2018. For more information on succession planning, please see the report of the Nomination Committee on page 46. Operation The Board operates both formally, through Board and Committee meetings, and informally, through regular contact amongst Directors. High-level decisions on matters such as strategy, financial performance and reporting, dividends, risk management, major capital expenditure, acquisitions and disposals are reserved for the Board or Board Committees. The Board receives regular information from management on the Group’s performance and appropriate information relating to the agenda for formal Board and Committee meetings are provided in advance of those meetings to the members. All Directors are expected to commit sufficient time to their roles as required. As a minimum, Non-Executive Directors commit one day per month to their roles for the Company and the Chair of the Board commits further time as required to appropriately fulfil his role as Chair. All Directors are required to submit themselves for re-election at the Annual General Meeting (“AGM”) following their appointment and subsequently on a rotational basis, which ensures that each Director is submitted for re-election approximately every three years. In line with best practice, the Board has decided that from the 2019 AGM onwards all Directors will be subject to re-election by the shareholders at each AGM. It is planned that the Company’s Articles of Association, which were adopted in 2008, be revised to reflect this new policy on annual re-election and be tabled at the 2019 AGM for shareholder approval. Evaluation The Board undertakes an evaluation of its own effectiveness on an annual basis. In accordance with best practice and given the recent changes to the Board, the evaluation process was reviewed in 2018. After review, the Board determined that a more formal in-house board evaluation would be most appropriate. The evaluation is facilitated by the Corporate Secretariat and consists of: • questionnaires completed by each Director on effectiveness of the Board as a whole; • individual peer-to-peer questionnaires; and • one-to-one discussions with the Company Secretary. Anonymised results from the questionnaires and discussions are shared with the full Board to facilitate discussion and, if appropriate, allocation of actions for improvement. At the time of publication of this report, the evaluation process is underway. It is expected that the Board will provide an overview of the board evaluation, its results and recommendations in the 2019 Annual Report. 44 YouGov Annual Report and Accounts 2018 Shareholder communications The Executive Directors meet regularly with institutional shareholders to discuss the Group’s performance and future prospects. At these meetings, the views of institutional shareholders are canvassed and subsequently reported back to the Board. The AGM is available as a forum for communication with private shareholders. The Investor Relations section of the website is a key source of information for all shareholders and maintained by the Corporate Secretariat. It is available at yougov.co.uk/about/investors. The Company Secretary is the point of contact for investor relations. Advisors All Directors have access to all of the Group’s selected advisors and can obtain independent professional advice at the Group’s own expense in performance of their duties as Directors. Board Committees are authorised to obtain, at the Group’s expense, professional advice on any matter within their Terms of Reference. The Audit & Risk Committee works with the Group’s auditors, PricewaterhouseCoopers LLP. The Company Secretary is supported on company secretarial matters by Numis (NOMAD) and Neville Registrars (Registrar). i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Board Committees The Board is supported by the Audit & Risk, Remuneration and Nomination Committees. All Terms of Reference are available to download from yougov.co.uk/about/investors/corporate-governance. Audit & Risk Committee Members: Meetings in 2017/18: Nick Jones (Chair, Non-Executive Director), Rosemary Leith (Non-Executive Director) 3 In July 2018, the Audit Committee was renamed the Audit & Risk Committee (the “Committee”). The Committee operates under Terms of Reference agreed by the Board. The Committee meets with external auditors to consider the Company’s financial reporting in advance of its publication. On 1 November 2018, Ashley Martin will replace Nick Jones as Chair of the Committee, while Nick will continue as a member. Both Nick Jones and Ashley Martin have recent and relevant financial experience. Executive members of the Board attend meetings at the invitation of the Chair. The Terms of Reference were updated following a review of current best-practice guidelines and to reflect the Committee’s additional responsibilities regarding the review of risk. For more information on the risk review activities undertaken by the Committee during 2017/18, please see page 36. The Audit & Risk Committee reports to the Board on any matters in respect of which it considers that action or improvement is needed, and makes recommendations as to the steps to be taken. In particular, the Committee is responsible for: • ensuring that the financial performance of the Group is properly monitored and reported; • monitoring the formal announcements relating to financial performance; • meeting the auditors and agreeing audit strategy; • reviewing reports from the auditors and management relating to accounts and internal control systems; and • making recommendations to the Board in respect of external auditor appointment and remuneration. The effectiveness of the internal control systems are regularly reviewed and an assessment of internal controls has been conducted during the year. The Audit & Risk Committee monitors implementation measures to improve the control environment. Although there was no formal internal audit during the year, the accounting functions were subject to periodic internal review. As the business continues to grow, the Board and the Committee keep the Group’s need for an internal audit function under review. Remuneration Committee Members: Meetings in 2017/18: Rosemary Leith (Chair, Non-Executive Director) and Nick Jones (Non-Executive Director) 5 The Remuneration Committee (the “Committee”) develop the Remuneration Policy, which is approved by shareholders. The Remuneration Committee operates under Terms of Reference agreed by the whole Board. In 2018, the Terms of Reference were updated in line with best-practice guidance. Details of each Director’s remuneration are presented in the Directors’ Remuneration Report on pages 52 to 54. 45 GOVERNANCE REPORT Corporate Governance Report for the year ended 31 July 2018 continued Nomination Committee Members: Meetings in 2017/18: Board of Directors 3 The whole Board acts as the Nomination Committee (the “Committee”), when the need arises. Roger Parry chairs the Committee, except when the Committee is dealing with the matter of succession to the Chair. On these occasions, Nick Jones as the Senior Independent Director, chairs the Committee. The Nomination Committee operates under Terms of Reference agreed by the Board. During 2018, the Terms of Reference of the Committee were updated in line with best-practice guidance. Activities during the year focussed on succession planning, the appointment of two new Executive Directors, and the recruitment of two new Non-Executive Directors: • Succession planning: 2017/18 saw a number of changes in the composition of the Board. To support these changes, the Nomination Committee reviewed the Board’s succession planning framework and established two sub-committees to focus on roles of Chair and CEO. These sub-committees will meet annually to consider succession plans. The first sub-committee meetings are anticipated to take place before the end of 2018/19. Additionally, the Board considers the role of Senior Independent Director annually. Succession plans for all positions take into consideration the annual Board effectiveness evaluation process. • Directors appointments: In assessing candidates for directorship, the Committee considers a wide variety of criteria including experience, independence and diversity. In the 2017/18 financial year, the Committee used the services of an external search consultant, Korn Ferry, to assist in identifying suitable candidates for Board appointments. For information on the new Directors during 2017/18, see pages 5 and 43. Board and Committee attendance The following table sets out the attendance of Directors at Board and Committee meetings during 2017/18. Executive Directors Stephan Shakespeare Alex McIntosh1 Sundip Chahal1 Alan Newman2 Doug Rivers2 Non-Executive Directors Roger Parry Nick Jones Ben Elliot Rosemary Leith Andrea Newman1 Ashley Martin3 Type Executive Executive Executive Executive Executive Non-Executive Chair Non-Executive Non-Executive Non-Executive Non-Executive Non-Executive Note: Executive Directors attend Committee meetings by invitation only. * Andrea Newman attends Remuneration Committee meetings by invitation only. 1 Appointed to the Board on 6 December 2017. 2 Retired from the Board on 6 December 2017. 3 Appointed to the Board after the end of the reporting period, on 1 September 2018. Board 10 of 10 7 of 7 7 of 7 3 of 3 3 of 3 10 of 10 9 of 10 8 of 10 10 of 10 6 of 7 N/A Audit & Risk Committee Remuneration Committee Nomination Committee 2 of 2 1 of 1 5 of 5 3 of 3 1 of 1 3 of 3 5 of 5 3 of 3 N/A 5 of 5 2* N/A 3 of 3 1 of 1 1 of 1 0 of 2 0 of 2 3 of 3 2 of 3 2 of 3 3 of 3 0 of 1 N/A 46 YouGov Annual Report and Accounts 2018 Controls and procedures Key controls and procedures The Board maintains full control and direction over appropriate strategic, financial, organisational and compliance issues and has put in place an organisational structure with defined lines of responsibility and delegation of authority. The Board, prior to approval being given, reviews the annual budget and forecasts. This includes the identification and assessment of the business risks inherent in the Group as well as the data analysis and media sector as a whole, along with associated financial risks. The system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives in addition to providing reasonable but not absolute assurance against material misstatement or loss. These include controls in relation to the financial reporting process and the preparation of consolidated accounts. These procedures have been in place during the financial year up to the date of approval of the Annual Report. This process is regularly reviewed by the Board and is in accordance with Financial Reporting Council guidance. i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n The key procedures include: • detailed budgeting programme with an annual budget approved by the Board; • regular review by the Board of actual results compared with budget and forecasts; • regular reviews by the Board of year-end forecasts; • establishment of procedures for acquisitions, capital expenditure and expenditure incurred in the ordinary course of business; • detailed budgeting and monitoring of costs incurred on the development of new products; • reporting to, and review by, the Board of changes in legislation and practices within the sector and accounting and legal developments pertinent to the Group; • appointing experienced and suitably qualified staff to take responsibility for key business functions to ensure maintenance of high standards of performance; and • appraisal and approval of proposed acquisitions by the Board. Auditor independence The Audit & Risk Committee also undertakes a formal assessment of the auditors’ independence each year, which includes: • confirmation of the auditors’ objectivity and independence in the provision of non-audit services to the Group by the use of separate teams to provide such services where appropriate; • discussion with the auditors of a written report detailing relationships with the Group and any other parties that could affect independence or the perception of independence; • a review of the auditors’ own procedures for ensuring independence of the audit firm and partners and staff involved in the audit, including the regular rotation of the audit partner; and • obtaining written confirmation from the auditors that, in their professional judgement, they are independent. An analysis of the fees payable to the external audit firm in respect of both audit and non-audit services during the year is set out in Note 2 to the Financial Statements. 47 GOVERNANCE REPORT Corporate Governance Report for the year ended 31 July 2018 continued Corporate Social Responsibility The Board of Directors is committed to delivering high standards of corporate governance and a key element of this is managing the Group in a socially responsible way. We want YouGov to be recognised as an organisation that is transparent and ethical in all its dealings as well as making a positive contribution to the community in which it operates. We are mindful of the Group’s impact on all our stakeholders including employees, panellists, clients, suppliers, shareholders, local communities, wider society and the environment. We have in place global and local company policies which outline our expectations for employee behaviour and what our employees can expect to receive from us. Community YouGov recognises the importance of respecting and supporting the communities in which it operates, and of making a positive contribution to society through its work. Our employees have supported a number of charities and community initiatives during the year, including raising funds for a children’s charity in Germany and collecting supplies for a women’s personal health charity in the UK. Suppliers YouGov aims to pay all its suppliers within a reasonable period of their invoices being received and approved, provided that the supplier has performed in accordance with the relevant terms and conditions. For the financial year ended 31 July 2018, the Company is not required to report on payment practices, policies and performance under Section 3 of Small Business, Enterprise and Employment Act 2015. Privacy YouGov is an online market research and data analytics Group. The security and privacy of our data is paramount to our business. YouGov expects employees, and those who we work with, to exercise high rigour when it comes to safeguarding the data of all stakeholders, including personal data. To reinforce our commitment to the security of data and information, during the year we created the new roles of Group Data Protection Officer and Group Information Security Manager. Both roles work closely with our Group Head of Governance, Group Head of Legal, Group Head of Infrastructure & System Operations and external advisors to ensure that the Group’s policies and procedures are to a high standard befitting a company of our size and activities. We also introduced compulsory data protection and cyber security e-learning programmes for all employees in the Group and we monitor the results and completion rates of this training. To prepare for the GDPR which came into force in May 2018, YouGov established a cross-functional GDPR Compliance team which led an internal compliance programme endorsed by the YouGov Group Board. As part of this programme, the Group’s Data Protection and IT Security policies were refreshed, in compliance with GDPR as well as other relevant legislation. Diversity in the workplace YouGov is committed to providing a working environment in which its employees are able to realise their potential and to contribute to business success irrespective of gender, marital status, ethnic origin, nationality, religion, disability, sexual orientation or age. We demonstrated our commitment to diversity in the workplace this year by activities including: • voluntarily publishing our first Gender Pay Gap Report in the UK; • implementing a gender neutral recruitment process; • qualifying as a Diversity Champion with Stonewall in the UK; • committing to the Disability Confident employment scheme in the UK; • celebrating International Women’s Day in March in our global offices; and • celebrating Pride Week 2018 in our London office. To view our Gender Pay Gap Information Report for 2018, please visit yougov.co.uk/about/investors/corporate-responsibility. 48 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Engagement with panellists YouGov’s panel is our largest stakeholder group – at over 6 million individuals globally – and is essential to our success. Engaged, diverse and opinionated panellists are key to our business. Keeping panellists engaged is central to what we do, and we have a global Panel team dedicated to doing just that. We work to continually improve the panellist experience, such as: • investing in new technology to ensure that when a panellist cashes in the points earned for sharing their opinion, they receive their reward within hours; and • developing a highly effective system of alerting panellists when their opinion “becomes the news”. We are fortunate that our research is widely covered in international media, which allows us to tell panellists that they are contributing to the global debate on issues of importance. Employee involvement Our employees are an integral part of our business. We realise that engaged and informed employees are productive employees. We recognise the benefits of keeping employees informed on matters which affect them and the wider business, such as financial factors impacting the performance of the Company and developments in the industry. Leaders within the business regularly present at regional “All Hands” meetings to raise awareness throughout the business of the different operations. The London office’s monthly “All Hands” meetings are available via web conferencing for all employees working at home or in other global offices. Details of how employees are kept engaged in the financial and economic factors are outlined in the Directors’ Report on page 55. Employee wellbeing YouGov is committed to ensuring that our employees have a strong sense of support and wellbeing at work. It is our mission to achieve a valued and productive workforce by implementing a culture of care, increasing employees’ skills and building the outlook required to deal with the pressures of the modern workplace. We recognise that many individuals have various responsibilities at home, or complicated commutes, so we offer remote working as standard in many roles, so long as it does not affect business needs. This often enables employees to achieve a better work/life balance than the traditional 9-to-5 office hours, which in turn increases productivity. Health and safety YouGov takes all reasonable and practicable steps to safeguard the health, safety and welfare of its employees. We recognise our responsibility for the health and safety of those who may be effected by our activities, and take care to operate in a safe and secure manner. Ethical behaviour YouGov expects its employees to exercise high professional, ethical and moral standards at all times whilst representing the Group. The Group maintains an awareness of human rights issues and observance of pertinent law and we reflect this in our suite of policies; these include an Anti-Bribery Policy and Whistleblowing Procedure. Our statement on Modern Slavery in our supply chain is available at yougov.co.uk/about/investors/modern-slavery-act-statement. Environment YouGov recognises that the prudent use of resources delivers both environmental and financial benefits. We aim to promote the maintenance of a healthy environment through responsible and sustainable consumption. Our operations are predominantly office based and here we try to minimise our impacts where practicable. As part of this policy, we undertake: • that all waste is stored and disposed of responsibly, and recycled where possible; • that paper used comes from reputable managed forests; • to comply with the relevant packaging and waste regulations; and • to minimise air travel by utilising conference and video calling technology when appropriate. 49 GOVERNANCE REPORT Remuneration Report for the year ended 31 July 2018 The Remuneration Committee sets the strategy, structure and levels of remuneration for the Executive Directors and also reviews the remuneration of senior management. It does so in the context of aligning the financial interests of the Executive Directors, management and employees with the achievement of the Group’s stated strategic objectives. As an AIM-listed company, YouGov is not obliged to comply with the remuneration reporting requirements for companies as set out in The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. However, the Remuneration Committee has taken note of those elements of the Regulations which it considers are appropriate to the Company and certain disclosures in this section reflect the requirements of the regulations. Directors’ Remuneration Policy Policy on remuneration of Non-Executive Directors The remuneration of the Non-Executive Directors is set by the Board as a whole. The Board of Directors believes that ownership of the Company’s shares by Non-Executive Directors helps to align their interests with those of the Company’s shareholders. Accordingly, the Company’s policy is that a proportion of each Non-Executive’s fee will be paid in the form of ordinary shares in lieu of cash, save if the Non-Executive Director has an existing substantial shareholding. During the year, £20,000 of the Chair’s fee and £5,000 of the other Non-Executives’ fees, were paid in shares; this amounted to 10,191 shares in total (2017: 12,174 shares) as detailed in the following table: Name Roger Parry Nick Jones Ben Elliot Rosemary Leith Andrea Newman Ashley Martin* Title Non-Executive Chair Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Shares issued 5,095 1,274 1,274 1,274 1,274 – * Appointed to the Board after the end of the reporting period, on 1 September 2018. Policy on remuneration of Executive Directors The Remuneration Committee reviews the performance of Executive Directors and sets the scale and structure of their remuneration and the basis of their service agreements with due regard to the interests of shareholders. In determining that remuneration, the Remuneration Committee seeks to offer a competitive remuneration structure to maintain the high calibre of its Executive Board. The Committee believes that maintaining the Group’s business growth and profit record requires an overall compensation policy with a strong performance-related element. External appointments Executive Directors are permitted to serve on other Boards. No Executive Director received any remuneration in the year in respect of their external Non-Executive appointments. Components The main components of the Executive Directors’ remuneration are: 1. Basic salary Basic salary for each Director is determined by the Remuneration Committee taking into account the performance of the individual and external market data. The Committee’s policy is to review salaries annually. 2. Bonus scheme The Remuneration Committee sets bonus targets linked to the Group’s stated strategy and tailored to each Director’s individual role. These include financial and non-financial objectives. It assesses their overall performance against those indicators and generally in determining the level of bonus payable. The Remuneration Committee adopted a bonus scheme for the Executive Directors for the 2017/18 year. This annual bonus scheme is focussed on the achievement of the Group’s short-term objectives and is designed to complement the LTIP 2014 which is focussed on the achievement of the Group’s long-term objectives. The cash award values for 2017/18 are stated in this Remuneration Report on page 52. 3. Shares The Board believes that share ownership by Executive Directors strengthens the link between their personal interests and those of the shareholders in respect of shareholder value. It therefore established long-term incentive plans designed to reflect an individual manager’s contribution to long-term value creation. 50 YouGov Annual Report and Accounts 2018 Long Term Incentive Plan 2014 (“LTIP 2014”) The current Long Term Incentive Plan (“LTIP 2014”) took effect from 1 August 2014. The participants are the Executive Directors and a small group of senior managers whom the Board considers have a key role to play in the delivery of YouGov’s strategic plans. The plan is designed to reward the participants for the achievement of highly demanding earnings per share growth targets over the five-year period ending 31 July 2019. Under the rules of this plan, participants are to be conditionally awarded nil cost options to acquire shares (or conditional stock awards, if US residents). The awards are to be granted in three equal tranches over 2015/16 to 2017/18. Receipt of an award in each of these years is dependent upon the achievement of specific and demanding personal targets set for that individual in the previous financial year. The award vesting conditions include earnings per share growth targets and an operating profit margin target (detailed below) and the Remuneration Committee’s assessment of the Group’s underlying financial performance over the plan period. Vesting of awards is dependent on the Group achieving the targets for compound earnings per share growth in the plan period as set out in the table below: i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Five-year EPS CAGR1 Below 10% 10% 15% 25% % of award vesting Nil 15% 30% 100% 1. EPS is defined as the adjusted earnings per share calculated in accordance with the Group’s accounts (i.e. excluding the amortisation of intangible assets, share-based payments and other separately reported items). Vesting of awards is also dependent on the Group’s average operating margin being at least 12% over the five-year period (average operating margin is the average of the adjusted operating profit, as defined in the accounts, divided by the revenue with each year’s margin percentage being calculated first). If this underpin condition is not achieved, the shares awarded will not vest. If it is met, then the five-year earnings per share growth performance will be assessed against the targets set out in the table above. The maximum total number of shares to be awarded to each participant over the five years of the plan is based on a percentage of their salary in the year ended 31 July 2015 and the share price at the start of the plan; the percentage levels vary by participant, as set out in the table below: Role Chief Executive Officer Executive Directors Senior Managers Maximum cumulative award after five years as % of salary in FY15 850% 500% Between 150% and 250% In addition, the Chief Executive Officer is entitled to an enhanced award if the Company’s share price grows by more than 200% over the five-year period and if the other vesting conditions are also met in full. This additional award equates to 255% of his annual salary in the year ended 31 July 2015. The combined maximum potential award for the Chief Executive Officer is thus 1105% of his annual salary. This award was granted in full (as a single tranche) during the year. 2,330,975 share options were granted under the LTIP 2014 in the year ended 31 July 2018. These included conditional awards to the Executive Directors of the Company, as set out in the below Annual Report on Remuneration. Deferred Share Bonus Plan 2014 (“DSBP 2014”) A Deferred Share Bonus Plan was established in 2014, for senior managers in the Group who do not participate in the new LTIP. This plan entitles participants to an award of shares which must be retained for a period of two years and whose vesting is subject to their continued employment during that time. The value of the award will be linked to the assessment of performance made in determining their annual bonus. The maximum award level will normally be 10% of basic salary. As distinct from the new LTIP, awards of DSBP shares may be made annually. 152,012 share options were granted under the DSBP 2014 in the year ended 31 July 2018, none of which were granted to Executive Directors of the Company. 51 GOVERNANCE REPORT Remuneration Report for the year ended 31 July 2018 continued Long Term Incentive Plan 2009 (“LTIP 2009”) In the financial years 2008/9 to 2013/14, the Executive Directors and senior managers of the Company and its subsidiaries were eligible to participate in the Long Term Incentive Plan established in 2009. Under the rules of this plan, participants are conditionally awarded nil cost options to acquire shares (or conditional stock awards, if US residents). The number of such shares awarded is normally calculated by reference to a percentage of the participant’s salary and the Company’s closing share price for an appropriate reference period. The shares subject to the awards are to be released to the recipients at the end of a holding period, normally three years, subject to their continued employment (with exceptions in certain circumstances). The performance criteria attached to these awards relate to earnings per share growth and total shareholder return (“TSR”) versus companies in the AIM Media Index. The conditions applying to the last round of the LTIP 2009 awards, which were granted in 2013/2014, were met in full, and consequently these awards vested in full, in November 2016. No share options were granted under the LTIP 2009 in the year ended 31 July 2018. Long Term Incentive Plan 2019 (“LTIP 2019”) The Board is currently developing its next five-year strategic plan (for the period from 1 August 2018 to 31 July 2023) and the next long- term share incentive plan to run alongside it (tentatively called the “LTIP 2019”). The details of the new five-year plan, and the proposed new share incentive plan, will be shared with the Company’s major shareholders in the spring of 2019. Should the new incentive plan be implemented, it is intended for the plan disclosures to include detail on Executive Director personal objectives and Company targets for the achievement of awards under the plan. Annual Report on Remuneration A resolution will be put to the shareholders at the Annual General Meeting to be held on 12 December 2018, inviting them to consider and approve this report. The Remuneration Report is unaudited, except where stated. This is not a remuneration report as defined by Company Law. The total aggregate remuneration (including benefits-in-kind and pension contributions) paid to the Directors by all members of the Group for the year ended 31 July 2018 amounted to £1,860,700 (2017: £1,727,000). Directors’ remuneration (audited) Directors’ remuneration in aggregate for the year ended 31 July 2018 was as follows: Name Executive Directors Stephan Shakespeare Alex McIntosh* Sundip Chahal* Alan Newman** Doug Rivers** Non-Executive Directors Roger Parry Nick Jones Ben Elliot Rosemary Leith Andrea Newman* Ashley Martin*** Totals Salary £ 256,903 120,349 137,513 328,746 97,876 100,000 42,000 35,000 42,000 19,577 – Annual bonus £ Pension contribution £ Benefits-in- kind £ 258,589 121,732 144,838 – 97,876 – – – – – – 10,616 1,996 10,821 – 10,628 – – – – – – 40,226i 793ii 29,125iii – – – – – – – – Total 31 July 2018 £ 566,334 244,870 322,297 328,746 206,380 Total 31 July 2017 £ 504,795 – – 415,642 606,898 100,000 100,000 42,000 35,000 42,000 19,577 – 35,000 30,000 35,000 – – 1,179,964 623,035 34,061 70,144 1,907,204 1,727,335 * Appointed to the Board on 6 December 2017. ** Retired from the Board on 6 December 2017. *** Appointed to the Board after the end of the reporting period, on 1 September 2018. i The benefit-in-kind received consists of private health care, family travel allowance and living accommodation allowance. ii The benefit-in-kind received consists of private health care. iii The benefit-in-kind received consists of private health care, family travel allowance and dependants’ school fees allowance. 52 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n In the year ended 31 July 2017, the remuneration paid to Stephan Shakespeare, Alan Newman and Doug Rivers included bonus payments of £252,718, £209,771 and £297,916 respectively. Directors’ share options (audited) The following unexercised nil cost options over shares were held by Directors: Plan Date of grant Stephan Shakespeare Earliest exercise date Expiry date Number at 31 July 2017 Awarded in year Exercised in year Number at 31 July 2018 LTIP 2009 7 April 2014 17 October 2016 6 April 2024 LTIP 2014 9 December 2015* 14 October 2019 8 December 2025 LTIP 2014 9 December 2015 14 October 2019 8 December 2025 262,185 544,976 575,253 LTIP 2014 17 November 2016 14 October 2019 16 November 2026 605,529 – – – – LTIP 2014 12 December 2017 14 October 2019 11 December 2027 – 1,987,943 605,530 605,530 Alex McIntosh LTIP 2009 29 July 2010 15 October 2012 28 July 2020 LTIP 2009 21 July 2011 14 October 2013 20 July 2021 LTIP 2009 30 July 2012 13 October 2014 29 July 2022 LTIP 2009 7 April 2014 17 October 2016 6 April 2024 LTIP 2014 9 December 2015 14 October 2019 8 December 2025 LTIP 2014 17 November 2016 14 October 2019 16 November 2026 LTIP 2014 12 December 2017 14 October 2019 11 December 2027 LTIP 2014 3 April 2018 14 October 2019 11 December 2027 Sundip Chahal LTIP 2014 9 December 2015 14 October 2019 8 December 2025 LTIP 2014 17 November 2016 14 October 2019 16 November 2026 LTIP 2014 12 December 2017 14 October 2019 11 December 2027 LTIP 2014 3 April 2018 14 October 2019 11 December 2027 Alan Newman** LTIP 2014 9 December 2015 14 October 2019 8 December 2025 LTIP 2014 17 November 2016 14 October 2019 16 November 2026 LTIP 2014 12 December 2017 14 October 2019 11 December 2027 Doug Rivers** LTIP 2014 9 December 2015 14 October 2019 8 December 2025 LTIP 2014 17 November 2016 14 October 2019 16 November 2026 LTIP 2014 12 December 2017 14 October 2019 11 December 2027 * LTIP 2014 CEO’s enhanced award, as described on page 51. ** Retired from the Board on 6 December 2017. 14,527 17,500 15,326 11,517 86,486 86,486 – – 231,842 120,412 120,412 – – 240,824 295,664 295,664 – 591,328 332,491 332,491 – 664,982 – – – – – – 86,487 191,291 277,778 – – 120,411 204,748 325,159 – – 295,663 295,663 – – 332,492 332,492 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 262,185 544,976 575,253 605,529 605,530 2,593,473 14,527 17,500 15,326 11,517 86,486 86,486 86,487 191,291 509,620 120,412 120,412 120,411 204,748 565,983 295,664 295,664 295,663 886,991 332,491 332,491 332,492 997,474 53 GOVERNANCE REPORT Remuneration Report for the year ended 31 July 2018 continued Statement of Directors’ Shareholding and Share Interests Share options with performance conditions Stephan Shakespeare 2,593,473 Share awards without performance conditions – Alex McIntosh 509,620 – Sundip Chahal 565,983 – Alan Newman 886,991 – Doug Rivers 997,474 – Scheme interests in shares 2,593,473 509,620 565,983 886,991 997,474 Vested but unexercised share options Shares beneficially owned Total interest in shares 262,185 7,417,556 10,273,214 58,870 8,918 518,538 – 293,164 859,147 – – 528,832* 988,135* 1,415,823 1,985,609 * As at 6 December 2017, the date of retirement from the Board. Directors’ service contracts The table below summarises key details in respect of each Director’s contract. Executive Directors Stephan Shakespeare Alex McIntosh Sundip Chahal Alan Newman* Doug Rivers* Title Chief Executive Officer Chief Financial Officer Chief Operating Officer Chief Financial Officer Chief Scientist Contract date 18 April 2005 21 March 2018 21 March 2018 5 June 2009 7 August 2007 Notice period 12 months 6 months 6 months 6 months 90 days Non-Executive Directors Title Date of initial appointment Notice period Roger Parry Nick Jones Ben Elliot Rosemary Leith Andrea Newman Ashley Martin Non-Executive Chair 6 February 2007 Non-Executive Director 2 June 2009 Non-Executive Director 2 August 2010 Non-Executive Director 1 February 2015 Non-Executive Director 6 December 2017 Non-Executive Director 1 September 2018 30 days 30 days 30 days 30 days 30 days 30 days * Retired from the Board on 6 December 2017. Save as set out above, there are no existing or proposed service contracts between any of the Directors serving at 31 July 2018 and the Company or any member of the Company. Directors’ conflicts of interest The Company has procedures in place to monitor and manage Directors’ conflicts of interest. The Directors are required to declare their interests and connected persons on an annual basis (and additionally when there is change) and the Company Secretary maintains a register of said interests. The Company’s Articles of Association permit the Board to authorise declared conflicts of interest; and Directors may excuse themselves from decisions when they are concerned about a conflict or potential conflict. Save as disclosed, no Director has or has had any interest in any transaction which is or was unusual in its nature or conditions or which is or was significant in relation to the business of the Company and which was effected by the Company either: (i) during the current or immediately preceding financial year; or (ii) during any earlier financial year and which remains in any aspect outstanding or unperformed. 54 YouGov Annual Report and Accounts 2018 Directors’ Report for the year ended 31 July 2018 The Directors present their report and the audited consolidated financial statements for the year ended 31 July 2018. Operating results The financial and operational performance of the Group is discussed on page 1. Financial summary The financial summary is discussed on pages 29 to 34 of the Chief Financial Officer’s report. Key performance indicators Performance measured against key performance indicators is discussed on page 29. Principal risks and uncertainties The principal risks and uncertainties are discussed on pages 36 and 37. Financial risks The financial risks facing the Group are discussed in more detail in Note 20 on pages 101 to 103. Dividends A final dividend of 2.0p per share in respect of the year ended 31 July 2017 was paid on 11 December 2017, amounting to a total payment of £2,106,340. A dividend of 3.0p per share in respect of the year ended 31 July 2018, amounting to a total payment of £3,164,754 will be proposed at the Annual General Meeting on 12 December 2018. Prospects The Board’s assessment of the Company’s position and prospects are set out in the Chair’s statement on pages 4 to 5, the Chief Executive Officer’s review on pages 26 to 28 and the Chief Financial Officer’s report on pages 29 to 34. Future developments Future developments are discussed in more detail in the Chief Executive Officer’s review on pages 26 to 28. Events after the reporting date On 21 August 2018, YouGov plc acquired InConversation Media Limited. Details of this transaction are disclosed within Note 27 on page 107. On 6 September 2018, YouGov plc completed a transaction with Crunch.io, Inc. Details of this transaction are disclosed within Note 27 on page 107. Directors The Directors of the Company who were in office during the year and at any point up to the date of signing this report were: i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Name Title Stephan Shakespeare Chief Executive Officer Alex McIntosh Sundip Chahal Alan Newman Doug Rivers Roger Parry Nick Jones Ben Elliot Rosemary Leith Andrea Newman Ashley Martin Chief Financial Officer Chief Operating Officer Chief Financial Officer Chief Scientist Non-Executive Chair Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Role Executive Executive Executive Executive Executive Non-Executive Non-Executive Non-Executive Non-Executive Non-Executive Appointed 6 December 2017 Appointed 6 December 2017 Retired 6 December 2017 Retired 6 December 2017 Appointed 6 December 2017 Non-Executive Director Non-Executive Appointed 1 September 2018 55 GOVERNANCE REPORT Directors’ Report for the year ended 31 July 2018 continued Treasury shares The total number of shares in treasury at 31 July 2018 was nil (2017: nil). Directors’ interests in shares The interests of the Directors in the shares of the Company as at 31 July 2018 and 31 July 2017 were as follows: As at 31 July 2018 Number of shares As at 31 July 2017 Number of shares Stephan Shakespeare1 Alex McIntosh2 Sundip Chahal2 Alan Newman3 Doug Rivers3 Roger Parry Nick Jones Ben Elliot Rosemary Leith Andrea Newman2 Ashley Martin4 7,417,556 8,918 293,164 – – 94,961 21,844 21,844 10,695 1,274 – 7,417,556 28,799 292,921 528,832 988,135 89,685 20,570 20,570 9,421 – – ¹ Includes 559,404 ordinary shares held by Stephan Shakespeare’s wife, Rosamund Shakespeare. ² Appointed to the Board on 6 December 2017. 3 Retired from the Board on 6 December 2017. 4 Appointed to the Board after the end of the reporting period, on 1 September 2018. There have been no changes to Directors’ interests in shares since the financial year-end. The Directors’ interests in share options are detailed in the Remuneration Report on pages 53 and 54. Major shareholders At 31 July 2018, the Company was aware of the following interests in 3% or more of the nominal value of the Company’s shares: Shareholder Liontrust Asset Management BlackRock Aberdeen Standard Investments T Rowe Price Global Investments Octopus Investments Stephan & Rosamund Shakespeare1 Kabouter Management Investec Wealth & Investment Charles Stanley Baillie Gifford ¹ Includes 559,404 ordinary shares held by Stephan Shakespeare’s wife, Rosamund Shakespeare. Shares 18,565,339 11,650,110 9,076,175 8,088,465 7,511,493 7,417,556¹ 7,114,653 6,553,033 4,569,325 4,459,665 Percentage issued share capital 17.60 11.04 8.60 7.67 7.12 7.03 6.74 6.21 4.33 4.23 56 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Research and development The Group’s research and development activities centre on the development of bespoke software solutions to support and advance our online capabilities. No research and development costs were charged to the Consolidated Income Statement in either 2018 or 2017. In 2018, £3.9m (2017: £3.4m) was capitalised and included within intangible fixed assets. Capitalised development is amortised to the income statement over a period of three years, the amortisation charge in respect of capitalised development was £3.5m (2017: £2.7m). Charitable and political contributions Donations to charitable organisations amounted to £97,000 (2017: £84,000). This included an annual subscription of £78,000 (2017: £78,000) in respect of the YouGov-Cambridge Programme, an academic partnership established with Cambridge University’s Department of Politics and International Studies. The Company does not make political donations. Employee involvement and communication The Board firmly believes in the importance of keeping employees informed and engaged in the financial and economic factors affecting the Group’s performance. Information about the Group’s performance against our five-year plan is shared with employees through regular management briefings, newsletters and our global intranet. Employees are encouraged to own shares in the Company, and many employees are shareholders and/or hold options under the Group’s share option schemes as part of their compensation packages. For more information about how we involve, engage and communicate with employees, please see page 49. Insurance During the financial year, the Group has maintained Directors’ and Officers’ liability insurance. In accordance with Section 236 of the Companies Act 2006, qualifying third-party indemnity provisions are in place for the Directors and Company Secretary in respect of liabilities incurred because of their office, to the extent permitted by law. This insurance was in force at the date of signing of the Annual Report and financial statements. Going concern The Group meets its day-to-day working capital requirements through its own cash resources. The nature of the Group’s business means that there is some uncertainty as to the future level of demand for the Group’s products. However, the Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to continue operating without bank finance. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the near future including the 12 months from the date of this report. The Group therefore continues to adopt the going concern basis in preparing its Consolidated Financial Statements. Independent auditors In accordance with Section 418(2) of the Companies Act 2006, each of the Company’s Directors in office as at the date of this report confirms that: • so far as the Directors are aware, there is no relevant audit information of which the Company’s auditors are unaware; and • all steps that ought to have been taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. The Group external auditors are PricewaterhouseCoopers LLP. A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the Company will be proposed at the forthcoming Annual General Meeting. Annual General Meeting The Annual General Meeting of the Company will be held on 12 December 2018 at our offices at 50 Featherstone Street, London EC1Y 8RT. Tilly Heald Company Secretary On behalf of the Board 9 October 2018 57 GOVERNANCE GOVERNANCE REPORT Directors’ Responsibilities Statement Statement of Directors’ Responsibilities in respect of the Financial Statements The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of the profit or loss of the Group and parent company for that period. In preparing the financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and IFRSs as adopted by the European Union have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements; • make judgements and accounting estimates that are reasonable and prudent; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and parent company will continue in business. The Directors are also responsible for safeguarding the assets of the Group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent company and enable them to ensure that the financial statements comply with the Companies Act 2006. The Directors are responsible for the maintenance and integrity of the parent company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ confirmations The Directors consider that 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 and parent company’s position and performance, business model and strategy. Alex McIntosh Chief Financial Officer On behalf of the Board 9 October 2018 58 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Independent Auditors’ Report to the Members of YouGov plc on the Group Financial Statements Opinion In our opinion, YouGov plc’s Group financial statements (the “financial statements”): • give a true and fair view of the state of the Group’s affairs as at 31 July 2018 and of its profit and cash flows for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report and Accounts 2018 (the “Annual Report”), which comprise: the Consolidated Statement of Financial Position as at 31 July 2018; the Consolidated Income Statement and Consolidated Statement of Comprehensive Income, the Consolidated Statement of Cash Flows, and the Consolidated Statement of Changes in Equity for the year then ended; the accounting policies; and the notes to the financial statements. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our audit approach Overview Materiality • Overall Group materiality: £690,000 (2017: £500,000), based on 3.5% of adjusted operating profit (as presented on the face of the Consolidated Income Statement). Audit scope • The focus of the Group team’s work was on the UK and US operations. The Middle East operation was also in full scope and we received reporting on the complete financial information from our Middle East team. In addition, specified audit procedures were performed in Asia Pacific and by the Group team on the German, Nordic and French operations. • Capitalisation of internally generated intangible assets. Key audit matters • Carrying value of goodwill and intangible assets. The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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) identified by the auditors, including 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, and any comments we make on the results of our procedures thereon, 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. This is not a complete list of all risks identified by our audit. 59 GOVERNANCE REPORT Independent Auditors’ Report to the Members of YouGov plc on the Group Financial Statements continued Key audit matter How our audit addressed the key audit matter Capitalisation of internally generated intangible assets Refer to Principal accounting policies and Note 11. We focussed on this area because of the significant level of judgement by the Directors involved in determining whether internal time and external costs incurred in respect of internally generated intangible assets satisfy the requirements of the financial reporting framework (International Accounting Standard 38 Intangible assets) to be capitalised, including that they are separable from the other assets of the business and will provide future economic benefits for the Group. Carrying value of goodwill and intangible assets Goodwill is an intangible asset that arises on the acquisition of a business and reflects the portion of the consideration paid which cannot be allocated to separately identifiable acquired assets. Goodwill is not amortised but tested for impairment at least once a year or more frequently where there is an indication that it may be impaired. The Group has also recognised both acquired and internally generated intangible assets. Whilst these are amortised over their useful economic life, there is a risk that their value may need to impaired, and so they are included in the impairment testing. Determining if an impairment charge is required for goodwill and intangible assets involves significant judgements about the future results and cash flows of the business, including forecast growth in future revenues and EBITDA margins, as well as determining an appropriate discount factor and long-term growth rate. Management used a Value in Use model to compute the present value of forecast future cash flows for each cash generating unit (CGU) which was then compared to the carrying value of the net assets of each CGU (including goodwill and intangible assets) to determine if there was an impairment. Management deem the level of cash-generating units (CGUs) to be each geographic region. This represents the level at which the cash flows of the businesses (and goodwill) are monitored and therefore this is the level at which management performs its impairment assessment. Management’s impairment assessment has not highlighted that any CGUs are impaired. 60 YouGov Annual Report and Accounts 2018 We have gained an understanding of the controls and review process over the capitalisation of intangibles and tested the control surrounding the approval of the IT development budget, which was reviewed by the Board as part of the annual business planning process. We considered the feasibility and revenue generation of each project with relevant personnel and obtained satisfactory explanations for the assumptions made. In order to determine the economic feasibility of these products, we have reviewed the revenue streams and tested management’s forecasting associated with each of the intangible assets to ensure it supports the net book value. We have reviewed management’s classification of costs between new projects, improvements and maintenance expenditure. We confirmed that time associated with maintenance has been appropriately expensed. We have assessed whether any existing assets are impaired as a result of new development in the year. We tested that for a sample of projects costs capitalised they satisfied the recognition criteria in IAS 38. We also tested a sample of internal costs to timesheets and supporting payroll records and verified the allocation of employee costs to the correct projects and external costs to invoices. Based on the audit procedures performed, we are satisfied that amounts capitalised appropriately reflect the requirements of IAS 38. We checked and confirmed that the allocation of CGUs to geographic location was consistent with internal management reporting. We reviewed the judgements applied to future forecasts to ensure that these included appropriate consideration of historical variances and uncertain market conditions. We evaluated and sensitised the Directors’ future cash flow projections and evaluated the process by which they were drawn up, and tested the underlying value in use calculations. We evaluated the Board approved cash flow forecasts for each CGU, and understood the process by which these were calculated: − the revenue and EBITDA growth rates used in the cash flow forecasts by comparing them to historical results, economic forecasts and anticipated growth in each relevant territory; − the discount rate applied, by assessing the cost of capital for the Group and comparable organisations; and − the long-term growth rate applied, by comparing management’s rate to forecast long-term GDP growth in each territory and industry growth reports. We found the key assumptions to be reasonable. We considered the Directors’ potential bias through performance of our own sensitivity analysis on key assumptions, to understand the impact of reasonable changes in the key assumptions on the available headroom. This included sensitising the discount rate applied to the future cash flows, and the short and longer-term growth rates and profit margins. In performing these sensitivities we considered the historical budgeting accuracy and how the assumptions compared to the actual values achieved in prior years and post year-end. With regard to the above procedures, including the reflection of historical levels of variance from budget into the future forecasts, we determined that the inputs to the value in use model were appropriate. This provided sufficient evidence to support the Directors’ assessments that no impairments were recognised. The Directors determined that no impairment and no sensitivity disclosures were necessary for all CGUs. We found that these judgements were supported by reasonable assumptions that would require significant downside changes before any impairments were necessary. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which it operates. The Group reports its operating results and financial position in eight territories: the UK, USA, Germany, Nordics, Middle East, Asia Pacific, France and Mainland Europe. The Group financial statements are a consolidation of the Group’s operating businesses and central functions. The Group’s operating reporting units vary significantly in size, the most significant being the UK, US and the Middle East. The Group team performed the audits of the UK, USA and the consolidation. We also issued instructions to our Middle East team, which included guidance on the areas of focus for the audit. Our Middle East team performed their respective audit, in accordance with our instruction, over the complete financial information of the Middle East and we had regular communication with them. We then received reporting on the results of their work. In addition, specified audit procedures were performed in Asia Pacific by PwC Hong Kong and PwC Singapore and by the Group team for the German, Nordic and French operations. i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall Group materiality £690,000 (2017: £500,000). How we determined it 3.5% of adjusted operating profit (as presented on the face of the Consolidated Income Statement). Rationale for benchmark applied We believe that adjusted operating profit provides us with a consistent period on period basis for determining materiality and eliminates the disproportionate effect of a discrete number of items on the benchmark, which was also used last year. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £250,000 and £621,000. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £34,500 (2017: £25,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: • 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 ability to continue to adopt the going concern basis of accounting for a period of at least 12 months from the date when the financial statements are authorised for issue. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern. 61 GOVERNANCE REPORT Independent Auditors’ Report to the Members of YouGov plc on the Group Financial Statements continued Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance 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 an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of 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 based on these responsibilities. With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below. Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 July 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. Responsibilities for the financial statements and the audit Responsibilities of the Directors for the financial statements As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such internal control as they 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 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 to cease operations, or have no realistic alternative but to do so. 62 YouGov Annual Report and Accounts 2018 Auditors’ 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 auditors’ 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 FRC’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. i S t r a t e g c r e p o r t G o v e r n a n c e Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Other matter We have reported separately on the parent company financial statements of YouGov plc for the year ended 31 July 2018. Julian Jenkins (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 9 October 2018 i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 63 3 64 YouGov Annual Report and Accounts 2018 Financial statements 66 67 68 69 70 71 Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Principal Accounting Policies of the Consolidated Financial Statements Notes to the Consolidated Financial Statements Independent Auditors’ Report to the Members of YouGov plc Report on the Parent Company Financial Statements 111 Parent Company Statement of Financial Position 112 Parent Company Statement of Changes in Equity 113 Parent Company Statement of Cash Flows Notes to the Parent Company Financial Statements 114 82 108 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 65 FINANCIAL STATEMENTS Consolidated Income Statement for the year ended 31 July 2018 Revenue Cost of sales Gross profit Operating expenses Operating profit Amortisation of intangibles Other separately reported items Adjusted operating profit Finance income Finance costs Share of post-tax profit/(loss) of associates Profit before taxation Taxation Profit after taxation Attributable to: – Owners of the parent – Non-controlling interests Earnings per share Basic earnings per share attributable to owners of the parent Diluted earnings per share attributable to owners of the parent All operations are continuing. Note 1 1 2 4 1 5 5 1 6 1 8 8 2018 £’000 116,559 (21,495) 95,064 (83,306) 11,758 7,024 892 19,674 151 (202) 66 11,773 (3,615) 8,158 8,158 – 8,158 7.7p 7.3p 2017 £’000 107,048 (21,339) 85,709 (78,152) 7,557 6,483 488 14,528 480 (226) 103 7,914 (3,273) 4,641 4,671 (30) 4,641 4.4p 4.2p The notes and accounting policies on pages 71 to 107 form an integral part of these consolidated financial statements. 66 YouGov Annual Report and Accounts 2018 Consolidated Statement of Comprehensive Income for the year ended 31 July 2018 Profit for the year Other comprehensive income Items that may be subsequently reclassified to profit or loss Currency translation differences Other comprehensive income for the year Total comprehensive income for the year Attributable to: – Owners of the parent – Non-controlling interests Total comprehensive income for the year 2018 £’000 8,158 142 142 8,300 8,300 – 8,300 2017 £’000 4,641 1,159 1,159 5,800 5,830 (30) 5,800 Items in the statement above are disclosed net of tax. The tax relating to each component of other comprehensive income is disclosed in Note 19. The notes and accounting policies on pages 71 to 107 form an integral part of these consolidated financial statements. i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 67 FINANCIAL STATEMENTS Consolidated Statement of Financial Position as at 31 July 2018 Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments in associates Deferred tax assets Total non-current assets Current assets Trade and other receivables Current tax assets Cash and cash equivalents (excluding bank overdrafts) Total current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Current tax liabilities Contingent consideration Provisions Total current liabilities Net current assets Non-current liabilities Contingent consideration Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued share capital Share premium Merger reserve Foreign exchange reserve Retained earnings Total equity attributable to owners of the parent Total equity Note 2018 £’000 2017 £’000 10 11 12 13 19 14 15 16 15 17 18 17 18 19 21 21 52,060 13,297 3,037 191 9,434 78,019 34,672 1,442 30,621 66,735 144,754 43,746 11,214 3,278 345 6,054 64,637 30,699 738 23,481 54,918 119,555 34,998 29,389 – 1,247 1,409 3,791 41,445 25,290 5,110 4,000 2,128 11,238 52,683 92,071 211 31,300 9,239 15,031 36,290 92,071 92,071 262 777 – 3,749 34,177 20,741 – 3,222 1,683 4,905 39,082 80,473 211 31,261 9,239 14,889 24,873 80,473 80,473 The notes and accounting policies on pages 71 to 107 form an integral part of these consolidated financial statements. The financial statements on pages 66 to 107 were authorised for issue by the Board of Directors on 9 October 2018 and signed on its behalf by: Alex McIntosh Chief Financial Officer YouGov plc Registered No. 03607311 68 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Consolidated Statement of Changes in Equity for the year ended 31 July 2018 Attributable to equity holders of the Company Issued share capital £’000 Share premium £’000 Merger reserve £’000 Note Foreign exchange reserve £’000 Retained earnings £’000 Equity attributable to owners of the parent £’000 Non- controlling interest in equity £’000 Total equity £’000 Balance at 1 August 2016 209 31,086 9,239 13,730 19,795 74,059 30 74,089 Exchange differences on translation Net gain recognised directly in equity Profit/(Loss) for the year Total comprehensive income/(expense) for the year Issue of shares Dividends paid Share-based payments Tax in relation to share-based payments Total transactions with owners recognised directly in equity 21 7 22 19 – – – – 2 – – – 2 – – – – 175 – – – 175 – – – – – – – – – 1,159 1,159 – – – 4,671 1,159 1,159 4,671 – – (30) 1,159 1,159 4,641 1,159 4,671 5,830 (30) 5,800 – – – – – (2) (1,470) 1,488 391 407 175 (1,470) 1,488 391 584 Balance at 31 July 2017 211 31,261 9,239 14,889 24,873 80,473 Exchange differences on translation Net gain recognised directly in equity Profit for the year Total comprehensive income for the year Issue of shares Dividends paid Share-based payments Tax in relation to share-based payments Total transactions with owners recognised directly in equity – – – – – – – – – – – – – 39 – – – 39 – – – – – – – – – 142 142 – – – 8,158 142 142 8,158 142 8,158 8,300 – – – – – 39 (2,106) (2,106) 3,571 3,571 1,794 1,794 – 3,259 3,298 Balance at 31 July 2018 211 31,300 9,239 15,031 36,290 92,071 The notes and accounting policies on pages 71 to 107 form an integral part of these consolidated financial statements. – – – – – – – – – – – – – – – – 175 (1,470) 1,488 391 584 80,473 142 142 8,158 8,300 39 (2,106) 3,571 1,794 3,298 92,071 69 FINANCIAL STATEMENTS Consolidated Statement of Cash Flows for the year ended 31 July 2018 Cash flows from operating activities Profit before taxation Adjustments for: Finance income Finance costs Share of post-tax profit of associates Amortisation of intangibles Depreciation Loss on disposal of property, plant and equipment and other intangible assets Profit on the disposal of subsidiary undertakings Share-based payments Other non-cash items* Increase in trade and other receivables Increase in trade and other payables Increase in provisions Cash generated from operations Interest paid Income taxes paid Net cash generated from operating activities Cash flow from investing activities Acquisition of subsidiaries (net of cash acquired) Settlement of deferred consideration Proceeds from the sale of subsidiary undertakings (net of cash disposed of) Purchase of property, plant and equipment Purchase of intangible assets Proceeds from sale of plant, property and equipment Dividends received from associates Interest received Net cash used in investing activities Cash flows from financing activities Proceeds from the issue of share capital Dividends paid to Shareholders Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange gain on cash and cash equivalents Cash and cash equivalents at end of year Note 2018 £’000 2017 £’000 11,773 7,914 (151) 202 (66) 7,026 1,231 7 – 3,571 (566) (2,278) 2,097 771 23,617 (6) (5,501) 18,110 (695) (190) – (969) (7,217) 5 220 28 (480) 226 (103) 6,508 1,174 7 (94) 1,488 – (1,531) 2,779 1,026 18,914 (2) (2,487) 16,425 – – 150 (843) (6,968) – – 8 (8,818) (7,653) 39 (2,106) (2,067) 7,225 23,219 177 30,621 175 (1,470) (1,295) 7,477 15,553 189 23,219 2 2 12 11 15 * Includes (£1,682,000) in respect of the fair value gain on the acquisition of SMG Insight Limited which is offset by £785,000 of contingent consideration in respect of the Galaxy DP Pty Ltd acquisition treated as staff costs. The notes and accounting policies on pages 71 to 107 form an integral part of these consolidated financial statements. 70 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Principal Accounting Policies of the Consolidated Financial Statements for the year ended 31 July 2018 Nature of operations YouGov plc and subsidiaries’ (“the Group”) principal activity is the provision of market research. YouGov plc is the Group’s ultimate parent company. It is incorporated and domiciled in Great Britain. The address of YouGov plc’s registered office is 50 Featherstone Street, London EC1Y 8RT United Kingdom. YouGov plc’s shares are listed on the Alternative Investment Market of the London Stock Exchange. YouGov plc’s annual consolidated financial statements are presented in UK Sterling, which is also the functional currency of the parent company. Basis of preparation The consolidated financial statements of YouGov plc are for the year ended 31 July 2018. They have been prepared under the historical cost convention modified for fair values under IFRS. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRS Interpretations Committee (IFRS IC) Interpretations (as adopted by the EU) and the Companies Act 2006 applicable to companies reporting under IFRS. The policies set out below have been consistently applied to all years presented unless otherwise stated. New standards, amendments and interpretations of existing standards adopted by the Group The following standards, interpretations and amendments, which do not have a material impact, are mandatory for the first time for the financial year beginning 1 August 2017 and are relevant to the preparation of the Group’s financial statements: • Annual improvements 2014 (endorsed for annual periods on or after 1 January 2016); and • Amendment to IFRS 11, ‘Joint arrangements’ on acquisition of an interest in a joint operation (effective annual periods beginning on or after 1 January 2016). New standards and interpretations not applied The following amendments to standards and interpretations are mandatory for the first time for the financial years beginning on or after 1 August 2018 and will be relevant to the preparation of the Company’s financial statements. IFRS 15, ‘Revenue from contracts with customers’: Is a converged standard from the IASB and FASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally. This is effective for accounting periods beginning after 1 January 2018. The Group’s evaluation of the effect of the adoption of this standard is ongoing, involving a review of its major contracts within each revenue stream. At present it is not anticipated that it will have a significant impact on the Group’s revenue accounting policies. Amendments to IAS 12, ‘Income taxes’: These amendments on the recognition of deferred tax assets for unrealised losses clarify how to account for deferred tax assets related to debt instruments measured at fair value. This is effective for accounting periods beginning after 1 January 2018. Amendments to IFRS 2, ‘Share based payments’: This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee’s tax obligation associated with a share-based payment and pay that amount to the tax authority. This is effective for accounting periods beginning after 1 January 2018. IFRS 9 ‘Financial instruments’: This standard replaces the guidance in IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model. This is effective for accounting periods beginning after 1 January 2018. The Group’s evaluation of the effect of the adoption of this standard concluded that the Group’s policy for bad debt provisioning will need to be brought in-line with the new standard. As a result it is expected that a small restatement of the bad debt provision as at 31 July 2018 will be required for the financial statements for the year ending 31 July 2019. 71 FINANCIAL STATEMENTS Principal Accounting Policies of the Consolidated Financial Statements for the year ended 31 July 2018 continued IFRS 16, ‘Leases’: This standard replaces the current guidance in IAS 17 and is a far-reaching change in accounting by lessees in particular. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off-balance sheet). IFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments and a “right- of-use asset” for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting stays almost the same. However, as the IASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This is effective for accounting periods beginning after 1 January. Annual improvements 2014–2016: These amendments impact three standards: • IFRS 1, ‘First-time adoption of IFRS’, regarding the deletion of short term exemptions for first-time adopters regarding IFRS 7, IAS 19, and IFRS 10 effective 1 January 2018; and • IAS 28, ‘Investments in associates and joint ventures’ regarding measuring an associate or joint venture at fair value, effective 1 January 2018. These amendments are not yet endorsed by the EU. IFRIC 22, ‘Foreign currency transactions and advance consideration’: This IFRIC addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payments/receipts are made. The guidance aims to reduce diversity in practice. This is effective for accounting periods beginning after 1 January 2018 although has not yet been endorsed by the EU. Management will assess the impact on the Group of these standards prior to the effective date of implementation. There are no IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group for the financial year beginning 1 August 2018. Management will assess the impact on the Group of these standards prior to the effective date of implementation. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. Basis of consolidation The Group financial statements consolidate the Company and all of its subsidiary undertakings (see Note 13) drawn up to 31 July 2018. Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Acquisitions of subsidiaries are dealt with by the acquisition method. The acquisition method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated statement of financial position at their fair values, which are also used as the basis for subsequent measurement in accordance with the Group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Acquisition-related costs are charged to the income statement in the period in which they are incurred. The Group treats transactions with non-controlling interests as transactions with parties external to the Group. Disposals to non- controlling interests result in gains and losses for the Group that are recorded in the Statement of Changes in Equity. Purchases of non-controlling interests are recognised directly in reserves, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary. Associates and joint ventures Entities whose economic activities are controlled jointly by the Group and by other venturers independent of the Group are accounted for using the equity method. Associates are those entities over which the Group has significant influence (defined as the power to participate in the financial and operating decisions of the investee but not control or joint control over those policies) but which are neither subsidiaries nor interests in joint ventures. The results and assets and liabilities of associates and joint ventures are incorporated in these Consolidated Financial Statements using the equity method of accounting, under which 72 YouGov Annual Report and Accounts 2018 investments in associates and investments in joint ventures are carried in the Consolidated Statement of Financial Position at cost as adjusted for post-acquisition changes in the Group’s share of net assets of the associate or joint venture less any impairment in the value of individual investments. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the Consolidated Income Statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. However, when the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture, including any unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports profits, the Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. Unrealised gains on transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group’s interests in the associates or joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of associates and joint ventures have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Segmental analysis Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. The Board of Directors (which is the “chief operating decision-maker”) primarily reviews information based on product lines, Custom Research, Data Products and Data Services, with supplemental geographical information. As a result, product lines form the basis for the segmental reporting with supplemental geographical information also provided. Revenue Revenue is measured by reference to the fair value of consideration received or receivable by the Group for services provided, excluding Value Added Tax and trade discounts. Accrued income is the difference between the revenue recognised and the amounts actually invoiced to customers. Where invoicing exceeds the amount of revenue recognised, these amounts are included in deferred income. Market research Revenue arises from the provision of market research services. Within this revenue stream are syndicated and non-syndicated services. Data Products revenue streams are mainly syndicated services whilst Omnibus and Custom Research revenue streams are mainly non-syndicated services. Syndicated services Syndicated services are the consistent provision of data over a specified period of time. Revenue is recognised from the point in time at which access passwords have been made available to the customer. Revenue is recognised in equal monthly instalments over the life of the contract. Non-syndicated services Non-syndicated services vary in size and complexity. Revenue is recognised on each contract in proportion to the level of services performed by reference to the project manager’s estimates and time records against budgeted and assigned resource. Revenue is recognised on long-term contracts, if the outcome can be assessed with reasonable certainty, by including in the income statement revenue and related costs as contract activity progresses based on the stage of completion. Media buying Where the Group acts as an agent, the revenue recorded is the net amount retained when the fee or commission is earned. Although the Group may bear credit risk in respect of these activities, the arrangements with clients are such that the Group considers that it is acting as an agent. In such cases, costs incurred with external suppliers (such as media suppliers) which are passed on to customers are excluded from the Group’s revenue. Non-cash transactions The Group enters into contracts for the provision of market research services in exchange for advertising rather than for cash or other consideration. When barter transactions are agreed, the value of the work provided to the counterparty is equal in value to that which would be provided in an ordinary cash transaction. As required by IAS 18 the value of advertising receivable in all significant barter transactions is measured at the fair value of the services provided. 73 FINANCIAL STATEMENTS Principal Accounting Policies of the Consolidated Financial Statements for the year ended 31 July 2018 continued Provisions Provisions are recognised in the Consolidated Statement of Financial Position when a Group company has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the reporting date. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Staff gratuity costs The staff gratuity provision is a statutory obligation under UAE labour law, whereby each employee on termination of their contract is due a payment dependent upon their number of years of service and nature of the termination. The liability is based on the estimated cash outflow based on historical experience of rates of resignation and redundancy. Panel incentive costs The Group invites consumer panel members to fill out surveys in return for a cash or points-based incentive. Although these amounts are not paid until a predetermined target value has accrued on a panellist’s account, an assessment of incentives likely to be paid (present obligation) is made taking into account past panellist behaviour and is recognised as a cost of sale in the period in which the service is provided. This assessment takes into account the expected savings from the prize draw offered in various territories. Interest income/expense The Group receives interest income for cash funds that are held on short-term instant access deposit. Where interest receipts are received after the balance sheet date, the interest due is accrued for the requisite period at the prevailing rate on the deposit. Interest expense is recognised using the effective interest method, which calculates the amortised cost of a financial liability and allocates the interest over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Separately reported items The Group’s Income Statement separately identifies items that are in the Directors’ judgement are one-off in nature or need to be disclosed separately by virtue of their size and incidence. In determining whether an item or transaction should be separately identified, the Directors consider quantitative as well as qualitative factors such as the frequency, predictability of occurrence and significance. This is consistent with the way that financial performance is measured by management and reported to the Board. Separately reported items may not be comparable to similarly titled measures used by other companies. Disclosing certain items separately provides additional understanding of the performance of the Group. Examples include acquisition costs and restructuring costs. Taxation The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the reporting date. The deferred tax provision is held at its current value and not discounted. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 74 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the consolidated income statement, except where they relate to items that are charged or credited directly to equity or other comprehensive income, in which case the related deferred tax is also charged or credited directly to equity or other comprehensive income. Dividends Dividends are recognised when the shareholders’ right to receive payment is established. Goodwill Goodwill representing the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is capitalised and reviewed annually, or if indications of impairment exist, for impairment. Goodwill is carried at cost less accumulated impairment losses. If the Group’s interest in the net fair value of the identifiable assets, liabilities, contingent liabilities of the acquired entity exceeds the cost of the business combination the excess is recognised immediately in the Consolidated Income Statement. On disposal of a business, goodwill is allocated based on calculated fair value of assets disposed and included in the calculation of the profit or loss on disposal. Intangible assets Intangible assets represent identifiable non-monetary assets without physical substance. Intangible assets are valued at either their directly attributable costs or using valuation methods such as discounted cash flows and replacement cost in the case of acquired intangible assets. The Directors estimate the useful economic life of each asset and use these estimates in applying amortisation rates. The Directors periodically review useful economic life estimates. Intangible assets are stated at cost net of amortisation and any provision for impairment. The Directors conduct an impairment review of intangible assets for assets with an indefinite life annually, or if indications of impairment exist. Where impairment arises, losses are recognised in the Consolidated Income Statement. Amortisation of intangible assets is shown on the face of the consolidated income statement, except for the amortisation of panel incentive costs incurred in product development, which is recognised in cost of sales. Intangible assets acquired as part of a business combination In accordance with IFRS 3 ‘Business Combinations’, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. Where an intangible asset might be separable, but only together with a related tangible or intangible asset, the Group of assets is recognised as a single asset separately from goodwill where the individual fair values of the assets in the Group are not reliably measurable. Where the individual fair value of the complementary assets is reliably measurable, the Group recognises them as a single asset provided the individual assets have similar useful lives. Intangible assets acquired as part of a business combination are typically amortised using the straight-line method over the following periods: Intangible asset Software and software development Customer contracts and lists Patents and trademarks Intangible assets generated internally Amortisation period 3 – 5 years 10 – 11 years 5 – 15 years Internally generated intangible assets are only capitalised where they meet all of the following criteria stipulated by IAS 38: • completion of the intangible asset is technically feasible so that it will be available for use or sale; • the Group intends to complete the intangible asset and use or sell it; • the Group has the ability to use or sell the intangible asset; • the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits; • there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the expenditure attributable to the intangible asset during its development can be measured reliably. Internally generated intangible assets are staff costs that are capitalised at their directly attributable cost. Development costs not meeting the criteria for capitalisation are expensed as incurred. Development costs previously recognised as an expense are not recognised as an asset in subsequent periods. 75 FINANCIAL STATEMENTS Principal Accounting Policies of the Consolidated Financial Statements for the year ended 31 July 2018 continued Internally generated intangible assets are amortised from the moment at which they become available for use. Amortisation rates applicable to internally generated intangible assets are typically: Intangible asset Software and software development Patents and trademarks Development costs Consumer panel Amortisation period 3 years not amortised 2 – 5 years The consumer panel is the core asset from which the Group’s online revenues are generated. Where a consumer panel or list is acquired as part of a business combination the cost of the asset is recognised at its fair value to the Group at the date of acquisition. The fair value is calculated by management using a discounted cash flow model. Consumer panel costs reflect the direct cost of recruiting new panel members. Consumer panel costs are split between enhancement and maintenance of the asset. Enhancement costs are capitalised whilst maintenance costs are expensed. Amortisation is charged to write off the panel acquisition costs over a three-year period, this being the Directors’ estimate of the average active life of a panellist. Software and software development Capitalised software includes our survey and panel management software and other items including the YouGov BrandIndex platform, which are key tools of the Group’s business. Software and software development also include purchased off-the- shelf software. Where software is acquired as part of a business combination, the cost of the asset is recognised at its fair value to the Group at the date of acquisition. The fair value is calculated by management using a replacement cost model. Amortisation is charged to write off the software over a three-to-five-year period, this being the Directors’ estimate of the useful life of the software. Where software is developed internally, directly attributable costs including employee costs are capitalised as software development. Amortisation commences upon completion of the asset. Amortisation is charged to write off the software over a three-year period, this being the Directors’ estimate of the useful life of software. Customer contract and lists Where a customer contract or list is acquired as part of a business combination, the cost of the asset is recognised at its fair value to the Group at the date of acquisition. The fair value is calculated by management using a discounted cash flow model. Customer contracts and lists are amortised over a useful economic life based on Directors’ estimates. Patents and trademarks Where a patent or trademark is acquired as part of a business combination the cost of the asset is recognised at its fair value to the Group at the date of acquisition. The fair value is calculated by management using a discounted cash flow model. Patents acquired as part of a business combination are amortised over a useful economic life based on Directors’ estimates. Patents and trademarks acquired on an ongoing basis to protect the YouGov brand and its products are included at cost and are not amortised, as the trademarks are indefinite in their longevity through legal rights. Product Development costs Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. 76 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows. Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash- generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is calculated as value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Property, plant and equipment and depreciation Property, plant and equipment is carried at cost net of depreciation and any provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. No depreciation is charged during the period of construction. Leasehold property is included in property, plant and equipment only where it is held under a finance lease. Depreciation is calculated to write-down the cost less estimated residual value of all property, plant and equipment over their estimated useful economic lives. Asset Freehold property Depreciation rate Straight-line over 25 years Leasehold property improvements Straight-line over the life of the lease Fixtures and fittings Computer equipment Motor vehicles 25% on a reducing balance 33% per annum straight-line 25% or the life of the lease The residual values and useful lives of all assets are reviewed at least at the end of each reporting period. Leased assets and operating leases In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the income statement over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the income statement on a straight-line basis over the lease term. Lease incentives are spread over the term of the lease. 77 FINANCIAL STATEMENTS Principal Accounting Policies of the Consolidated Financial Statements for the year ended 31 July 2018 continued Financial assets Financial assets are divided into the following categories: Trade receivables, loans and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired. All financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Consolidated Income Statement within operating expenses. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in the Consolidated Income Statement. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables and other financial assets are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the consolidated income statement. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. As at 31 July 2018, there are no assets held in this category (31 July 2017: £nil). Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset’s carrying amount and the present value of estimated future cash flows. An assessment for impairment is undertaken at least at each reporting date. A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the Group transfers substantially all the risks and rewards of ownership of the asset, or if the Group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset. Financial liabilities Financial liabilities are measured at amortised cost using the effective interest method. Financial liabilities are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired. Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. They are classified as current liabilities if payment is due within one year or less. If not, they are presented as non- current liabilities. Borrowings and lease liabilities are initially recorded at the fair value which is typically the proceeds received, net of any issue costs and subsequently carried at amortised cost. Finance charges are accounted for on an effective interest method and are added to the carrying value of the instrument to the extent that they are not settled in the period in which they arise. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. 78 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, with maturities no longer than three months. In addition, bank overdrafts which are repayable on demand are included for the purposes of the Consolidated Statement of Cash Flows. Equity Equity comprises the following: • share capital represents the nominal value of equity shares; • share premium represents the excess over nominal value of the fair value of consideration received for equity shares, net of incremental and directly attributable expenses of the share issue; • foreign exchange reserve represents the differences arising from translation of investments in overseas subsidiaries; • retained earnings represent retained profits; and • merger reserve represents the excess over nominal value of the fair value of consideration received for equity shares issued/ allotted directly to acquire another entity meeting the specific requirements of Section 612 of the Companies Act 2006. The conditions of the relief include: • securing at least 90% of the nominal value of equity of another company; and • the arrangement provides for allotment of equity shares in the issuing company. Foreign currencies Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Sterling, which is the Company’s functional and presentation currency. Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the reporting date. Non- monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the consolidated income statement in the period in which they arise. The assets and liabilities in the financial statements of foreign subsidiaries and associates and related goodwill are translated at the rate of exchange ruling at the reporting date. Income and expenses are translated at average rate unless average rate is not a good approximation of the rate ruling on the date of the transaction. The exchange differences arising from the retranslation of the opening net investment in subsidiaries and joint ventures are taken directly to the “Foreign exchange reserve” in equity. Employee benefits Equity-settled share-based payments The Group operates a number of equity-settled share-based payment compensation plans under which the entity receives services from employees as consideration for equity instruments (options) of the Group. All equity-settled share-based payments are ultimately recognised as an expense in the consolidated income statement with a corresponding credit to retained earnings. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate, share premium. 79 FINANCIAL STATEMENTS Principal Accounting Policies of the Consolidated Financial Statements for the year ended 31 July 2018 continued Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it has a constructive obligation to pay them as a result of the announcement of a detailed formal plan to terminate the employment of current employees. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value. Contingent consideration Future anticipated payments to vendors in respect of earn outs are based on the Directors’ best estimates of future obligations, which are dependent on the future performance of the interests acquired and assume the operating companies improve profits in line with Directors’ estimates. When consideration payable is deferred, the fair value of the consideration is obtained by discounting to present value the amounts expected to be payable in the future at a rate equivalent to a UK 10 year treasury gilt (or foreign equivalent), this being, in the Directors’ opinion the most appropriate barometer for a risk-free rate. Subsequent changes in the amount of contingent consideration recognised are recorded as other separately reported items in the Consolidated Income Statement. Imputed interest When the outflow of cash or cash equivalents is deferred, and the arrangement constitutes a financing transaction, the fair value of the consideration is the present value of all future payments determined using an imputed rate of interest. The imputed rate of interest used is the risk-free rate, this being, in the Directors’ opinion the most appropriate rate. The difference between the present value of all future payments and the nominal amount of the consideration is recognised as an interest charge. Imputed interest is shown within finance costs in the Consolidated Income Statement. Going concern The Group meets its day-to-day working capital requirements through its available cash resources. The Group’s forecasts and projections, taking account of reasonable possible changes in trading performance, show that the Group should be able to operate without bank finance. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its consolidated financial statements. Accounting estimates and judgements In the process of applying the Group’s accounting policies the Directors are required to make estimates and adjustments that may affect the financial statements. The Directors believe that the estimates and judgements applied in the financial statements are reasonable. Estimates and judgements are evaluated on a regular basis and are based on historical experience (where applicable) and other factors, such as expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. These estimates, by definition, will rarely equal the related actual results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Where estimates and judgements have been made, the key factors taken into consideration are disclosed in the appropriate Note in these consolidated financial statements. Revenue recognition The Group is required to make an estimate of project completion levels on long-term contracts for revenue recognition purposes. This is based upon the project manager’s estimates and available time records against budgeted and assigned resource for the initial project scope. This involves an element of estimation, and therefore differences may arise between the actual and estimated result. Where differences arise, they are recognised in the Consolidated Income Statement for the following reporting period. Share-based payments The Group is required to make estimates regarding the assumptions that are used to calculate the income statement charge for share-based payments. The value of share options is measured using either the Black Scholes option pricing model or the Monte Carlo Simulation. This is dependent on the conditions attached to each of the issued options. Where conditions are non-market based the Black Scholes option pricing model is used. Where market based conditions are attached to options, the fair value is determined using the Monte Carlo Simulation. Inputs to the calculations include (but are not limited to) expected volatility, expected life, risk-free rate, expected dividend yield and redemption rates, the inputs used are disclosed in Note 22. Variances in any of the inputs could lead to the charge being higher or lower than appropriate. 80 YouGov Annual Report and Accounts 2018 Income taxes The Group is subject to income taxes in various jurisdictions. Judgement is required in determining the worldwide provision for income taxes. There are many transactions/calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome is different to what is initially recorded, such differences will impact the income tax and deferred tax provisions. Income taxes are disclosed fully in Note 6. Deferred taxation Estimation is required by management in determining whether the Group should recognise a deferred tax asset. Management considers whether there is sufficient certainty that its tax losses available to carry forward will ultimately be offset against future probable profits before taxation. This estimate impacts on the degree to which deferred tax assets are recognised. Deferred taxation is disclosed fully in Note 19. i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy. The recoverable amount is based on the higher of value in use calculations and the fair value less cost to dispose. The use of this method requires the estimation of future cash flows and the choice of a suitable discount rate in order to calculate the present values of these cash flows. The estimates used in the impairment review are fully disclosed in Note 10. All payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the consolidated income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. Contingent consideration As part of the acquisitions, contingent consideration is payable to selling shareholders based on the future performance of the businesses. Judgement is required in estimating the magnitude of contingent consideration and the likelihood of payment. Contingent consideration is disclosed fully in Note 17. Other intangible assets The Group is required to identify and assess the useful life of intangible assets and determine if there is a finite or indefinite life. Judgement is required in determining if an intangible asset has a finite life and the extent of this finite life in order to calculate the amortisation charge on the asset. The Group tests at each reporting date whether intangible assets have suffered any impairment, in accordance with the accounting policy. The recoverable amount of cash-generating units has been determined based on discounted future cash flows. These calculations require estimates to be made. Where there is no method of valuation for an intangible asset, management will make use of a valuation technique to determine the value of an intangible if there is no evidence of a market value. In doing so certain assumptions and estimates will be made. Intangible assets are fully disclosed in Note 11. Judgement is also required in the determination of the costs that satisfy the IAS 38 criteria for capitalisation as intangible assets. Panel incentive provision The Group is required to assess the likelihood that panel incentives earned by consumer panel members will be redeemed and maintain a provision to cover this potential liability. Factors taken into consideration include the absolute liability, redemption rates and panel activity rates. Whilst historical data can indicate trends and behaviours, it is not a definite indicator of the future. In arriving at the carrying value of the provision, certain assumptions and estimates have to be made. The estimates used in calculating the panel incentive provision are fully disclosed in Note 18. 81 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 1 Segmental analysis The Board of Directors (which is the “chief operating decision-maker”) primarily reviews information based on product lines: Custom Research, Data Products and Data Services; with supplemental geographical information. 2018 Revenue Cost of sales Gross profit Operating expenses Adjusted operating profit Amortisation of intangible assets Other separately reported items Operating profit Finance income Finance costs Share of post-tax loss in joint ventures and associates Profit before taxation Taxation Profit after taxation Other segment information Depreciation 2017 Revenue Cost of sales Gross profit Operating expenses* Adjusted operating profit Amortisation of intangible assets Other separately reported items Operating profit Finance income Finance costs Share of post-tax loss in joint ventures and associates Profit before taxation Taxation Profit after taxation Other segment information Depreciation Custom Research £’000 58,657 (14,205) 44,452 (30,331) 14,121 Data Products £’000 30,445 (3,700) 26,745 (15,086) 11,659 Data Services £’000 28,956 (5,089) 23,867 (15,865) 8,002 Eliminations & Unallocated Costs £’000 (1,499) 1,499 – (14,108) (14,108) Group £’000 116,559 (21,495) 95,064 (75,390) 19,674 (7,024) (892) 11,758 151 (202) 66 11,773 (3,615) 8,158 596 214 192 229 1,231 Custom Research £’000 60,220 (14,389) 45,831 (36,928) 8,903 Data Products £’000 24,070 (3,284) 20,786 (13,756) 7,030 Data Services £’000 23,296 (4,204) 19,092 (13,359) 5,733 Eliminations & Unallocated Costs £’000 (538) 538 – (7,138) (7,138) Group £’000 107,048 (21,339) 85,709 (71,181) 14,528 (6,483) (488) 7,557 480 (226) 103 7,914 (3,273) 4,641 731 138 173 132 1,174 * Custom Research operating expenses in the prior year includes £1,709,000 of costs related to wider innovation initiatives that have been included within Unallocated Costs in the current year. 82 YouGov Annual Report and Accounts 2018 1 Segmental analysis continued Supplementary analysis by geography Revenue and adjusted operating profit by geography based on the origin of the sale UK USA Mainland Europe Middle East Asia Pacific Intra-Group revenues/unallocated costs Group Revenue by geography based on the destination of the customer. 2018 2017 Adjusted operating profit/ (loss) £’000 Revenue £’000 Adjusted operating profit/ (loss) £’000 Revenue £’000 31,332 12,032 27,139 48,159 16,556 40,710 21,571 2,272 21,227 12,057 3,552 16,322 8,748 847 5,512 (5,308) (15,585) (3,862) 8,575 9,276 2,314 2,449 (908) (7,178) 116,559 19,674 107,048 14,528 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s 2018 External sales Inter-segment sales Total revenue 2017 External sales Inter-segment sales Total revenue UK £’000 USA £’000 Mainland Europe £’000 Middle East £’000 Asia Pacific £’000 Intra- Group revenues £’000 Group £’000 30,926 48,422 21,435 9,318 6,458 – 116,559 2,363 3,388 1,879 391 619 (8,640) – 33,289 51,810 23,314 9,709 7,077 (8,640) 116,559 A d d i t i o n a l i n f o r m a t i o n 26,766 42,595 20,126 13,523 4,038 – 107,048 1,752 2,764 1,487 281 390 (6,674) – 28,518 45,359 21,613 13,804 4,428 (6,674) 107,048 Inter-segment sales are priced on an arm’s-length basis that would be available to unrelated third parties. 83 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 2 Operating expenditure The profit before taxation is stated after charging: Auditors’ remuneration: Fees payable for the audit of the parent company and the consolidated financial statements Audit of subsidiaries Audit related assurance services Tax compliance services Tax advisory services Total auditors’ remuneration Disposals, depreciation and amortisation: Amortisation of intangible assets recognised in operating expenses Amortisation of intangible assets recognised in cost of sales Total amortisation of intangible assets Loss on disposal of intangible assets and property, plant and equipment Depreciation of property, plant and equipment (Note 12) Operating lease rentals: Plant and machinery Land and buildings Other expenses: Exchange gains/(losses) Share-based payment expenses (Note 22) Charitable donations 3 Staff costs and numbers Wages and salaries Social security costs Share-based payments (Note 22) Other pension costs Other benefits 2018 £’000 2017 £’000 243 121 19 69 118 570 7,024 2 7,026 6 1,231 14 2,193 2 3,571 97 2018 £’000 41,123 5,630 3,571 1,054 9,625 61,003 257 106 3 16 10 392 6,483 25 6,508 7 1,174 55 2,430 (268) 1,488 84 2017 £’000 40,762 4,717 1,488 1,119 9,288 57,374 Included in the above amount are staff costs totalling £3,940,000 (2017: £3,421,000) that were capitalised in relation to internally developed intangible assets. Further details are provided in Note 11. Pension costs are contributions made on behalf of employees to defined contribution pension schemes. Other benefits include staff bonuses paid in cash and private healthcare insurance. 84 YouGov Annual Report and Accounts 2018 3 Staff costs and numbers continued The monthly average number of employees including Director’s of the Group during the year was as follows: Key management personnel Administration and operations 2018 Number 2017 Number 28 788 816 29 750 779 Specific disclosures in relation to compensation for key management personnel (defined as Board and Divisional, Product and Function Heads) who held office during the year was as follows: i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Short-term employee benefits Post-employment benefits Share-based payments 2018 £’000 5,019 109 3,300 8,428 2017 £’000 5,249 144 1,186 6,579 Disclosure of Directors’ remuneration including share options are included in the Remuneration Report on pages 50 to 54, which form part of the financial statements. 4 Other separately reported items Restructuring costs Acquisition-related costs Fair value gain Profit on disposal of subsidiary of subsidiary undertaking 2018 £’000 1,381 1,193 (1,682) – 892 2017 £’000 582 – – (94) 488 Restructuring costs in the year included £1,036,000 in relation to the reduction of non-core custom operations in Mainland Europe and the Middle East and £181,000 in relation to the Reports product line being discontinued. £164,000 of costs also arose from the establishment of centralised global operations and finance support functions. In 2017, £265,000 of costs were incurred in relation to the Middle East restructuring process and £317,000 was incurred in relation to the global operations reorganisation. Acquisition-related costs in the year comprise £864,000 the acquisition of Galaxy DP Pty Limited including £785,000 of contingent consideration treated as staff costs, £228,000 for the acquisition of SMG Insight Limited and £101,000 of preliminary work towards acquisitions completed after the reporting date. Further detail on the completed acquisitions is provided in Note 9 and the acquisitions completed after the reporting date in Note 27. Following the acquisition of the remaining share capital of SMG Insight Ltd the Group’s existing 20% shareholding underwent a fair value assessment in accordance with IFRS 3. A gain of £1,682,000 was recognised as a result of this review. The gain on the disposal of subsidiary undertakings in the prior year of £94,000 arose on the disposal of Service Rating GmbH. 85 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 5 Finance income and costs Interest receivable from bank deposits Foreign exchange gains on cash and intra-Group loans Total finance income Interest payable on bank loans and overdrafts Other interest payable Foreign exchange losses on cash and intra-Group loans Imputed interest on contingent consideration and provisions Total finance costs 6 Taxation The taxation charge represents: Current tax on profits for the year Adjustments in respect of prior years Total current tax charge Deferred tax: Origination and reversal of temporary differences Adjustments in respect of prior years Impact of changes in tax rates Total deferred tax credit Total income statement tax charge The tax assessed for the year is higher (2017: higher) than the standard rate of corporation tax in the UK. The differences are explained below: Profit before taxation Tax charge calculated at Group’s standard rate of 19% (2017: 19.67%) Variance in overseas tax rates Impact of changes in tax rates Gains not subject to tax Expenses not deductible for tax purposes Tax losses for which no deferred income tax asset was recognised Adjustments in respect of prior years Associates results reported net of tax 2018 £’000 28 123 151 2 4 121 127 75 202 2018 £’000 5,042 69 5,111 (1,746) (189) 439 (1,496) 3,615 2018 £’000 11,773 2,237 943 439 (347) 182 294 (120) (13) 2017 £’000 8 472 480 2 – 204 206 20 226 2017 £’000 2,987 305 3,292 428 (409) (38) (19) 3,273 2017 £’000 7,914 1,557 1,305 (38) (25) 45 553 (104) (20) Total income statement tax charge for the year 3,615 3,273 86 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 6 Taxation continued On 8 July 2015, the UK corporation tax rate was reduced from 20% to 19% from 1 April 2017 and to 18% from 1 April 2020. On 15 September 2016, further changes to the UK corporation tax rates were made reducing the main rate to 17% from 1 April 2020. On 22 December 2017, the US federal corporate income tax rate reduced from 35% to 21%. These changes have been substantively enacted at the balance sheet date and, therefore, are included in these financial statements. Deferred taxes at the balance sheet date have been measured using the enacted tax rates reflected in these financial statements. 7 Dividend On 5 December 2017, a final dividend in respect of the year ended 31 July 2017 of £2,106,000 (2.0p per share) (2016: £1,470,000 (1.4p per share)) was paid to Shareholders. A dividend in respect of the year ended 31 July 2018 of 3.0p per share, amounting to a total dividend of £3,165,000 is to be proposed at the Annual General Meeting on 12 December 2018. These financial statements do not reflect this proposed dividend payable. 8 Earnings per share The calculation of the basic earnings per share is based on the earnings attributable to Ordinary Shareholders divided by the weighted average number of shares in issue during the year. Shares held in employee share trusts are treated as cancelled for the purposes of this calculation. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares and the post–tax effect of dividends and/or interest, on the assumed conversion of all dilutive options and other dilutive potential Ordinary Shares. The adjusted earnings per share has been calculated to reflect the underlying profitability of the business by excluding the amortisation of intangible assets, share-based payments, imputed interest, impairment charges, other separately reported items and any related tax effects as well as the derecognition of tax losses. Profit after taxation attributable to equity holders of the parent company Add: amortisation of intangible assets included in operating expenses Add: share-based payments Add: imputed interest (Note 5) Add: other separately reported items Tax effect of the above adjustments and adjusting tax items* Adjusted profit after taxation attributable to equity holders of the parent company 2018 £’000 8,158 7,024 3,571 75 892 (2,172) 17,548 2017 £’000 4,671 6,483 1,488 20 488 (1,639) 11,511 * Adjusting tax items in the year includes a one off charge of £374,000 as a result of the reduction in US Federal Tax rates. 2017 included a charge of £341,000 relating to the derecognition of tax losses in Asia Pacific. 87 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 8 Earnings per share continued Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below. Number of shares Weighted average number of shares during the year: (’000 shares) – Basic – Dilutive effect of share options – Diluted The adjustments have the following effect: Basic earnings per share Amortisation of intangible assets Share-based payments Imputed interest Other separately reported items Tax effect of the above adjustments and adjusting tax items Adjusted earnings per share Diluted earnings per share Amortisation of intangible assets Share-based payments Imputed interest Other separately reported items Tax effect of the above adjustments and adjusting tax items Adjusted diluted earnings per share 9 Business combinations and disposals Acquisition of Galaxy DP Pty Limited 2018 2017 105,410 7,084 112,494 105,453 4,670 110,123 7.7p 6.7p 3.4p 0.1p 0.8p (2.1p) 16.6p 7.3p 6.2p 3.2p 0.1p 0.8p (2.0p) 15.6p 4.4p 6.2p 1.4p 0.0p 0.5p (1.6p) 10.9p 4.2p 5.9p 1.4p 0.0p 0.5p (1.5p) 10.5p On 11 December 2017, to strengthen its position in the Australian market, YouGov purchased a 100% shareholding in Galaxy DP Pty Limited (“Galaxy”), an Australian-based research company. An initial payment of AU$1,250,000 (£700,000) was paid upon completion, with a further AU$332,000 (£190,000) paid in April 2018. The balance of the consideration is payable, contingent on performance, in two instalments in December 2018 and December 2019. The contingent consideration is estimated to total AU$3.0m (£1.7m) this part of the consideration is contingent upon continuing employment and therefore will be treated as staff compensation under IFRS. In addition transaction and integration costs of £79,000 were incurred as a result of the acquisition, these have also been treated as excluded items and recognised in the income statement as separately reported items. 88 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 9 Business combinations and disposals continued The amount recognised for each class of assets and liabilities acquired is as follow: Intangible assets Property, plant and equipment Cash Current assets Current liabilities Tax payable Dividend payable Deferred tax Net Assets acquired Goodwill on acquisition Total consideration for acquisition Consideration contingent on continued employment Total consideration and related employee benefits Acquiree’s carrying amount before combination £’000 Fair value adjustments £’000 Fair value acquired £’000 – 424 28 873 807 (979) (21) (604) 3 107 – – – – – – (116) 308 424 28 873 807 (979) (21) (604) (113) 415 469 884 1,653 2,537 Fair value adjustments included the recognition of the fair value of customer relationships and a related deferred tax liability. The goodwill is attributable to the workforce and the profitability of the acquired business. It will not be deductible for tax purposes. Ownership and control passed to YouGov on 11 December 2017 and Galaxy has been consolidated within the Group financial statements from that date. Since the acquisition Galaxy has contributed £1,501,000 to Group revenue and £376,000 to Group adjusted operating profit. If the acquisition had occurred on 1 August 2017 Galaxy would have contributed £2,246,000 to Group revenue and would have increased Group operating profit by £466,000. Acquisition of SMG Insight Limited On 22 May 2018, to provide YouGov with the opportunity to develop new syndicated data products for the sports industry, YouGov purchased the remaining 80% shareholding in SMG insight Limited (“SMG”), a UK-based research company in which it had previously held a 20% stake. An initial payment of £1,000,000 was paid upon completion with a further payment of up to £1,000,000 payable in May 2019 contingent on collection of trade receivables. The balance of the consideration is payable, contingent on EBITDA performance, in three annual instalments with a final payment in 2021. The total contingent consideration is forecast to be £5,727,000 and as this is not contingent upon future employment it is all treated as consideration for acquisition. In addition transaction and integration costs of £228,000 were incurred as a result of the acquisition, these have also been treated as excluded items and recognised in the income statement as separately reported items. Provisional fair value adjustments have been made to align SMG’s accounting policies with those of YouGov and to account for the fair value of customer relationships and attributable deferred taxation of the business which are recognised upon acquisition. Management are currently finalising their fair value and contingent consideration calculations and this will be completed in the year ending 31 July 2019. 89 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 9 Business combinations and disposals continued The amount recognised for each class of assets and liabilities acquired is as follow: Intangible assets Property, plant and equipment Cash Current assets Current liabilities Tax payable Dividend payable Deferred tax Net Assets acquired Goodwill on acquisition Total consideration for acquisition Total consideration analysed as: Carrying value of investment Re-measurement of investment to fair value Cash Contingent consideration Total consideration Fair value adjustments £’000 Fair value acquired £’000 1,483 1,483 Acquiree’s carrying amount before combination £’000 – 18 132 1,757 (1,276) (161) (1,101) 3 – (34) (184) – – 9 (263) (622) 1,005 21 132 1,723 (1,460) (161) (1,101) (254) 383 8,026 8,409 – 1,682 1,000 5,727 8,409 The goodwill is attributable to the workforce and the high profitability of the acquired business. It will not be deductible for tax purposes. Ownership and control passed to YouGov on 22 May 2018 and SMG has been consolidated within the Group financial statements from that date. Since the acquisition SMG has contributed £789,000 to Group revenue and reduced Group adjusted operating profit by £6,000. If the acquisition had occurred on 1 August 2017 SMG would have contributed £6,647,000 to Group revenue and would have increased Group operating profit by £1,169,000. Disposal of Service Rating GmbH On 31 March 2017, Service Rating GmbH, a German-based rating agency, was sold for a consideration of £173,000 payable in cash. The net asset value of Service Rating GmbH on disposal was £79,000 resulting in a profit on disposal in the prior year of £94,000. 90 YouGov Annual Report and Accounts 2018 10 Goodwill Middle East £’000 USA £’000 Nordic £’000 Germany £’000 CoEditor £’000 Carrying amount at 1 August 2016 1,667 19,941 8,429 10,980 Exchange differences 15 186 502 640 Carrying amount at 31 July 2017 1,682 20,127 8,931 11,620 Additions through business combinations Exchange differences – (7) – (71) – (52) – (49) 569 – 569 – – Asia Pacific £’000 815 2 817 – (7) Galaxy £’000 SMG £’000 Total £’000 – – – – – – 42,401 1,345 43,746 469 8,026 8,495 5 – (181) i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Carrying amount at 31 July 2018 1,675 20,056 8,879 11,571 569 810 474 8,026 52,060 At 31 July 2018 Cost 1,675 20,056 8,879 12,294 Accumulated impairment – – – (723) Net book amount 1,675 20,056 8,879 11,571 569 – 569 810 – 810 474 8,026 52,783 – – (723) 474 8,026 52,060 In accordance with the Group’s accounting policy, the carrying values of goodwill and other intangible assets are reviewed annually for impairment. The cash-generating units (“CGUs”) are consistent with those segments shown in Note 1. The 2018 impairment review was undertaken as at 31 July 2018. The recoverable amounts of all CGUs have been determined based on value in use calculations. This review assessed whether the carrying value of goodwill was supported by the net present value of future cash flows derived from assets using a projection period of five years for each CGU based on approved budget numbers. The sources of the assumptions used in making the assessment are as follows: • growth rates are internal forecasts based on both internal and external market information; • margins reflect past experience, adjusted for expected changes; • terminal growth rates based on management’s estimate of future long-term average growth rates; and • discount rates based on Group WACC, adjusted where appropriate. Annual EBITDA growth rates of 2.25% have been assumed in perpetuity beyond year five. The pre-tax weighted average costs of capital used to discount the future cash flows to their present values are Middle East 10% (2017: 10%), USA 17% (2017: 17%), Nordic 13% (2017: 13%), Germany 15% (2017: 15%) and Asia Pacific 12% (2017: 12%). Management has considered reasonable possible changes in the above key assumptions and performed sensitivity analyses under these scenarios. This analysis shows that sufficient headroom exists and would not give rise to any further impairment. 91 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 11 Other intangible assets At 1 August 2016 Cost Accumulated amortisation Net book amount Year ended 31 July 2017 Opening net book amount Additions: Separately acquired Internally developed Amortisation charge: Separately acquired Internally developed Business combinations Disposals Exchange differences Closing net book amount At 31 July 2017 and 1 August 2017 Cost Accumulated amortisation Net book amount Year ended 31 July 2018 Opening net book amount Additions: Separately acquired Internally developed Business combinations (Note 9) Amortisation charge: Separately acquired Internally developed Business combinations Exchange differences Consumer panel £’000 Software and software development £’000 Customer contracts and lists £’000 Patents and trademarks £’000 Product development costs £’000 Total £’000 16,081 19,901 (13,167) (14,265) 2,914 5,636 5,418 (3,751) 1,667 3,439 (3,048) 391 962 (831) 131 45,801 (35,062) 10,739 2,914 5,636 1,667 391 131 10,739 3,471 – (2,219) – – – 34 50 3,385 (534) (2,726) (226) – 15 – – – – 26 – (8) – (562) (173) – 31 – 4 4,200 5,600 1,136 240 – 36 (60) – – (71) 2 38 3,547 3,421 (2,821) (2,726) (961) (71) 86 11,214 19,768 23,374 (15,568) 4,200 (17,774) 5,600 5,548 (4,412) 1,136 3,581 (3,341) 240 900 (862) 38 53,171 (41,957) 11,214 4,200 5,600 1,136 240 38 11,214 2,834 – – (2,555) – – (5) 404 3,928 – – 97 1,810 (257) (3,519) (220) (1) – – (466) (9) 39 – – (7) – – – – 12 – (2) – – – 3,277 3,940 1,907 (2,821) (3,519) (686) (15) Closing net book amount 4,474 6,032 2,471 272 48 13,297 At 31 July 2018 Cost Accumulated amortisation Net book amount 22,566 27,355 7,339 3,603 911 61,774 (18,092) (21,323) (4,868) (3,331) (863) (48,477) 4,474 6,032 2,471 272 48 13,297 92 YouGov Annual Report and Accounts 2018 12 Property, plant and equipment At 1 August 2016 Cost Accumulated depreciation Net book amount Year ended 31 July 2017 Opening net book amount Additions: Separately acquired Disposals Depreciation Exchange differences Closing net book amount At 31 July 2017 and 1 August 2017 Cost Accumulated depreciation Net book amount Year ended 31 July 2018 Opening net book amount Additions: Separately acquired Business combinations Disposals Depreciation Exchange differences Closing net book amount At 31 July 2018 Cost Accumulated depreciation Net book amount Freehold property £’000 Leasehold property improvements £’000 Computer equipment £’000 Fixtures and fittings £’000 Motor vehicles £’000 1,667 (471) 1,196 1,248 (502) 746 3,082 (2,152) 930 1,692 (1,039) 653 121 (78) 43 i S t r a t e g c r e p o r t G o v e r n a n c e Total £’000 7,810 (4,242) 3,568 i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 1,196 746 930 653 43 3,568 – – (87) 14 1,123 1,682 (559) 1,123 61 (1) (205) 8 609 1,312 (703) 609 659 – (609) 16 996 3,787 (2,791) 996 86 (6) (243) 10 500 1,788 (1,288) 500 37 – (30) – 50 158 (108) 50 843 (7) (1,174) 48 3,278 8,727 (5,449) 3,278 1,123 609 996 500 50 3,278 – – – (82) (6) 1,035 1,675 (640) 1,035 16 4 (2) (231) (4) 392 791 1 (6) (679) (2) 1,101 144 44 (4) (216) (4) 464 1,336 4,322 1,909 (944) 392 (3,221) (1,445) 1,101 464 18 – – 969 49 (12) (23) (1,231) – 45 167 (122) 45 (16) 3,037 9,409 (6,372) 3,037 All property, plant and equipment disclosed above in both the year ended 31 July 2018 and 31 July 2017, with the exception of those items held under lease purchase agreements, are free from restrictions on title. 93 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 12 Property, plant and equipment continued The net book value of assets held under finance leases is as follows: At 31 July 2017 and 1 August 2017 Cost Accumulated depreciation Net book amount At 31 July 2018 Cost Accumulated depreciation Net book amount Computer equipment £’000 Fixtures and fittings £’000 Total £’000 61 (61) – 61 (61) – 36 (36) – 36 (36) – 97 (97) – 97 (97) – 94 YouGov Annual Report and Accounts 2018 13 Investments (a) Interests in subsidiaries The table below gives details of the Group’s subsidiaries at 31 July 2018. Registered addresses for all subsidiaries can be found in Note 24 to the Parent Company Financial Statements. All subsidiaries have coterminous year ends, except where indicated below, and are included in the Consolidated Financial Statements. Country of incorporation Class of share capital held By parent company By the Group Nature of the business Proportion held i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n YouGov Services Limited YouGov Stone Limited YGV Finance Limited CoEditor LTD Doughty Media 2 LTD SMG Insight Limited Margaux Matrix Limited MMH 2014 Ltd Crunch Cloud Analytics Limited YouGov America Inc YouGov America Holdings LLC * Crunch Cloud Analytics, LLC YouGov Deutschland GmbH YouGov Data & Analytics GmbH YouGov Nordic and Baltic A/S YouGov Sweden AB YouGov Norway AS YouGov Finland OY YouGov M.E. FZ LLC YouGov M.E. Egypt LLC Iridescent Productions Company Limited YouGov France SASU YouGov Spain S.L.U YouGov Italia Srl Consilium Limited Consilium Asia Limited YouGov Singapore Pte Limited PT YouGov Consulting Indonesia YouGov Malaysia SDN BHD YouGov (Thailand) CO. LTD YouGov Research Pty Ltd. YouGov Galaxy Pty Limited YG India Private Research Limited YouGov Poland Sp. z o.o.* YouGov s.r.l.* * Year end is 31 December. UK UK UK UK UK UK UK UK UK USA USA USA Germany Germany Denmark Sweden Norway Finland U.A.E. Egypt Iraq France Spain Italy Hong Kong China Singapore Indonesia Malaysia Thailand Australia Australia India Poland Romania Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 32% 100% 100% 0% 0% 100% 0% 100% 0% 100% 100% 100% 0% 0% 0% 100% 5% 0% 100% 100% 100% 100% 0% 0% 5% 0% 0% 100% 0% 100% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Software development Dormant Dormant Dormant Holding company Market research Market research Holding Company Market research Market research Holding company Market research Market research Market research Market research Market research Market research Market research Market research Market research Media production Market research Market research Market research Market research Market research Market research Market research Market research Market research Market research Market research Market research Software development Operations services 95 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 13 Investments continued (b) Interest in associates Investments in associates comprise: Carrying amount at 1 August Share of net profit of associates Dividends received from associates Interest in associates at 31 July 2018 £’000 345 66 (220) 191 2017 £’000 242 103 – 345 At 31 July 2018, the Group had interests in the following associates: Investment Country of incorporation Class of share capital held By parent company By the Group Nature of the business Financial year end Proportion held Portent.io Limited Associate England Ordinary 35% 35% Market research 31 October The Group’s share of the revenue and profit/(loss) after tax and assets and liabilities of associates is: Revenue (Loss)/Profit after tax Non-current assets Current assets Current liabilities Non-current liabilities Net assets SMG Insight Limited Portent.io Limited 31 July 2018 £’000 1,256 (45) – – – – – 31 July 2017 £’000 857 96 3 282 (163) – 122 31 July 2018 £’000 129 (22) – 24 (34) (19) (29) 31 July 2017 £’000 43 7 – 5 (6) (6) (7) 96 YouGov Annual Report and Accounts 2018 14 Trade and other receivables Trade receivables Other receivables Prepayments Accrued income Provision for trade receivables i S t r a t e g c r e p o r t G o v e r n a n c e 31 July 2018 £’000 31 July 2017 £’000 21,099 3,775 2,448 8,576 35,898 (1,226) 34,672 18,441 2,367 1,886 8,549 31,243 (544) 30,699 i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n The Directors consider that the carrying amount of trade and other receivables approximate to their fair value. As at 31 July 2018, trade receivables of £11,229,000 (2017: £10,660,000) were overdue but not impaired. These relate to a number of customers for which there is no recent history of default or any other indication that the receivable should not be fully collectable. The ageing analysis of past due trade receivables which are not impaired is as follows: Up to three months overdue Three to six months overdue Six months to one year overdue More than one year overdue Movement on the Group provision for impairment of trade receivables is as follows: Provision for receivables impairment at 1 August Provision created in the year Provision utilised in the year Exchange differences Provision for receivables impairment at 31 July 31 July 2018 £’000 31 July 2017 £’000 5,833 3,833 823 740 6,391 3,011 479 779 11,229 10,660 2018 £’000 544 768 (97) 11 1,226 2017 £’000 474 206 (140) 4 544 The creation and release of the provision for impaired receivables has been included in the Consolidated Income Statement. The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The average length of time taken by customers to settle receivables is 56 days (2017: 58 days). Concentrations of credit risk do exist with certain clients with which we have trading relationships but none has a history of default and all command a certain stature within the marketplace, which minimises any potential risk of default. Material balances (defined as greater than £250,000 (2017: greater than £250,000)) represent 40% of trade receivables (2017: 43%). At 31 July 2018, £nil (2017: £261,000) of the trade and other receivables of YouGov Nordic and Baltic A/S were used as security against a loan and revolving overdraft facility held by YouGov Nordic and Baltic A/S. The Group does not hold any other collateral as security. 97 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 15 Cash and cash equivalents Cash at bank and in hand Cash and cash equivalents (excluding bank overdrafts) 31 July 2018 £’000 31 July 2017 £’000 30,621 30,621 23,481 23,481 Cash and cash equivalents are held at either variable rates or at rates fixed for periods of no longer than three months. Cash and cash equivalents include the following for the purposes of the cash flows: Cash and cash equivalents Bank overdrafts Cash and cash equivalents including bank overdrafts 16 Trade and other payables Trade payables Accruals Deferred income Other payables 31 July 2018 £’000 31 July 2017 £’000 30,621 – 30,621 23,481 (262) 23,219 31 July 2018 £’000 31 July 2017 £’000 2,787 13,808 12,521 5,882 34,998 1,745 12,887 10,697 4,060 29,389 Included within other payables are £80,000 (2017: £71,000) of contributions due in respect of defined contribution pension schemes. 17 Contingent consideration At 31 July 2016 Acquisition consideration provided during the year Contingent staff cost provided during the year Settled during the year Discount unwinding Foreign exchange differences Balance at 31 July 2017 and 1 August 2017 Included within current liabilities Included within non-current liabilities Acquisition consideration provided during the year Contingent staff cost provided during the year Settled during the year Discount unwinding Foreign exchange differences Balance at 31 July 2018 Included within current liabilities Included within non-current liabilities 98 YouGov Annual Report and Accounts 2018 Galaxy DP Pty Ltd £’000 SMG Insight £’000 Total £’000 – – – – – – – – – 184 785 (190) 5 (1) 783 510 273 – – – – – – – – – 5,727 – – 9 – 5,736 899 4,837 – – – – – – – – – 5,911 785 (190) 14 (1) 6,519 1,409 5,110 18 Provisions At 31 July 2016 Provided during the year Utilised during the year Discount unwinding Foreign exchange differences Balance at 31 July 2017 and 1 August 2017 Included within current liabilities Included within non-current liabilities Provided during the year Utilised during the year Discount unwinding Foreign exchange differences Balance at 31 July 2018 Included within current liabilities Included within non-current liabilities Panel incentives £’000 Staff gratuity £’000 5,413 7,919 (6,767) 20 70 6,655 3,749 2,906 8,306 (7,655) 61 (14) 7,353 3,689 3,664 434 143 (269) – 8 316 – 316 282 (162) – 2 438 102 336 Total £’000 5,847 8,062 (7,036) 20 78 6,971 3,749 3,222 8,588 (7,817) 61 (12) 7,791 3,791 4,000 The panel incentive provision represents the Directors’ best estimate of the future liability in relation to the value of panel incentives that have accrued in the panellists’ virtual accounts up to 31 July 2018. The provision of £7.4m represents 45% of the maximum potential liability of £16.4m (2017: £6.7m representing 44% of the maximum potential liability of £15.3m). The factors considered in estimating the appropriate percentage of the total potential liability to be provided against at each reporting date include: panel churn rates, panel activity rates, current redemption patterns and the time value of money. The staff gratuity provision is a statutory obligation under UAE labour law, whereby each employee on termination of their contract is due a payment dependent upon their number of years’ service and nature of the termination. The liability of £0.4m at 31 July 2018 (2017: £0.3m) represents the liability that the Group is obliged to pay as at the reporting date weighted against historical rates of resignation and redundancy. 19 Deferred tax assets and liabilities i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Deferred tax asset Balance at 1 August 2016 Recognised in the income statement Recognised in equity Foreign exchange differences Balance at 31 July 2017 and 1 August 2017 Acquired on business combination Recognised in the income statement Recognised in equity Foreign exchange differences Balance at 31 July 2018 Intangible assets £’000 Property, plant and equipment £’000 Tax losses £’000 3,021 (214) – 138 134 (1) – 2 135 2,945 – 3 – – – 606 – 65 138 3,616 Other timing differences £’000 1,946 377 391 50 2,764 16 739 1,794 (66) 5,247 315 (113) – 8 210 – 217 – 6 433 £946,000 (2017: £1,947,000) of the above deferred tax assets are expected to be recovered within one year. Total £’000 5,416 49 391 198 6,054 16 1,565 1,794 5 9,434 99 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 19 Deferred tax assets and liabilities continued The deferred taxation asset in respect of income tax losses are broken down by jurisdiction as follows: UK Nordic Germany Other 31 July 2018 £’000 31 July 2017 £’000 484 891 2,121 120 3,616 262 791 1,892 – 2,945 Utilisation of tax losses is dependent upon future profits being generated and deferred tax assets have been recognised only to the extent where management budgets and forecasts show sufficient profits being generated to discharge these. Losses were incurred in the year in Asia Pacific and there is significant uncertainty around the recoverability of the deferred tax assets in this jurisdiction, therefore tax losses in this region of £829,000 (2017: £597,000) have not been recognised. Based on management forecasts and after carrying out sensitivity analysis, the deferred tax assets in Germany and the Nordics are considered recoverable. Intangible assets £’000 Other timing differences £’000 1,314 (109) 75 1,280 383 113 (3) 1,773 224 139 40 403 – (44) (4) 355 2018 £’000 4,371 (367) 1,496 1,794 12 7,306 Total £’000 1,538 30 115 1,683 383 69 (7) 2,128 2017 £’000 3,878 19 19 391 83 4,371 Deferred tax liabilities Balance at 1 August 2016 Recognised in the income statement Foreign exchange differences Balance at 31 July 2017 and 1 August 2017 Acquired on business combination Recognised in the income statement Foreign exchange differences Balance at 31 July 2018 £190,000 (2017: £200,000) of the above deferred tax liabilities are expected to be recovered within one year. The net movement on the deferred income tax account is as follows: Balance at 1 August Acquired on business combination Recognised in the income statement Recognised in equity Foreign exchange differences recognised in other comprehensive income Balance at 31 July 100 YouGov Annual Report and Accounts 2018 20 Risk management objectives and policies The Group is exposed to foreign currency, capital, liquidity and interest rate risk, which result from both its operating and investing activities. The Group’s risk management is coordinated in close cooperation with the Board of Directors, and focuses on actively securing the Group’s short-to-medium-term cash flows by minimising the exposure to financial markets. The most significant financial risks to which the Group is exposed are described below. Also refer to the accounting policies. Foreign currency risk The Group is exposed to translation and transaction foreign exchange risk. The currencies where the Group is most exposed to volatility are US Dollars, Euro and UAE Dirham. Currently, the Group aims to align assets and liabilities in a particular market. The Group will continue to review its currency risk position as the overall business profile changes. The presentational and transactional currency of the Group is considered to be UK Sterling. Foreign currency denominated financial assets and liabilities, translated into UK Sterling at the closing rate are as follows: i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Financial assets Financial liabilities Short-term exposure Financial assets Financial liabilities Long-term exposure 2018 £’000 2017 £’000 US Dollar Euro UAE Dirham Other currencies US Dollar 24,844 6,430 2,274 8,338 17,136 Euro 7,374 UAE Dirham Other currencies 1,815 7,308 (7,237) (1,840) (844) (3,999) (5,660) (2,056) (1,058) (3,170) 17,607 4,590 1,430 4,339 11,476 5,318 757 4,138 – – – – – – – – – – (273) (273) – – – – – – – – – – – – The effect of UK Sterling strengthening by 1% against our subsidiaries’ functional currencies (US Dollar, Euro, UAE Dirham and other currencies) would have had the following impact upon translation: Net result for the year Equity 2018 £’000 Euro 5 (53) US Dollar (54) (269) UAE Dirham Other currencies (8) (123) 29 56 US Dollar (44) (292) 2017 £’000 Euro (1) (136) UAE Dirham Other currencies (1) (86) 30 (18) If the UK Sterling had weakened by 1% against the US Dollar, Euro, UAE Dirham and other currencies the inverse of the impact above would apply. Liquidity risk The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Group currently has no general borrowing arrangement in place (although specific fixed value borrowings are held within the Group) and prepares cash flow forecasts which are reviewed at Board meetings to ensure liquidity. 101 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 20 Risk management objectives and policies continued As at 31 July 2018, the Group’s liabilities have undiscounted contractual maturities, which are summarised below: At 31 July 2018 Contingent consideration Trade and other payables Current Non-current Within 6 months £’000 510 8,536 6 to 12 months £’000 899 130 1–5 years £’000 5,110 – Later than 5 years £’000 – – This compares to the maturity of the Group’s financial liabilities in the previous reporting period as follows: At 31 July 2017 Borrowings Contingent consideration Trade and other payables Current Non-current Within 6 months £’000 262 – 5,547 6 to 12 months £’000 – – 258 1–5 years £’000 Later than 5 years £’000 – – – – – – The Group has sufficient financial risk management policies in place to ensure that all trade payables are settled within the respective credit period. Capital risk management The Group manages its capital to ensure that all entities within the Group are able to continue as a going concern. The Board has taken the decision at this stage to minimise external debt, whilst trying to maximise earnings from the cash currently held. Capital consists of the following items: Borrowings (Bank overdrafts) Cash and cash equivalents Equity attributable to Shareholders of the parent company The Group has no externally imposed capital requirements. Interest rate risk 31 July 2018 £’000 31 July 2017 £’000 – 30,621 (92,071) (61,450) (262) 23,481 (80,473) (57,254) The Group manages its interest rate risk by negotiating fixed interest rates on deposits for periods of up to three months. The average cash and cash equivalents balance, net of bank overdrafts, over the course of the year was £26.7m (2017: £19.2m). Management does not believe that the Group is subject to material interest rate risk. Fair values of financial assets and financial liabilities Where market values are not available, fair values of financial assets and financial liabilities have been calculated by discounting expected future cash flows at prevailing interest rates and by applying year end foreign exchange rates. Primary financial instruments held or issued to finance the Group’s operations: 31 July 2018 31 July 2017 Book value £’000 Fair value £’000 Book value £’000 Fair value £’000 32,224 30,621 (22,474) (6,519) – 32,224 30,621 (22,474) (6,519) – 28,813 23,481 (18,692) – (262) 28,813 23,481 (18,692) – (262) Trade and other receivables Cash and cash equivalents Trade and other payables Contingent consideration Bank overdrafts 102 YouGov Annual Report and Accounts 2018 20 Risk management objectives and policies continued Fair value estimation The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). • Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Liabilities 31 July 2018 £’000 Level 1 £’000 Level 2 £’000 Level 3 £’000 Contingent consideration – – 6,519 The following table presents the changes in Level 3 instruments. 31 July 2017 £’000 Total £’000 6,519 Level 1 £’000 – Level 2 £’000 Level 3 £’000 – – Contingent consideration Balance at 1 August Provided consideration on business combination Recognised in the income statement Settled Foreign exchange differences Balance at 31 July 21 Share capital and share premium 2018 £’000 – 5,911 799 (190) (1) 6,519 Total £’000 – 2017 £’000 – – – – – – The Company only has one class of share. Par value of each Ordinary Share is 0.2p (2017: 0.2p). All issued shares are fully paid. At 1 August 2016 Issue of shares At 31 July 2017 and 1 August 2017 Issue of shares At 31 July 2018 Number of shares 104,299,052 999,657 105,298,709 193,101 105,491,810 Share capital £’000 209 2 211 – 211 Share premium £’000 31,086 175 31,261 39 31,300 Total £’000 31,295 177 31,472 39 31,511 During the year, 182,910 shares were issued on the exercise of share options and 10,191 in payment of Non-Executive Directors’ fees. 103 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 22 Share-based payments The charge in relation to the share-based payments in the year ended 31 July 2018 was £3,571,000 (2017: £1,488,000). Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the year are as follows: Approved and unapproved share option schemes Approved share option scheme Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year Unapproved share option scheme Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year 2018 WAEP Number – – – – – – 2018 WAEP Number – – – – – – 2017 WAEP Number 60,721 – (60,721) – – – 2017 WAEP Number 32,503 – (32,503) – – – £ 1.645 – 1.645 – – – £ 1.228 – 1.228 – – – £ – – – – – – £ – – – – – – The weighted average share price at the dates of exercise was £nil (2017: £2.430). Long Term Incentive Plan 2009 During the year ended 31 July 2018, the Long Term Incentive Plan 2009 (“LTIP 2009”) for Executive Directors, Senior Executives and senior managers continued to operate but no new awards were made under the LTIP 2009 as it has been replaced by two new incentive plans summarised below. The rules governing the LTIP 2009 are summarised in the Remuneration Report on page 52. The charge in relation to the LTIP 2009 in the year ended 31 July 2018 was £nil (2017: £86,000). This charge was valued using a Monte Carlo simulation. Outstanding at the beginning of the year Exercised during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year 2018 Number 2017 Number 865,522 1,807,908 (51,394) (888,931) – 814,128 814,128 (53,455) 865,522 865,522 The weighted average share price at the date LTIP 2009 options were exercised was £3.496. All of the above are nil cost options. 104 YouGov Annual Report and Accounts 2018 22 Share-based payments continued Long Term Incentive Plan 2014 Awards under the LTIP 2014 are made in the form of nil-cost options as with the LTIP 2009. The maximum total number of shares to be awarded to each participant has been set based on their salary in the year ended 31 July 2015 and the share price at the start of the plan. These awards are to be granted in three equal tranches in October 2015, 2016 and 2017 with an additional award of 396,039 options in April 2018. Receipt of an award in each of those years will be dependent upon the achievement of specific and demanding personal targets set for that individual in the previous financial year. Vesting of awards will depend on the Company achieving stretching targets relating to compound growth in adjusted earnings per share (“EPS”) over the five years ending 31 July 2019 and on improvement in its operating margins. Part of the Chief Executive Officer’s award is also subject to a Total Shareholder Return (“TSR”) condition, this part of the award will only vest if the EPS performance condition is met in full and the Company’s TSR has grown by 200%. The maximum number of options that can be granted under this scheme is 6,924,000 and the charge in relation to the LTIP 2014 in the year ended 31 July 2018 was £3,222,000 (2017: £1,109,000). i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Outstanding at the beginning of the year Granted during the year Vested during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year All of the above are nil cost options. 2018 Number 2017 Number 4,394,432 2,460,676 2,330,974 1,933,756 – – – – 6,725,406 4,394,432 – – The fair value of the options granted in the year was determined using the Black Scholes model. The following assumptions were used in both the Black Scholes model, in calculating the fair values of the options granted during the year. Share price Exercise price Expected volatility Expected life Dividend yield Risk-free interest rate 2018 Awards 3.61 £0.00 27% 2015 Awards 1.04 £0.00 25% 1.5 Years 5 Years 0.8% 0.45% 0.6% 1.65% The fair value of 2015 award options granted during the year was £1.01 per option and the fair value of 2018 award options granted during the year was £3.56. 105 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 July 2018 continued 22 Share-based payments continued Deferred Share Bonus Plan 2014 The DSBP 2014 delivers a portion of managers’ (enhanced) annual bonus in shares which must be retained for a period of two years and are subject to continued employment. The charge in relation to the DSBP 2014 in the year ended 31 July 2018 was £349,000 (2017: £293,000). Outstanding at the beginning of the year Granted during the year Vested during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year All of the above options are nil cost options. 2018 Number 375,508 152,012 (131,516) (25,282) 370,722 75,575 2017 Number 255,510 182,640 (5,328) (57,314) 375,508 – The fair value of the options granted in the year was determined using the Black Scholes model. The following assumptions were used in the Black Scholes model in calculating the fair value of the options granted during the year: Share price Exercise price Expected volatility Expected life Dividend yield Risk-free interest rate 2018 £’000 £3.16 £0.00 27% 2 Years 0.80% 0.45% The fair value of options granted during the year determined using the Black Scholes model was £3.11 per option. The aggregate profit and loss charge for share-based payments is disclosed in Note 2. 23 Leasing commitments The future aggregate minimum lease rentals to be paid under non-cancellable operating leases at 31 July 2018 are as follows: In one year or less Between one and five years In five years or more 31 July 2018 31 July 2017 Land and buildings £’000 1,371 1,685 – 3,056 Other £’000 – – – – Land and buildings £’000 2,065 5,563 538 8,166 Other £’000 3 – – 3 The lease rental costs charged to the income statement for the year ended 31 July 2018 amounted to £2,207,000 (2017: £2,430,000). 106 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 24 Capital commitments At 31 July 2018, the Group had capital commitments of £50,000 (2017: £93,000). 25 Major non-cash transactions During the year, the Group entered into barter transactions with parties in the Middle East, Germany and Asia Pacific with a total value of £606,000 (2017: £957,000) to exchange the provision of market research for advertising on television, on websites and in magazines. 26 Transactions with Directors and other related parties Other than emoluments and the transactions set out below, there have been no transactions with Directors during the year. As at 31 July 2018, Rosamund Shakespeare, the wife of Stephan Shakespeare, held 559,404 Ordinary Shares in the Company. Prior to the acquisition of SMG Insight Limited, YouGov provided £383,000 of research services and charged rent of £55,000 to SMG Insight Limited, an associate, and was charged £308,000 for research services by SMG Insight Limited. As at 31 July 2018, a loan of £270,000 was receivable from Portent.io Limited and £6,000 was receivable in respect of research services. On 10 December 2013, YouGov plc entered into a joint development agreement with Crunch.io Inc, a US company in which Doug Rivers, an Executive Director of YouGov plc, has an equity interest of 40%. YouGov and Crunch.io Limited have agreed jointly to fund the development of a cloud-based data analytics software application in which both parties have usage rights. Trading between YouGov plc and Group companies is excluded from the related party note as this has been eliminated on consolidation. 27 Events after the reporting year On 21 August 2018, YouGov plc acquired a 100% share in Inconversation Media Limited, an audience conversation platform that allows brands and organisations to build conversation channels with their audiences. On 28 August 2018, a new lease was signed for the London office. The initial term of the lease is 5 years, and the minimum amount payable during this period is £4,193,000. On 6 September 2018, YouGov plc reached an agreement with Crunch.io Inc., with which it held a joint development agreement, to acquire Crunch.io Inc.’s share of the intangible software assets developed under the agreement. 107 FINANCIAL STATEMENTS Independent Auditors’ Report to the Members of YouGov plc Report on the Parent Company Financial Statements Opinion In our opinion, YouGov plc’s parent company financial statements (the “financial statements”): • give a true and fair view of the state of the parent company’s affairs as at 31 July 2018 and of its cash flows for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report and Accounts 2018 (the “Annual Report”), which comprise: the parent company Statement of Financial Position as at 31 July 2018; the parent company Statement of Cash Flows, and the parent company Statement of Changes in Equity for the year then ended; the accounting policies; and the notes to the financial statements. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our audit approach Overview Materiality • Overall materiality: £305,000 (2017: £270,000), based on 1% of revenue. Audit scope • The parent company was audited by the UK audit team based in London. • We have no key audit matters to report. Key audit matters The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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) identified by the auditors, including 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. We determined that there were no key audit matters applicable to the parent company to communicate in our report. 108 YouGov Annual Report and Accounts 2018 How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the parent company, the accounting processes and controls, and the industry in which it operates. The parent company was audited by the UK audit team based in London. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: i S t r a t e g c r e p o r t G o v e r n a n c e Overall materiality £305,000 (2017: £270,000). How we determined it 1% of revenue. Rationale for benchmark applied The parent company contains the UK trading activities of the Group as well as costs normally associated with the head office function of a listed company. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £15,250 (2017: £13,500) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. i i F n a n c a l s t a t e m e n t s Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: • 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 parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least 12 months from the date when the financial statements are authorised for issue. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the parent company’s ability to continue as a going concern. A d d i t i o n a l i n f o r m a t i o n Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance 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 an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of 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 based on these responsibilities. With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below. Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 July 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the parent company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. 109 FINANCIAL STATEMENTS Independent Auditors’ Report to the Members of YouGov plc Report on the Parent Company Financial Statements continued Responsibilities for the financial statements and the audit Responsibilities of the Directors for the financial statements As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such internal control as they 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 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 parent company or to cease operations, or have no realistic alternative but to do so. Auditors’ 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 auditors’ 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 FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006, we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • 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 • certain disclosures of directors’ remuneration specified by law are not made; or • the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Other matter We have reported separately on the Group financial statements of YouGov plc for the year ended 31 July 2018. Julian Jenkins (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 9 October 2018 110 YouGov Annual Report and Accounts 2018 Parent Company Statement of Financial Position as at 31 July 2018 Note 31 July 2018 £’000 31 July 2017 £’000 Assets Non-current assets Intangible assets Property, plant and equipment Investment in subsidiaries Investments in associates Deferred tax assets Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Current tax liabilities Contingent consideration Provisions Total current liabilities Net current assets Non-current liabilities Provisions Contingent consideration Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued share capital Share premium Merger reserve Retained earnings: As at 1 August Profit for the year Other changes in retained earnings Retained earnings as at 31 July Total equity 6 7 8 9 15 10 11 12 13 14 14 13 15 17 17 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s 1,859 410 49,893 280 2,607 55,049 36,359 12,136 48,495 103,544 1,893 530 46,497 280 1,633 50,833 34,810 11,184 45,994 96,827 21,152 27,840 494 899 1,628 24,173 24,322 1,005 4,837 – 5,842 30,015 73,529 211 31,300 9,239 25,566 5,022 2,191 32,779 73,529 A d d i t i o n a l i n f o r m a t i o n 342 – 1,461 29,643 16,351 877 – 30 907 30,550 66,277 211 31,261 9,239 21,367 3,826 373 25,566 66,277 The notes and accounting policies on pages 114 to 127 form an integral part of these financial statements. The financial statements on pages 111 to 117 were authorised for issue by the Board of Directors on 9 October 2018 and signed on its behalf by: Alex McIntosh, Chief Financial Officer YouGov plc Registered No. 03607311 111 FINANCIAL STATEMENTS Parent Company Statement of Changes in Equity for the year ended 31 July 2018 Balance at 31 August 2016 Profit for the year Total comprehensive income for the year Issue of shares Dividends paid Share-based payments Tax in relation to share-based payments Total transactions with owners recognised directly in equity Balance at 31 July 2017 and 1 August 2017 Profit for the year Total comprehensive gain for the year Dividends paid Share-based payments Tax in relation to share-based payments Total transactions with owners recognised directly in equity Note Share capital £’000 209 Share premium £’000 31,086 Merger reserve £’000 9,239 17 5 18 15 5 18 15 – – 2 – – – 2 211 – – – – – – – – 175 – – – 175 31,261 – – – 39 – 39 – – – – – – – 9,239 – – – – – – Balance at 31 July 2018 211 31,300 9,239 The notes and accounting policies on pages 114 to 127 form an integral part of these financial statements. Retained earnings £’000 21,367 3,826 7,082 (2) (1,470) 1,488 357 373 25,566 5,022 5,022 (2,106) 3,571 726 2,191 32,779 Total equity £’000 61,901 3,826 7,082 175 (1,470) 1,488 357 550 66,277 5,022 5,022 (2,106) 3,610 726 2,230 73,529 112 YouGov Annual Report and Accounts 2018 Note 2018 £’000 2017 £’000 5,694 4,338 (1,170) (2,134) Parent Company Statement of Cash Flows for the year ended 31 July 2018 Cash flows from operating activities Profit before taxation Adjustments for: Finance income Finance costs Amortisation of intangibles Depreciation Share-based payments Other non-cash profit items Increase in trade and other receivables Increase in trade and other payables Increase in provisions Cash generated from operations Interest paid Net cash generated from operating activities Cash flow from investing activities Acquisition of subsidiaries Purchase of property, plant and equipment Purchase of intangible assets Interest received Dividends received from subsidiaries Dividends received from associates Net cash generated from investing activities Cash flows from financing activities Intercompany loans provided Proceeds from the issue of share capital Dividends paid to shareholders Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange gain on cash and cash equivalents Cash and cash equivalents at end of year 391 964 262 1,317 (1,519) (623) 1,357 295 6,968 (796) 6,172 (1,104) (142) (930) 21 – – (2,155) (1,084) – (2,106) (3,190) 827 11,184 125 12,136 6 7 4,18 15 7 6 17 5 11 The notes and accounting policies on pages 114 to 127 form an integral part of these financial statements. i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 288 896 253 784 – (11,282) 8,404 130 1,677 – 1,677 – (235) (1,434) 30 1,925 – 286 – 174 (1,470) (1,296) 667 10,355 162 11,184 113 FINANCIAL STATEMENTS Notes to the Parent Company Financial Statements for the year ended 31 July 2018 1 Significant accounting policies The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB). The financial statements have also been prepared in accordance with IFRSs adopted for use in the European Union and UK company law. The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out in the consolidated financial statements with the addition of the policies noted below. Investments in subsidiaries and investments in associates are stated at cost less, where appropriate, provisions for impairment. The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity. 2 Profit of the parent company The parent company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The parent company’s profit for the year was £5,022,000 (2017: £3,826,000). 3 Auditors’ remuneration Auditors’ remuneration: Fees payable for the audit of the parent company Fees payable for the audit of the consolidated financial statements Tax compliance services Tax advisory services Other advisory services Total auditors’ remuneration 4 Staff costs and numbers Staff costs (including Directors) charged to operating expenses during the year were as follows: Wages and salaries Social security costs Share-based payments (Note 18) Other pension costs Other benefits 2018 £’000 2017 £’000 31 133 17 91 – 272 2018 £’000 10,298 1,580 1,317 396 2,520 16,111 28 88 16 10 – 142 2017 £’000 9,747 1,213 784 298 2,993 15,035 Pension costs are contributions made on behalf of employees to defined contribution pension schemes. Other benefits include staff bonuses paid in cash and private healthcare insurance. 114 YouGov Annual Report and Accounts 2018 4 Staff costs and numbers continued The monthly average number of employees of the Company during the year was as follows: Key management personnel Administration and operations 2018 Number 2017 Number 16 203 219 20 187 207 Specific disclosures in relation to compensation for key management personnel (defined as Board and Divisional, Product and Function Heads) who held office during the year was as follows: i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Short-term employee benefits Post-employment benefits Share-based payments 2018 £’000 2,030 26 1,271 3,327 2017 £’000 2,765 68 760 3,593 Disclosure of Directors’ remuneration, including share options, are included in the Remuneration Report on pages 50 to 54. 5 Dividend On 5 December 2017, a final dividend in respect of the year ended 31 July 2017 of £2,106,000 (2.0p per share) (2016: £1,470,000 (1.4p per share)) was paid to Shareholders. A dividend in respect of the year ended 31 July 2018 of 3.0p per share, amounting to a total dividend of £3,165,000 is to be proposed at the Annual General Meeting on 12 December 2018. These financial statements do not reflect this proposed dividend payable. 115 FINANCIAL STATEMENTS Notes to the Parent Company Financial Statements for the year ended 31 July 2018 continued 6 Intangible assets At 1 August 2016 Cost Accumulated amortisation Net book amount Year ended 31 July 2016 Opening net book amount Additions Amortisation charge Closing net book amount At 31 July 2017 and 1 August 2017 Cost Accumulated amortisation Net book amount Year ended 31 July 2018 Opening net book amount Additions Amortisation charge Closing net book amount At 31 July 2018 Cost Accumulated amortisation Net book amount Consumer panel £’000 Software and software development £’000 Patents and trademarks £’000 Product development costs £’000 2,095 (1,362) 733 733 1,355 (630) 1,458 3,450 (1,992) 1,458 1,458 589 (744) 1,303 4,039 (2,736) 1,303 2,737 (2,306) 431 431 21 (243) 209 2,758 (2,549) 209 209 291 (218) 282 3,049 (2,767) 282 167 – 167 167 21 – 188 188 – 188 188 38 – 226 226 – 226 482 (457) 25 25 36 (23) 38 518 (480) 38 38 12 (2) 48 530 (482) 48 Total £’000 5,481 (4,125) 1,356 1,356 1,433 (896) 1,893 6,914 (5,021) 1,893 1,893 930 (964) 1,859 7,844 (5,985) 1,859 116 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 7 Property, plant and equipment At 1 August 2016 Cost Accumulated depreciation Net book amount Year ended 31 July 2017 Opening net book amount Additions Depreciation Closing net book amount At 31 July 2017 and 1 August 2017 Cost Accumulated depreciation Net book amount Year ended 31 July 2018 Opening net book amount Additions Depreciation Closing net book amount At 31 July 2018 Cost Accumulated depreciation Net book amount Leasehold property improvements £’000 Computer equipment £’000 Fixtures and fittings £’000 589 (358) 231 231 44 (84) 191 633 (442) 191 191 – (92) 99 633 (534) 99 511 (321) 190 190 161 (135) 216 672 (456) 216 216 109 (131) 194 781 (587) 194 499 (372) 127 127 30 (34) 123 529 (406) 123 123 33 (39) 117 562 (445) 117 Total £’000 1,599 (1,051) 548 548 235 (253) 530 1,834 (1,304) 530 530 142 (262) 410 1,976 (1,566) 410 All property, plant and equipment disclosed above are free from restrictions on title. No property, plant and equipment either in 2018 or 2017 has been pledged as security against the liabilities of the Company. 117 FINANCIAL STATEMENTS Notes to the Parent Company Financial Statements for the year ended 31 July 2018 continued 8 Investments in subsidiaries Balance at 1 August Acquired through business combinations Additional investment in existing subsidiaries Investment in new subsidiaries Distributions on closure of subsidiaries Share-based payments charge Settlement of fully vested share options Balance at 31 July 2018 £’000 46,497 8,409 10 63 (7,110) 2,254 (230) 2017 £’000 46,484 – – – – 704 (691) 49,893 46,497 The value of investments is determined on the basis of the cost to the Company. The Directors believe that the carrying value of the investments is supported by their underlying net assets. The details of the parent company’s subsidiaries are shown in Note 13 of the consolidated financial statements. 9 Investment in associates Balance at 1 August Acquisition of associate Balance at 31 July 2018 £’000 280 – 280 2017 £’000 280 – 280 At 31 July 2018 the Company had interests in the following associates: Investment Country of incorporation Class of share capital held By parent company By the Group Nature of the business Financial year end Proportion held Portent.io Limited Associate England Ordinary 35% 35% Market research 31 October 10 Trade and other receivables Trade receivables Amounts owed by Group undertakings Amounts owed by associates Other receivables Prepayments Accrued income Provision for trade receivables 2018 £’000 6,370 24,865 270 169 549 4,312 36,535 (176) 36,359 2017 £’000 4,957 26,746 133 143 614 2,361 34,954 (144) 34,810 The Directors consider that the carrying amount of trade and other receivables approximate to their fair value. The amounts due from Group undertakings are repayable on demand and are non-interest bearing. 118 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n 10 Trade and other receivables continued As at 31 July 2018, trade receivables of £2,814,000 (2017: £2,837,000) were overdue but not impaired. These relate to a number of customers for which there is no recent history of default or any other indication that the receivable should not be fully collectable. The ageing analysis of past due trade receivables which are not impaired is as follows: Up to three months overdue Three to six months overdue Six months to one year overdue More than one year overdue Movement on the Company provision for impairment of trade receivables is as follows: Provision for receivables impairment at 1 August Provision created in the year Provision utilised in the year Provision for receivables impairment at 31 July 31 July 2018 £’000 31 July 2017 £’000 1,447 1,064 253 50 2,814 2018 £’000 144 32 – 176 2,216 621 – – 2,837 2017 £’000 111 112 (79) 144 The creation and release of the provision for impaired receivables has been included in the income statement. The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Company does not hold any collateral as security. The average length of time taken by customers to settle receivables is 59 days (2017: 52 days). Concentrations of credit risk do exist with certain clients with which we have trading relationships but none has a history of default and all command a certain stature within the marketplace, which minimises any potential risk of default. Material balances (defined as greater than £250,000 (2017: greater than £250,000)) represent 0% of trade receivables (2017: 7%). 11 Cash and cash equivalents Cash at bank and in hand Cash and cash equivalents (excluding bank overdrafts) 31 July 2018 £’000 31 July 2017 £’000 12,136 12,136 11,184 11,184 Cash and cash equivalents are held at either variable rates or at rates fixed for periods of no longer than three months. 12 Trade and other payables Trade payables Amounts owed to Group undertakings Amounts owed to associates Accruals Deferred income Other payables 31 July 2018 £’000 31 July 2017 £’000 968 8,877 – 4,656 4,016 2,635 21,152 234 18,832 8 4,088 2,399 2,279 27,840 Amounts payable to Group undertakings are repayable on demand and non-interest bearing. Included within other payables are £80,000 (2017: £59,000) of contributions due in respect of defined contribution pension schemes. 119 FINANCIAL STATEMENTS Notes to the Parent Company Financial Statements for the year ended 31 July 2018 continued 13 Contingent consideration At 1 August 2017 Provided in the year Discount unwinding Balance at 31 July 2018 Included within current liabilities Included within non-current liabilities 14 Provisions for other liabilities and charges At 1 August 2016 Provided during the year Utilised during the year Balance at 31 July 2017 and 1 August 2017 Included within current liabilities Included within non-current liabilities Provided during the year Utilised during the year Balance at 31 July 2018 Included within current liabilities Included within non-current liabilities SMG Insight £’000 – 5,727 9 5,736 899 4,837 Panel incentives £’000 2,209 2,761 (2,632) 2,338 1,461 877 3,126 Total £’000 – 5,727 9 5,736 899 4,837 Total £’000 2,209 2,761 (2,632) 2,338 1,461 877 3,126 (2,831) (2,831) 2,633 1,628 1,005 2,633 1,628 1,005 The panel incentive provision represents the Directors’ best estimate of the future liability in relation to the value of panel incentives that have accrued in the panellists’ virtual accounts up to 31 July 2018. The provision of £2.6m represents 46% of the maximum potential liability of £5.8m (2017: £2.3m representing 46% of the maximum potential liability of £5.1m). The factors considered in estimating the appropriate percentage of the total potential liability to be provided against at each reporting date include: panel churn rates, panel activity rates and current redemption patterns. 15 Deferred tax assets and liabilities Deferred tax asset Balance at 1 August 2016 Recognised in the income statement Recognised in equity Balance at 31 July 2017 and 1 August 2017 Recognised in the income statement Recognised in equity Balance at 31 July 2018 Property, plant and equipment £’000 Tax losses £’000 Other timing differences £’000 63 (9) – 54 (4) – 50 198 (101) – 97 19 – 116 1,155 (30) 357 1,482 233 726 2,441 Total £’000 1,416 (140) 357 1,633 248 726 2,607 £392,000 (2017: 204,000) of the above deferred tax assets are expected to be recovered within one year. Deferred tax assets have been recognised only to the extent where management budgets and forecasts show sufficient profits being generated to discharge these in the short term. Utilisation of tax losses is dependent upon future profits being generated. 120 YouGov Annual Report and Accounts 2018 15 Deferred tax assets and liabilities continued Deferred tax liabilities Balance at 1 August 2016 Recognised in the income statement Balance at 31 July 2017 Recognised in the income statement Balance at 31 July 2018 £nil (2017: 30,000) of the above deferred tax liabilities are expected to be recovered within one year. The net movement on the deferred income tax account is as follows: Balance at 1 August Recognised in the income statement Recognised in equity Balance at 31 July Intangible assets £’000 – 30 30 (30) – 2018 £’000 1,603 278 726 2,607 Total £’000 – 30 30 (30) – 2017 £’000 1,416 (170) 357 1,603 i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s 16 Risk management objectives and policies The Company is exposed to foreign currency, capital, liquidity and interest rate risk, which result from both its operating and investing activities. The Group’s risk management is coordinated in close cooperation with the Board of Directors, and focuses on actively securing the Company’s short-to-medium-term cash flows by minimising the exposure to financial markets. The most significant financial risks to which the Company is exposed are described below. Also refer to the accounting policies. Foreign currency risk The Company is exposed to translation and transaction foreign exchange risk. The currencies where the Company is most exposed to volatility are the US Dollars and Euro. Currently, the Company aims to align assets and liabilities. The Company will continue to review its currency risk position as the overall business profile changes. The presentational and transactional currency of the Company is considered to be UK Sterling. Foreign currency denominated financial assets and liabilities, translated into UK Sterling at the closing rate are as follows: A d d i t i o n a l i n f o r m a t i o n Financial assets Financial liabilities Short-term exposure Financial assets Financial liabilities Long-term exposure 2018 £’000 2017 £’000 US Dollar 4,241 (54) 4,187 – – – Euro 861 (117) 744 – – – Other Currencies 2 (3) (1) – – – US Dollar 956 – 956 – – – Euro 282 – 282 – – – Other Currencies – – – – – – 121 FINANCIAL STATEMENTS Notes to the Parent Company Financial Statements for the year ended 31 July 2018 continued 16 Risk management objectives and policies continued Liquidity risk The Company seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Company currently has no general borrowing arrangement in place and prepares cash flow forecasts which are reviewed at Board meetings to ensure liquidity. As at 31 July 2018, the Group’s liabilities have undiscounted contractual maturities, which are summarised below: 2018 2017 Current Non-current Current Non-current At 31 July Trade and other payables Contingent consideration Within 6 months £’000 3,603 6 to 12 months £’000 1–5 years £’000 Later than 5 years £’000 Within 6 months £’000 6 to 12 months £’000 1–5 years £’000 Later than 5 years £’000 – – – 898 4,837 – – 2,514 – – – – – – – The Company has sufficient financial risk management policies in place to ensure that all trade payables are settled within the respective credit period. Capital risk management The Company manages its capital to ensure that it is able to continue as a going concern. The Board has taken the decision at this stage to minimise external debt, whilst trying to maximise earnings from the cash currently held. Capital consists of the following items: Cash and cash equivalents Equity attributable to Shareholders of the parent company The Company has no externally imposed capital requirements. Interest rate risk 31 July 2018 £’000 31 July 2017 £’000 12,136 (73,529) (61,393) 11,184 (66,277) (55,093) The Group manages its interest rate risk by negotiating fixed interest rates on deposits for periods of up to three months. The average cash and cash equivalents balance, net of bank overdrafts, over the course of the year was £11.7m (2017: £10.1m). Management does not believe that the Group is subject to interest rate risk. Fair values of financial assets and financial liabilities Where market values are not available, fair values of financial assets and financial liabilities have been calculated by discounting expected future cash flows at prevailing interest rates and by applying year end foreign exchange rates. Primary financial instruments held or issued to finance the Company’s operations: Trade and other receivables Cash and cash equivalents Trade and other payables Contingent consideration 31 July 2018 31 July 2017 Book value £’000 Fair value £’000 Book value £’000 Fair value £’000 30,055 12,136 (13,692) (5,736) 30,055 12,136 (13,692) (5,736) 34,196 11,184 (25,441) – 34,196 11,184 (25,441) – 122 YouGov Annual Report and Accounts 2018 16 Risk management objectives and policies continued Fair value estimation The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). 31 July 2018 £’000 31 July 2017 £’000 Current Non-current Current Non-current i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Liabilities Level 1 £’000 Level 2 £’000 Level 3 £’000 Contingent consideration – – 5,736 Total £’000 5,736 Level 1 £’000 Level 2 £’000 Level 3 £’000 – – – The following table presents the changes in Level 3 instruments. Contingent consideration Balance at 1 August Provided consideration on business combination Recognised in the income statement Balance at 31 July 17 Share capital and share premium 2018 £’000 – 5,727 9 5,736 The Company only has one class of share. Par value of each Ordinary Share is 0.2p. All issued shares are fully paid. At 1 August 2016 Issue of shares At 31 July 2017 Issue of shares At 31 July 2018 18 Share-based payments Number of shares 104,299,052 999,657 105,298,709 193,101 105,491,810 Share capital £’000 209 2 211 – 211 Share premium £’000 31,086 175 31,261 39 31,300 Total £’000 – 2017 £’000 – – – – Total £’000 31,295 177 31,472 39 31,511 The charge in relation to the share-based payments in the year ended 31 July 2018 was £1,317,000 (2017: £784,000). Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the year are as follows: Approved and Unapproved share option schemes Approved share option scheme Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year 2018 WAEP Number – – – – – – 2017 WAEP Number 60,721 – (60,721) – – – £ – – – – – – £ 1.645 – 1.645 – – – 123 FINANCIAL STATEMENTS Notes to the Parent Company Financial Statements for the year ended 31 July 2018 continued 18 Share-based payments continued Unapproved share option scheme Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year 2018 WAEP Number – – – – – – 2017 WAEP Number 21,346 – (21,346) – – – £ 1.645 – 1.645 – – – £ – – – – – – Expiry dates as standard are seven years from the vesting date. Vesting criteria are time based and contingent on continued employment with YouGov rather than performance based. The charge in relation to the approved and unapproved share option schemes in the year ended 31 July 2018 was £nil (2017: £nil). Long Term Incentive Plan 2009 During the year ended 31 July 2018, the Long Term Incentive Plan 2009 (“LTIP 2009”) for Executive Directors, Senior Executives and senior managers continued to operate but no new awards were made under the LTIP 2009 as it has been replaced by two new incentive plans summarised below. The rules governing the LTIP 2009 are summarised in the Remuneration Report on page 52. The charge in relation to the LTIP 2009 in the year ended 31 July 2018 was £nil (2017: £49,000). This charge was valued using a Monte Carlo simulation. Outstanding at the beginning of the year Employee transfers during the year Granted during the year Exercised during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year 2018 Number 497,421 – – (41,354) – 456,067 456,067 2017 Number 844,205 (7,172) – (324,210) (15,402) 497,421 497,421 The weighted average share price at the date LTIP 2009 options were exercised was £3.59. All of the above are nil cost options. During the year ended 31 July 2015, two new incentive plans were introduced: a new Long Term Incentive Plan (“LTIP 2014”) for the Group’s Directors and senior managers and a new Deferred Share Bonus Plan (“DSBP 2014”) for those managers not participating in the new LTIP. 124 YouGov Annual Report and Accounts 2018 18 Share-based payments continued Long Term Incentive Plan 2014 Awards under the LTIP 2014 are made in the form of nil-cost options as with the LTIP 2009. The maximum total number of shares to be awarded to each participant has been set based on their salary in the year ended 31 July 2015 and the share price at the start of the plan. These awards are to be granted in three equal tranches in October 2015, 2016 and 2017 with an additional award of 384,993 options in April 2018. Receipt of an award in each of those years will be dependent upon the achievement of specific and demanding personal targets set for that individual in the previous financial year. Vesting of awards will depend on the Company achieving stretching targets relating to compound growth in adjusted earnings per share (“EPS”) over the five years ending 31 July 2019 and on improvement in its operating margins. Part of the Chief Executive Officer’s award is also subject to a Total Shareholder Return (“TSR”) condition, this part of the award will only vest if the EPS performance condition is met in full and the Company’s TSR has grown by 200%. The maximum number of options that can be granted under this scheme is 4,271,000 and the charge in relation to the LTIP 2014 in the year ended 31 July 2018 was £1,212,000 (2017: £684,000). i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Outstanding at the beginning of the year Employee transfers during the year Granted during the year Vested during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year All of the above are nil cost options. 2018 Number 2017 Number 2,891,842 1,703,271 (1,707,719) – 744,752 1,188,571 – – – – 1,928,875 2,891,842 – – The fair value of 2015 award options granted during the year was £1.01 per option and the fair value of 2018 award options granted during the year was £3.56. The assumptions used in both the Black Scholes and Monte Carlo Simulation model in calculating the fair values of the options granted during the year are disclosed in Note 22 to the consolidated financial statements. Deferred Share Bonus Plan 2014 The DSBP 2014 delivers a portion of managers’ (enhanced) annual bonus in shares, which must be retained for a period of two years and are subject to continued employment. The charge in relation to the DSBP 2014 in the year ended 31 July 2018 was £105,000 (2017: £51,000). Outstanding at the beginning of the year Granted during the year Vested during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year 2018 Number 92,764 35,977 (26,896) (12,286) 89,559 28,414 2017 Number 87,107 50,953 – (45,296) 92,764 – All of the above are nil cost options. The fair value of options granted during the year, determined using the Black Scholes model, was £3.11 per option. The assumptions used in the Black Scholes model in calculating the fair values of the options granted during the year are disclosed in Note 22 to the consolidated financial statements. 125 FINANCIAL STATEMENTS Notes to the Parent Company Financial Statements for the year ended 31 July 2018 continued 19 Leasing commitments The future aggregate minimum lease rentals to be paid under non-cancellable operating leases at 31 July 2018 are as follows: In one year or less Between one and five years In five years or more 31 July 2018 31 July 2017 Land and buildings £’000 76 10 – 86 Other £’000 – – – – Land and buildings £’000 497 1,990 538 3,025 Other £’000 – – – – The lease rental costs charged to the income statement for the year ended 31 July 2018 amounted to £521,000 (2017: £501,000). 20 Capital commitments At 31 July 2018, the Company had capital commitments of £nil (2017: £2,000). 21 Major non-cash transactions There were no major non-cash transactions in the year or the prior year. 22 Transactions with Directors and other related parties Other than emoluments and the transactions set out below, there have been no transactions with Directors during the year. As at 31 July 2018 Rosamund Shakespeare, the wife of Stephan Shakespeare, held 559,404 Ordinary Shares in the Company. Prior to the acquisition of SMG Insight Limited, the Company provided £115,000 of research services and charged rent of £55,000 to SMG Insight Limited, an associate, and was charged £84,000 for research services by SMG Insight Limited. As at 31 July 2018, a loan of £270,000 was receivable from Portent.io Limited. On 10 December 2013, YouGov plc entered into a joint development agreement with Crunch.io Inc, a US company in which Doug Rivers, an Executive Director of YouGov plc, has an equity interest of 40%. YouGov and Crunch.io Limited have agreed jointly to fund the development of a cloud-based data analytics software application in which both parties have usage rights. Trading between YouGov plc and Group companies is excluded from the related party note as this has been eliminated on consolidation. 23 Events after the reporting year On 21 August 2018 YouGov plc acquired a 100% share in Inconversation Media Limited, an audience conversation platform that allows brands and organisations to build conversation channels with their audiences. On 28 August 2018 a new lease was signed for the London office. The initial term of the lease is 5 years, and the minimum amount payable during this period is £4,193,000. On 6 September 2018 YouGov plc reached an agreement with Crunch.io Inc., with which it held a joint development agreement, to acquire Crunch.io Inc.’s share of the intangible software assets developed under the agreement. 126 YouGov Annual Report and Accounts 2018 24 Registered addresses Subsidiary Company Registered Addresses YouGov plc CoEditor LTD Crunch Cloud Analytics Limited Doughty Media 2 LTD InConversation Media Limited Margaux Matrix Limited SMG Insight Limited YGV Finance Limited YouGov Crunch Limited YouGov Services Limited YouGov Stone Limited Consilium Asia Limited Consilium Limited 50 Featherstone Street, London, EC1Y 8RT, United Kingdom Room 22D, Shuguang Building, No. 189 Puan Road, Shanghai, 200021, China 9/F, Skyway Centre, 23 Queen’s Road West, Sheung Wan, Hong Kong i S t r a t e g c r e p o r t G o v e r n a n c e i i F n a n c a l s t a t e m e n t s Iridescent Productions Company Limited 240/2/580 Ashtar Compound, Ankawa, Erbil, Kurdistan Region, Iraq MMH 2014 Limited 115, George’s Street, 4th Floor, Edinburgh, EH2 4JN, Scotland PT YouGov Consulting Indonesia 62, Setiabudi One 2 Building, 6th Floor Suite 605C, JI HR Rasuna Said Kav 62,12920, Jakarta, Republic of Indonesia YG Research India Private Limited Kaledonia 1st Floor, Sahar Road, Andheri East, Mumbai, 400069, India YouGov America Inc 805 Veterans Blvd, Suite 202, Redwood City, CA, 94063, USA A d d i t i o n a l i n f o r m a t i o n YouGov America Holdings LLC YouGov Data & Analytics GmbH 41, Sebastian-Kneipp-Straße, Frankfurt am Main, 60439, Germany YouGov Deutschland GmbH Gustav-Heinemann-Ufer 72, 50968, Cologne, Germany YouGov Finland OY YouGov France SASU Sales Questor Oy, Myllypellontie 3 C 63, 00650, Helsinki, Finland 29 Rue du Louvre, 75002, Paris, France YouGov Galaxy Pty Limited Level 5, 580 George Street, Sydney, NSW 2000, Australia YouGov Research Pty Ltd YouGov Italia S.R.L. YouGov M.E. Egypt LLC YouGov M.E. FZ LLC Via Leone XII, N. 14, Milan, Italy 115 Althawra St., Heliopolis, Cairo, Egypt Suites 302 and 303, Cayan Business Center, Barsha Heights, Dubai, UAE YouGov Malaysia Sdn. Bhd. 33-1, Level 1, Jalan 4/93, Taman Miharja Cheras, Kuala Lumpur, 55200, Malaysia YouGov Nordic and Baltic A/S Bryggervangen 55, 1.th, DK-2100, Copenhagen, Denmark YouGov Norway AS Møllergata 8, 0179, Oslo, Norway YouGov Poland Sp. z o.o. 17/9, Ul. Wiejska, Warsaw, 00-480, Poland YouGov Singapore Pte Ltd 67, Tanjong Pagar Road, #02-01, Singapore, 088488, Singapore YouGov Spain S.L. YouGov SRL YouGov Sweden AB YouGov (Thailand) CO. LTD 19, Calle de Prim, Madrid, 28004, Spain 85, str. Buzesti, sector 1, Bucharest, Romania Holländargatan 17 B, 111 60, Stockholm Sweden 152, Chartered Square Building, 12Ath Floor, Unit 12A-01, North Sathorn Road, Silom, Bangrak, Bangkok, 10500, Thailand 127 ADDITIONAL INFORMATION Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of YouGov plc will be held at 50 Featherstone Street, London, EC1Y 8RT on Wednesday 12 December 2018 at 8.30am to consider and, if thought fit, pass the resolutions below. Resolutions 13 and 14 will be proposed as Special Resolutions. All other Resolutions will be proposed as Ordinary Resolutions. Ordinary Resolutions Resolution 1 Report and accounts To receive the Company’s annual accounts for the financial year ended 31 July 2018, together with the Directors’ report and the auditors’ report on those accounts. Resolution 2 Directors’ remuneration report To approve the Directors’ remuneration report set out in the annual report and accounts for the financial year ended 31 July 2018. Resolution 3 Appointment of auditors To reappoint PricewaterhouseCoopers LLP as auditors to hold office from the conclusion of this meeting until the conclusion of the next general meeting of the Company at which accounts are laid. Resolution 4 Remuneration of auditors To authorise the Directors to fix the remuneration of the auditors. Resolution 5 Election of Sundip Chahal as Director To elect Sundip Chahal as a Director who retires at the first AGM following his appointment, in accordance with the Company’s Articles of Association. Resolution 6 Election of Ashley Martin as Director To elect Ashley Martin as a Director who retires at the first AGM following his appointment, in accordance with the Company’s Articles of Association. Resolution 7 Election of Alexander McIntosh as Director To elect Alexander McIntosh as a Director who retires at the first AGM following his appointment, in accordance with the Company’s Articles of Association. Resolution 8 Election of Andrea Newman as Director To elect Andrea Newman as a Director who retires at the first AGM following her appointment, in accordance with the Company’s Articles of Association. Resolution 9 Re-Election of Roger Parry as Director To re-elect Roger Parry as a Director, who retires by rotation in accordance with the Company’s Articles of Association. Resolution 10 Re-Election of Benjamin Elliot as Director To re-elect Benjamin Elliot as a Director, who retires by rotation in accordance with the Company’s Articles of Association. Resolution 11 Dividend To declare a final dividend of 3.0 pence per ordinary share to be paid on Monday 17 December 2018 to those shareholders on the register of members as at Friday 7 December 2018. Resolution 12 Directors’ authority to allot shares To generally and unconditionally authorise the Directors (in substitution for all subsisting authorities to the extent unused, other than in respect of any allotments made pursuant to offers or agreements made prior to the passing of this resolution) for the purposes 128 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n of section 551 of the Companies Act 2006 (the “2016 Act”) to exercise all the powers of the Company to allot shares in the Company (“Shares”) and grant rights to subscribe for, or to convert any security into, Shares (“Subscription or Conversion Rights”) up to an aggregate nominal amount of £10,550 provided that this authority shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution or on 31 December 2018, whichever is the earlier, save that the Company may, before such expiry, make an offer or agreement which would or might require Shares to be allotted or Subscription or Conversion Rights to be granted after such expiry and the Directors may allot Shares and grant Subscription or Conversion Rights in pursuance of any such offer or agreement as if this authority had not so expired. Special Resolutions Resolution 13 Authority for disapplication of pre-emption rights That conditional on the passing of Resolution 12 above, that the Directors be and are hereby empowered in accordance with section 570 and section 573 of the Companies Act 2006 to allot equity securities (within the meaning of section 560 of that Act) for cash, either pursuant to the authority conferred by Resolution 12 or by way of a sale of treasury shares, as if section 561(1) of that Act did not apply to any such allotment, provided that this power shall be limited to: (a) the allotment of equity securities in connection with an offer of such securities: (i) to holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings of such shares; and (ii) to holders of other securities as required by the rights of those securities or as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in or under the laws of any territory or the requirements of any regulatory body or any stock exchange; and (b) the allotment (otherwise than pursuant to paragraph (a) above) of equity securities up to an aggregate nominal amount of £10,550 and shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution or on 31 December 2018, whichever is the earlier, save that the Company may before such expiry make offers or agreements which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offers or agreements as if the power conferred hereby had not expired. Resolution 14 Purchase of own shares for market value That the Company be and is hereby generally and unconditionally authorised for the purposes of Section 701 of the 2006 Act to make one or more market purchases (as defined in Section 693(4) of the 2006 Act) on the London Stock Exchange of ordinary shares of 0.2p each of the Company provided that: (a) the maximum aggregate number of ordinary shares hereby authorised to be purchased is 10,549,181 (representing 10% of the Company’s issued ordinary share capital at the date of this notice); and (b) the minimum price (exclusive of expenses) which may be paid for each ordinary share is 0.2p; and (c) the maximum price (exclusive of expenses) which may be paid for each ordinary share will not be more than the price permitted by the Listing Rules of the UK Listing Authority at the time of purchase (which is currently the higher of an amount equal to 105% of the average of the middle market quotations of an ordinary share of the Company, as derived from the Daily Official List of the London Stock Exchange for the 5 business days immediately preceding the day on which such share is contracted to be purchased and an amount equal to the higher of: (i) the price of the last independent trade of an ordinary share; and (ii) the highest current independent bid for an ordinary share as derived from the London Stock Exchange Trading System.) (d) unless previously renewed, revoked or varied, this authority shall continue for the period ending on the date of the Annual General Meeting in 2019 or 31 December 2019, whichever is the earlier, provided that, if the Company has agreed before this date to purchase ordinary shares where these purchases will or may be executed after the authority terminates (either wholly or in part), the Company may complete such purchases. By order of the Board: Tilly Heald Company Secretary 9 October 2018 Registered Office: 50 Featherstone Street, London EC1Y 8RT Registered in England and Wales No. 03607311 129 ADDITIONAL INFORMATION Notes to the Notice of Annual General Meeting Explanatory Notes to the Notice of Annual General Meeting Resolutions 1 to 12 are proposed as Ordinary Resolutions. This means that for each of those Resolutions to be passed, more than half of the votes cast must be in favour of the Resolution. Resolutions 13 and 14 are proposed as Special Resolutions. This means that for each Resolution to be passed, at least three-quarters of the votes cast must be in favour of the Resolution. Resolution 5 – 8 Explanatory Notes Each of the Directors proposed for election in Resolutions 5, 6, 7 and 8 were appointed by the Board during the 12 month period since the 2017 AGM. In accordance with the Articles of Association, each Director is proposed for election by the Shareholders in general meeting. For more information about the Directors’ background and experience, please see pages 42 and 43. Resolution 9 Explanatory Notes Roger Parry, Non-Executive Director and Chair, retires by rotation in accordance with the Articles of Association. Roger was last re-elected at the 2016 AGM. Roger reached nine years’ tenure on the Board as of the 2016 AGM. The Board has confirmed that Roger continues to be effective in, and demonstrates commitment to, his role, including time commitment for Board meetings. The Board is satisfied that Roger continues to be independent in both character and judgement and unanimously recommends his re-election. Resolution 10 Explanatory Notes Benjamin Elliot, Non-Executive Director, retires by rotation in accordance with the Articles of Association. He was last re-elected at the 2016 AGM. Resolution 13 Explanatory Notes Under section 561 of the Companies Act 2006, when new shares are allotted, they must first be offered to existing shareholders pro-rata to their holdings. This Special Resolution renews the authorities previously granted to the Directors to: (a) allot shares of the Company in connection with a rights issue or other pre-emptive offer; and (b) otherwise allot shares of the Company, or sell treasury shares for cash, up to an aggregate nominal value of £10,550 (representing in accordance with institutional investor guidelines, approximately 5% of the share capital in issue as at 5 October 2018 (being the last practicable date prior to the publication of this notice)) as if the pre-emption rights of Section 561 did not apply. The authority granted by this resolution shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution or on 31 December 2019, whichever is the earlier. Resolution 14 Explanatory Notes The Directors consider that it would be appropriate and that it would promote the success of the Company, for the benefit of its members as a whole, to seek authority to make market purchases of its ordinary shares on the London Stock Exchange, up to a limit of 10% of its issued ordinary share capital. The maximum and minimum prices are stated in Resolution 14. Any ordinary shares purchased under this authority may either be cancelled or held as treasury shares. Treasury shares may subsequently be cancelled, sold for cash or used to satisfy options issued to employees pursuant to an employee share plan. The Board have no present intention to exercise the authority to purchase the Company’s ordinary shares, however they consider it prudent to have the authority to do so should it be in the best interests of the Company to undertake a share buy-back upon vesting of the Company’s Long Term Incentive Plan which is due to vest in 2019 (the LTIP 2014). The Directors will keep the matter under review, taking into account the overall financial position of the Company. The authority will be exercised only if the Directors believe that in doing so it is likely to promote the success of the Company for the benefit of its members as a whole. As at 5 October 2018, being the last practicable date prior to the publication of this notice, there were employee share plan options over 7,908,363 ordinary shares in the capital of the Company, which represent 7.5% of the Company’s issued ordinary share capital at that date. This figure of ordinary shares includes both vested and unvested employee share options. If all share options were to vest in full, and authority under this resolution to purchase the Company’s ordinary shares was exercised in full, the proportion of ordinary shares subject to such options would represent 7.5% of the Company’s issued ordinary share capital as at 5 October 2018, being the latest practicable date before publication of this notice. 130 YouGov Annual Report and Accounts 2018 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l s t a t e m e n t s A d d i t i o n a l i n f o r m a t i o n Note on voting procedures 1. Shareholders are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. A proxy form which may be used to make such appointment and give proxy instructions accompanies this notice. If you do not have a proxy form and believe that you should have one, or if you require additional forms, please contact Neville Registrars Limited at Neville House, Steelpark Road, Halesowen, B62 8HD. 2. To be valid any proxy form or other instrument appointing a proxy must be received by post or (during normal business hours only) by hand at Neville Registrars Limited, Neville House, Steelpark Road, Halesowen, B62 8HD no later than 8.30am on Monday 10 December 2018. 3. The return of a completed proxy form, other such instrument or any CREST Proxy Instruction (as described in paragraph 6 below) will not prevent a shareholder attending the Annual General Meeting and voting in person if he/she wishes to do so. 4. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, to be entitled to attend and vote at the Annual General Meeting (and for the purpose of the determination by the Company of the votes they may cast), shareholders must be registered in the Register of Members of the Company at 6.00pm on Monday 10 December 2018 (or, in the event of any adjournment, 6.00pm on the date which is two days before the time of the adjourned meeting). Changes to the Register of Members after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the meeting. 5. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. 6. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with the specifications of Euroclear UK & Ireland Limited (the operator of the CREST system), and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID 7RA11) by 8.30am on Monday 10 December 2018. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. 7. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. 8. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 9. In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that: (i) if a corporate shareholder has appointed the chair of the meeting as its corporate representative with instructions to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting directions to the chair and the chair will vote (or withhold a vote) as corporate representative in accordance with those directions; and (ii) if more than one corporate representative for the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the chair of the meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives (www.icsa.org.uk) for further details of this procedure. The guidance includes a sample form of representation letter if the chair is being appointed as described in (i) above. 131 ADDITIONAL INFORMATION Notes 132 YouGov Annual Report and Accounts 2018 Designed and produced by Radley Yeldar www.ry.com This material used in the publication of this document is carbon balanced. Printed on FSC certified paper. This document is printed on material manufactured at a mill which is ISO14001 accredited. YouGov plc 50 Featherstone Street London EC1Y 8RT T: +44 (0)20 7012 6000 F: +44 (0)20 7012 6001 yougov.com

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