DX (Group) plc
Annual Report and Accounts 2017
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DELIVERED EXACTLYTM
Who We Are
DX is a leading independent parcel, freight,
mail and logistics services company
operating throughout the UK and Ireland.
DX provides next-day or scheduled delivery
services to business and residential
addresses nationwide.
Contents
Strategic Report
Financial Statements
Chairman’s Statement
1 Key Points
2 At a Glance
3
6 Financial Review
9 Key Performance Indicators
10 Corporate Responsibility
12 Principal Risks and Uncertainties
Governance Report
14 Board of Directors
15 Chairman’s Introduction
to Corporate Governance
16 Governance Report
18 Audit Committee Report
19 Nomination Committee Report
20 Directors’ Remuneration Report
23 Directors’ Report
26 Statement of Directors’
Responsibilities
27 Independent Auditor’s Report
31 Consolidated Statement
of Comprehensive Income
32 Consolidated Statement
of Financial Position
33 Company Statement
of Financial Position
34 Consolidated Statement
of Changes in Equity
35 Company Statement
of Changes in Equity
36 Consolidated Statement
of Cash Flows
37 Company Statement
of Cash Flows
38 Notes to the Financial Statements
For more information see
www.dxdelivery.com
Key Points
Revenue
EBITDA1
£291.9m
(2016: £287.9m)
£7.2m
(2016: £18.0m)
Adjusted2 PBT
£nil
Reported LBT
£(82.3)m
(2016: £11.5m)
(2016: £(82.7)m)
Debt (net of cash)
£19.1m
(2016: £9.8m)
Adjusted2 EPS
0.1p
(2016: 4.9p)
Reported LPS
(40.3)p
(2016: (42.1)p)
See summary table in the Financial Review section for reconciliations of alternative performance measures used throughout this
Report and Accounts, as detailed in note 3 to the Accounts.
Financial
Operational
• Revenue of £291.9m (2016: £287.9m).
• EBITDA 1 of £7.2m (2016: £18.0m).
• Adjusted 2 profit before tax and exceptional items of
£nil (2016: £11.5m).
• Exceptional (non-recurring) items of £80.7m (2016:
£92.1 million) – includes goodwill impairment of £72.4m
(2016: £88.4m) and other one-off items relating
principally to property dilapidation provisions,
restructuring and professional costs, and senior
management departures.
• Reported loss before tax of £82.3m (2016: £82.7m).
• Adjusted 2 EPS of 0.1p (2016: 4.9p)/Reported loss per
share of 40.3p (2016: LPS of 42.1p).
• Debt (net of cash) at 30 June 2017 of £19.1m
(2016: £9.8m).
• New financing agreement – see below.
• Focus on addressing operational and financial
underperformance with a wide-ranging review
of the Group’s operations.
• Attrition at DX Exchange declined year-on-year
and was within expected levels.
• Overall new business was 20% higher year-on-year.
– major new contracts signed with Avon and IKEA 3.
• Successfully retained contract with the Home Office.
• Industry-wide shortage of CPC-qualified drivers
remains a pressure.
– mitigating initiatives continue.
Post Period
• New leadership team appointed – Ron Series as Chairman and Lloyd Dunn as CEO.
– Russell Black and Paul Goodson join as Non-executive Directors.
– all Board changes take effect from 19 October 2017.
• New financing provides for a fundraising of £24m (gross) via secured Loan Notes, with conversion rights, subject to
shareholder approval.
– supported by investors, including Gatemore Capital, Hargreave Hale and the new leadership team.
– net proceeds will be used to address a working capital shortfall, capital expenditure and restructuring costs.
• Firm foundations are in place for the Group’s turnaround.
1 Earnings before interest, depreciation, amortisation and exceptional items.
2 Adjusted profit before tax and adjusted EPS exclude amortisation of ‘other intangibles’ and exceptional items.
3 Additional IKEA revenue was won in the year and a major new contract was signed in September 2017.
ANNUAL REPORT AND ACCOUNTS 2017
1
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT At a Glance
DX is a leading independent parcel, freight, mail and logistics services company
operating throughout the UK and Ireland. DX provides next-day or scheduled delivery
services to business and residential addresses nationwide.
Parcels and Freight
DX 1-Man
Our ‘closed network’ operation handles
a wide variety of consignments, including
pallets, parcels and items up to 6 metres
and ensures that the integrity of each
delivery is maintained. We specialise in
the delivery of irregular-shaped and
heavy weight freight items, carrying
consignments such as lamp posts and
canoes, which are often unsuitable for
the majority of parcel carriers.
For the UK, DX offers next-day
deliveries including pre-9.30am,
pre-12pm and end-of-day delivery
options. The DX 1-Man service also
offers an international service for both
outbound and inbound deliveries.
Mail and Packets
DX Exchange
DX Exchange is a bespoke B2B mail
and parcel delivery network offering
pre-9am delivery and post-5pm
collection. It is made up of approximately
4,000 exchanges across the UK and
Ireland, which contain approximately
23,000 customer boxes. Users do not
need to size, weigh or frank items. They
simply add the recipient’s DX address
and deliver the consignment to their
local exchange. With added tracked
services, including tracked specimen
for the health sector, DX Exchange
provides a secure, daily network, which
is mainly used by the legal, financial
and public sectors. It is also used as
a site-to-site internal mail network.
Logistics
Approximately two-thirds of the items
we deliver are to business locations,
with the remainder delivered to
residential addresses.
DX Courier
This is our fully tracked next-day
delivery service, transporting packets,
parcels and pouches mostly for the
business-to-business (“B2B”) market.
Our couriers are primarily collecting
and delivering to branch networks, high
streets, industrial areas and government
premises. We offer pre-9am, pre-10.30,
pre-12pm and end-of-day delivery
options as well as specialist services
for companies in the pharmaceutical,
healthcare, optical and retail sectors,
and organisations in the public sector.
DX 2-Man
DX 2-Man specialises in delivering larger
and heavier consumer products such
as sofas, beds, bathrooms, kitchens and
garden furniture. Our service includes
delivery to a customer’s ‘room of
choice’, whether that is upstairs in their
home or to their garage or garden.
Customers can choose at the point
of order which day is most convenient
to receive their delivery and we offer
a further text booking service for added
flexibility. We keep customers updated
with the progress of their delivery
through a text or email and, on the
day of delivery, customers receive
a call from one of our 2-Man crew
ahead of final delivery.
DX Secure
Our secure courier delivery service
operates with the highest levels of
security in place. There are a number
of delivery options, including pre-1pm,
end-of-day and three-day delivery
and customers are informed about
the progress of their deliveries through
text and email. To ensure a fully audited
delivery trail, we use photographic and
GPS evidence of delivery, with signature
capture. Our online system tracks
items and enables the rescheduling of
deliveries. DX Secure is ideal for high
volume despatches of sensitive or
valuable items or for customers looking
for extra oversight of their deliveries.
DX Mail
DX Mail takes advantage of mail
deregulation (Downstream access)
and collects postcode-addressed mail
from customers. It moves collected
mail swiftly through our network,
handing it over for ‘final mile’ delivery
to the UK’s national mail operator.
Our service can offer significant cost
savings to customers’ postal budgets
and provides an extended time window
along with reduced mail preparation
time and online ordering.
DX Logistics
DX Logistics provides a complete
range of supply chain solutions serving
customers across all sectors of the UK.
We are able to develop solutions that
are as individual as our customers’
businesses. Working with dedicated
liveried fleets and uniformed drivers or
on shared platforms, DX Logistics offers
international movements and third
party logistics capability and can
manage the entire end-to-end supply
chain. In short, it provides the expertise,
agility and flexibility to deliver solutions
that fit our customers’ needs and
strengthens their strategic plans.
After the year end, the Group was reorganised into two divisions, DX Express and DX Freight. Under the new structure, the DX Express
division consists of DX Exchange, DX Secure, DX Courier and DX Mail activities while the Group’s DX Logistics, DX 1-Man and DX 2-Man
products now form the DX Freight division.
2
Chairman’s Statement
An especially challenging period but firm foundations
are now in place for recovery, supported by a new
leadership team.
Introduction
The year under review to 30 June 2017
and the first few months of the new
financial year have been an especially
challenging period for the Group, as we
have previously highlighted.
Since the beginning of the calendar year,
the Group has been addressing operational
and financial underperformance, and also
initiated a wide-ranging review of the
Group’s operations. As well as focusing
on internal measures to strengthen the
business, which included the appointment
of a number of senior executives, the
review also had an external element.
As we announced at the end of March
with our interim results, we entered into
discussions with John Menzies plc
(“John Menzies”) about a potential
combination of DX with its Distribution
division, reaching outline terms for a
possible agreement.
While these discussions were a primary
focus, we continued to move forward
with operational initiatives and, after the
financial year end, in mid-July, we took
the strategic decision to reorganise the
business to create two separate divisions,
DX Express and DX Freight, and,
effectively no longer pursue the ‘OneDX’
strategy. Simplifying the Group’s structure
like this allows us to both drive service
improvements and control costs more
efficiently. At the same time, Chief
Executive, Petar Cvetkovic, and Finance
Director, Daljit Basi, stepped down from
the Board, and we appointed an interim
Chief Financial Officer.
Negotiations with the Board of John
Menzies ended in mid-August, when the
DX Board concluded that it would be
unable to agree suitable terms, and that
it was in the best interest of shareholders
to proceed with business transformation
on a stand-alone basis. At that point,
we also reported that the Group was in
advanced discussions with Ron Series,
regarding his possible appointment as
Chairman, and with three other potential
new directors.
On 9 October, we were delighted to
announce the appointment of Lloyd Dunn
as Chief Executive Officer, and I am very
pleased to confirm today that Lloyd is
joining the Board, together with Ron
Series, who assumes the role as Chairman
and Russell Black and Paul Goodson
who both join as Non-executive Directors.
As planned, Non-executive Director,
Paul Murray, and I are retiring from the
Group, with Ian Gray remaining as a
Non-executive Director. All these Board
changes take immediate effect. This is an
outstanding new leadership team for DX
and they will be supported by our very
capable senior management team.
I am also delighted to announce today
that, subject to shareholder approval,
we have finalised the £24.0 million (gross)
fundraising, also reported on 9 October.
The fundraising will be effected via the
issuance of secured Loan Notes, with
conversion rights, primarily to existing
institutional investors and the Group’s
new Directors. It places the Group in
a very good position to proceed with its
stand-alone strategy. Full details on the
fundraising are provided in the Financial
Review and the Notes to the Accounts.
While navigating the last few months has
not been easy for the Group, I am leaving
DX with a team that I am confident will
build strong foundations for DX’s future
growth and successful turnaround.
Financial Results
Revenue for the year to 30 June 2017
was £291.9 million (2016: £287.9 million),
with the 1.4% revenue increase largely
reflecting strong growth in logistics and
a 12-month contribution, of £4.7 million,
from The Legal Post (Scotland) Limited
(“Legal Post”) and First Post Limited
(“First Post”) (2016: £0.5 million),
acquired in May 2016, offset by a decline
in other revenues, principally DX Exchange.
As we previously reported, the Group’s
profitability for the year was severely
impacted by a number of factors. These
included pricing pressures and margin
“The new Board
will be undertaking
a thorough review
of all the Group’s
operations and
expects to provide
an update on first
half trading in
early 2018 and to
comment more fully
on turnaround plans
and expectations
with the Group’s
interim results.”
ANNUAL REPORT AND ACCOUNTS 2017
3
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Chairman’s Statement
continued
deterioration from an adverse change
in revenue mix, with higher margin
operations underperforming. The effect
of this was magnified by the relatively
fixed cost nature of certain networks.
The Group also experienced operational
difficulties relating to a major site
integration programme. As a result,
earnings before interest, tax, depreciation,
amortisation and exceptional items
(“EBITDA”) reduced to £7.2 million (2016:
£18.0 million) and the underlying results
from operating activities decreased to
£1.1 million (2016: £11.9 million) after
depreciation and amortisation of software
and development costs, which totalled
£6.1 million (2016: £6.1 million). Underlying
results from operating activities represents
an alternative performance measure as
referred to in note 3 to the Accounts, see
summary table in the Financial Review
section for reconciliation to reported loss
for the year.
The Group has incurred £80.7 million
of exceptional items (2016: £92.1 million),
with the majority of this being an
impairment charge of £72.4 million,
following a review of goodwill, in
accordance with the requirements of
IAS 36, ‘Impairment of assets’ (2016:
£88.4 million).
Adjusted earnings per share, which
excludes amortisation of intangibles and
exceptional items, was 0.1p (2016: 4.9p).
Reported loss per share was 40.3p
(2016: loss per share of 42.1p).
There was a cash outflow from operating
activities in the year of £2.0 million
(2016: inflow of £10.7 million), and capital
expenditure amounted to £4.4 million
(2016: £6.5 million). Debt (net of cash)
at 30 June 2017 was £19.1 million (2016:
£9.8 million), reflecting the reduction in
EBITDA as well as certain exceptional items.
Dividends
As announced on 7 February 2017, the
Board took the decision to suspend the
payment of dividends for the foreseeable
future in light of the Group’s financial
performance and increased level of debt.
This policy will be kept under review.
Review of Operations
The trading environment remained
tough over the year, with a number
of our operations experiencing greater
competitive pressures. The shortage of
CPC-qualified drivers for heavy goods
vehicles, highlighted previously, continues
to be an industry-wide problem. The
mitigating steps we have taken, including
the adoption of new, smaller, 3.5 tonne
custom-built vehicles, have helped to
ease this pressure, although we are
continuing to look at additional measures
to tackle the problem.
One of the priorities over the year was DX
Exchange, which generates higher margin
revenues. While this unique activity is in a
structural decline, nonetheless, it remains
an important resource for customers, and
we renewed our focus on customer
service levels.
We have also reinforced DX Secure’s
market-leading credentials as a highly
secure delivery service, gaining the Cyber
Essentials Plus certification as well as
retaining ISO27001 Information Security
certification. As previously reported, we
were very pleased to renew our contract
with the Home Office for secure delivery
services and remain focused on growing
this area of our business.
Our logistics operation continued to grow
strongly and is well-placed for growth as
a mid-sized operator in the sector. Our
ability to add additional services, together
with our network of distribution centres,
enables us to differentiate our offering to
customers and gives us extra leverage.
The level of new business secured over
the year was 20% up on last year, which
was encouraging. However, there were
service performance issues which held
back some of our operations. Going
forward, with the strengthened team
and renewed operational and strategic
focus, we expect to ensure consistency
in service performance as well as to
continue to drive new business.
Parcels & Freight
Parcels & Freight comprises three core
services: DX 1-Man, specialising in irregular
dimension and weight (“IDW”) items;
DX Courier, providing next-day parcel
services mostly for the B2B market; and
DX 2-Man, offering a B2C home delivery
solution for heavier and bulkier items.
Revenues from parcels and freight
activities were steady year-on-year at
£160.3 million (2016: £159.3 million) and
accounted for 55% of overall income.
While there was an overall good level of
new business secured over the year, both
from new and existing customers, the
operations experienced service issues and
some aggressive tactical market pricing,
which resulted in the loss of some business.
Our DX 1-Man and DX Courier services,
in particular, were affected by this, and
revenues across each activity decreased
slightly. However, DX 2-Man revenues
grew strongly, driven by additional
business from existing customers and
strong new business flow through from
the prior year, although this market
remains competitive.
We are continuing to focus on operational
improvements and on initiatives to improve
the customer experience.
Mail & Packets
Mail & Packets encompasses our DX
Exchange service, a B2B mail service
providing customers with extended
collection and delivery times, as well as
DX Secure, which provides market-leading
levels of security and DX Mail, a low cost
mail service offering Downstream access
for smaller volume users.
Mail & Packets generated revenue of
£113.4 million (2016: £113.8 million) and
accounted for 39% of the Group’s total
income. This result included a first full
year’s contribution from Legal Post and
First Post, although revenue of £4.7 million
was slightly behind expectations. The
shortfall was largely in First Post activities,
which provides a Downstream access mail
service in Scotland. DX Exchange, which
generates the largest and most profitable
revenue contribution across this segment,
continued to suffer from volume erosion.
As previously reported, we expect
volumes to continue to decline, driven by
the impact of digitalisation. Nonetheless,
the service remains valued by customers
across its core sectors of legal, financial,
government and healthcare.
The integration of the assets of Legal
Post and First Post with the Group’s
existing operations in Scotland was halted
by an Initial Enforcement Order served by
the Competition & Markets Authority
(“CMA”) in early July 2016, after the CMA
instigated a review into the acquisition.
4
However, the businesses have since been
fully integrated following a lifting of this
order in September 2016.
Towards the end of November 2016, we
were delighted to report that DX had
successfully retained its contract with the
Home Office covering secure delivery
services for Her Majesty’s Passport Office
(“HMPO”), UK Visas and Immigration,
National Crime Agency and General
Register Office. The contract is for an
initial two years and may be extended by
up to two years. The contract helped to
underpin DX Secure’s revenues for the
year, which showed a small increase
compared to the prior year.
Logistics
DX Logistics offers a full outsourcing
service to companies seeking to
outsource their vehicle fleet operations
and can draw on its wider operations
to add further services.
Revenue from logistics services increased
by 23% to £18.2 million (2016: £14.8 million)
and accounted for 6% of the Group’s
total revenues. The strong revenue
growth reflected a number of major
contract wins, including with Avon UK,
signed in February 2017, as well as
continuing expansion of our successful
relationship with IKEA Limited (“IKEA”).
At the end of September 2017, we
announced that we had agreed a major
new contract with IKEA, which takes the
total value of our work with this retailer
to approximately £19 million on an
annualised basis.
We expect Logistics to continue to grow
strongly as we capitalise on DX’s position
between the larger third party operators
and the smaller players in the sector.
Revenue
Costs
EBITDA
Express
£m
170.5
(143.0)
Freight
£m
121.4
(139.7)
27.5
(18.3)
plc
£m
–
(2.0)
(2.0)
Group
£m
291.9
(284.7)
7.2
Business Reorganisation
After the year end, in July 2017, we took
the decision to reorganise the business
and created two divisions, DX Express
and DX Freight.
The move to create two distinct divisions
brings a number of advantages and
also preserves future strategic options.
Importantly, it immediately enables us to
manage costs more flexibly and to drive
new operational and sales initiatives more
easily. We expect this to directly benefit
service levels and customer experience.
Under the new structure, the DX Express
division consists of DX Exchange, DX
Secure, DX Courier and DX Mail services
while the Group’s DX Logistics, DX 1-Man
and DX 2-Man services now form the DX
Freight division. Whilst the Annual Report
and Accounts for the year ended 30 June
2017 have not been prepared on a
divisionalised basis, the table above
shows a pro forma EBITDA contribution
(unaudited) by division based on
management estimates.
It is recognised that the turnaround of the
DX Freight division is the key challenge
facing the business. The experience that
the new Board brings will be instrumental
in achieving this turnaround.
As previously announced on 1 March 2017,
we are not proceeding with plans for a
major new hub in Essington in the West
Midlands after our planning appeal and
presentation of revised plans were declined.
The Board and Leadership Team
On 9 October, we were very pleased to
announce that Lloyd Dunn had been
appointed as Chief Executive Officer
although in a non-Board capacity for an
interim period before joining the Board.
In addition, on that date we confirmed
that I will be handing over the role of
Chairman to Ron Series, and that Russell
Black and Paul Goodson will join the Board
as Non-executive Directors. As previously
mentioned, these Board changes are
immediately effective. Biographies for
the new Board Directors are shown on
page 14.
Summary and Outlook
The year’s results and trading at the
beginning of the new financial year
have been affected by both external
and internal challenges. However, the
Group’s prospects have been significantly
transformed by the appointment of the
new leadership team, headed by Ron
Series as Chairman and Lloyd Dunn as
CEO, and by the major new fundraising
we have agreed. I am confident that the
new team will ably drive the turnaround
of the business.
The new Board will be undertaking
a thorough review of all the Group’s
operations and expects to provide an
update on first half trading in early 2018
and to comment more fully on turnaround
plans and expectations with the Group’s
interim results.
Bob Holt
Chairman
ANNUAL REPORT AND ACCOUNTS 2017
5
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT
Financial Review
New financing, agreed post period, provides firm
foundations for business turnaround.
Summary
Revenue of £291.9 million is 1.4% ahead
of prior year’s result, largely due to strong
growth in Logistics as well as a full year’s
revenue contribution from Legal Post
and First Post, acquired in May 2016.
These increases were partly offset by
the anticipated decline in DX Exchange
revenue along with pricing pressures
impacting other services, in particular
the 1-Man service. A major new logistics
contract was secured with Avon worth
in excess of £10 million per annum, with
the contract coming fully on stream
at the end of March 2017. Its benefits
will therefore be more fully felt in the
new financial year.
Underlying results from operating activities
was £1.1 million (2016: £11.9 million profit).
This is stated before exceptional items
of £80.7 million, including a non-cash
item of £74.4 million, mostly relating to
the impairment of goodwill.
During the year, the Group paid dividends
of £3.0 million (2016: £10.0 million). Debt
(net of cash) at 30 June 2017 was £19.1
million (2016: £9.8 million). Operating cash
flow was £2.0 million outflow (2016: £10.7
million inflow) and capital expenditure
was £4.4 million (2016: £6.5 million).
Revenue by Segment
A breakdown of Group revenue is shown
below and a review of each segment’s
performance is provided in the
Chairman’s Statement:
Parcels and freight
Mail and packets
Logistics
Revenue
2017
£m
2016
£m
160.3 159.3
113.8
113.4
14.8
18.2
291.9 287.9
2017
£m
Trading
2017
£m
Exceptional
2017
£m
Total
2016
£m
Total
EBITDA
Earnings before interest, tax, depreciation,
amortisation and exceptional items
(“EBITDA”) for the year to 30 June 2017
was £7.2 million (2016: £18.0 million).
Revenue
291.9
Earnings before interest, tax,
depreciation and amortisation
(“EBITDA”)
Depreciation
Amortisation of software and
development costs
Underlying results from
operating activities
Amortisation of other intangible assets
Exceptional items
Reported results from
operating activities
Net finance costs
Share of results from associate
Loss before tax
Tax
Loss for the year
Foreign currency translation differences
Total comprehensive expense
for the year
EPS – adjusted (pence) 1
EPS – basic (pence)
–
–
–
–
–
–
(80.7)
(80.7)
–
–
(80.7)
1.0
7.2
(2.9)
(3.2)
1.1
(1.6)
–
(0.5)
(0.9)
(0.2)
(1.6)
0.2
(1.4)
–
291.9
287.9
As previously noted, a number of the
operations experienced significant
competitive pressures.
7.2
(2.9)
(3.2)
1.1
(1.6)
(80.7)
(81.2)
(0.9)
(0.2)
(82.3)
1.2
18.0
(3.0)
(3.1)
11.9
(2.1)
(92.1)
(82.3)
(0.5)
0.1
(82.7)
(1.7)
A significant cost pressure for DX is from
driver resourcing issues. This continues to
drive a two-fold impact on DX’s cost base,
with more expensive agency drivers being
used, as well as smaller, less efficient transit
vans in place of goods vehicles. In addition,
further costs of £0.6 million were incurred
relating to the co-location of five sites into
one at Swanley, which had a knock-on
impact on service levels.
The decline in DX Exchange revenues
materially impacted profitability, since the
service is supported by a largely fixed cost
base. While we continue to expect volume
erosion, reflecting the continuing trend
towards digitalisation, we are seeking ways
to minimise it and to improve service.
(79.7)
(81.1)
(84.4)
–
–
(0.1)
(1.4)
(79.7)
(81.1)
(84.5)
0.1
(0.6)
(39.7)
(40.3)
4.9
(42.1)
Profit was also adversely affected by
pricing pressures, aggressive tactical
market pricing from competitors,
and some operations experiencing
service issues.
1 Adjusted EPS excludes amortisation of other intangible assets.
6
Exceptional Items
Exceptional items for the year totalled
£80.7 million (2016: £92.1 million) and are
summarised below.
The largest exceptional charge comprised
a non-cash item of £72.4 million which
followed a review of goodwill, in
accordance with the requirements of IAS
36 ‘Impairment of assets’. The ‘value-in-
use’ method used in the review supported
a carrying value of £30.0 million and
therefore an impairment of £72.4 million
was recognised. See note 9 to the
financial statements for further details.
Impairment charges also include
a £2.0 million impairment charge to
the Group’s non-controlling interest
in associate Gnewt Cargo Limited
(“Gnewt”). This followed a period of
challenging trading for Gnewt and
subsequent to the year end on 31 August
2017 the Group disposed of its interest
in Gnewt for £1.
Restructuring, professional costs and
other, includes transaction fees relating
to the proposed reverse takeover of the
Distribution division of John Menzies plc
and refinancing costs.
Property dilapidation provisions have
been made for dilapidation costs in
respect of leasehold properties that we
have vacated or where there is a possible
exit within two years.
Costs incurred as a result of senior
management departures amounted
to £1.0 million.
As previously reported, in July 2016 the
Competition & Markets Authority (“CMA”)
commenced a review of the acquisitions
of Legal Post and First Post, serving an
Initial Enforcement Order at the same
time, which halted our integration
process. This order was revoked in
September allowing us to recommence
the integration process. The Group
incurred £0.6 million of costs in the
period as a result of this process.
One-off additional auto enrolment costs
are in relation to the underpayment
of contributions in the financial years
30 June 2014 to 30 June 2016.
Prior to the end of the financial year,
the Group was notified of a VAT refund
arising from a long-standing dispute
with HMRC in respect of VAT paid on
professional fees. Amounts of £1.0 million
were received subsequent to the year end.
Net Assets
Net assets decreased by £84.1 million
largely as a result of the recognition of
the impairment charge against goodwill
reflected in non-current assets.
2017
£m
2016
£m
74.4
88.4
Impairment charges
Property dilapidations
provision
Restructuring,
professional costs
and other
Senior management
departures
CMA investigation
Additional auto
enrolment costs
VAT refund
Planning and
acquisition costs
on proposed hub
Share-based payments
accelerated charge
2.8
2.6
1.0
0.6
0.3
(1.0)
–
–
Exceptional items (net) 80.7
Cash Flow
2017
£m
Net cash profit (note 26) 0.7
Net change in working
–
–
–
–
–
–
3.3
0.4
92.1
2016
£m
14.6
capital
Interest paid
Tax paid
Net cash from
(0.7)
(0.6)
(1.4)
0.1
(0.4)
(3.6)
operating activities
(2.0)
10.7
Cash outflow from operating activities
(after tax) of £2.0 million resulted from
lower EBITDA and exceptional items.
However, DX maintained its excellent
performance on debtor days which at
28 days remains very strong. There was
a £0.7 million worsening in working
capital where an increase in payables
was offset by an increase in receivables
and a reduction in deferred income as
the DX Exchange subscriptions declined.
Non-current assets
Current assets
excluding cash
Net cash
Invoice discounting
facility
Revolving credit facility
Current liabilities
excluding debt
Non-current liabilities
excluding debt
Term loan
Deferred loan issue
costs
Net assets
2017
£m
2016
£m
52.1
133.9
48.6
2.0
39.1
4.3
(15.3)
–
–
(6.5)
(59.7) (60.1)
(6.3)
(5.8)
(3.2)
(7.6)
0.4
0.2
16.0 100.1
Debt (Net of Cash)
Debt (net of cash) at 30 June 2017 stood
at £19.1 million (2016: £9.8 million) as a result
of lower EBITDA and exceptional items.
During the year, refinancing terms
to 30 September 2018 were agreed,
including replacing the revolving credit
facility with an invoice discounting facility.
The Group expects to extend the term of
the invoice discounting facility in the new
financial year.
As previously reported, subsequent to
the year end, on 29 September 2017 the
Group completed a sale and leaseback of
five freehold properties for an aggregate
cash consideration of £4.5 million. At the
same time, the Group entered into an
unsecured loan agreement with GCM
Partners II, a fund controlled by DX’s
major shareholder Gatemore Capital
Management LLP (“Gatemore”), for a loan
to the Group of £2.0 million. The proceeds
from the sales and loan were used to repay
the £5.8 million bank term loan in full.
ANNUAL REPORT AND ACCOUNTS 2017
7
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT
Dividends
In light of current trading and, in line
with our statement in our trading update
on 7 February 2017, the Board will not
be recommending the payment of
dividends for the foreseeable future.
However, this policy will be kept under
review as appropriate.
Financial Review
continued
In addition, as announced on 9 October
2017 the Group reached an agreement
on legally binding heads of terms for a
£24.0 million (gross) fundraising through
the issue of secured Loan Notes, with
conditional conversion rights, principally
to existing institutional investors and the
Group’s new Directors.
The Loan Notes are being issued in two
tranches: Tranche 1 of £16.3 million will
be issued to Gatemore and the new
Directors today. The issue of Tranche 2 of
£7.7 million is conditional upon, agreeing
an inter creditor agreement with the
bank which the Directors are confident
of receiving, and, on DX shareholder
approval of the conditional conversion
rights which will be sought as soon as
reasonably practicable and, in any case,
by no later than 31 December 2017.
The Loan Notes will have a term of
36 months. Subject to shareholder
approval, the conditional conversion
rights attaching to the Loan Notes will
be crystallised and the convertible Loan
Notes would be capable of conversion
into ordinary shares of DX, at 10 pence
per new DX share.
The aggregate issue of Loan Notes
includes the refinancing of the £2.0
million unsecured term loan from
Gatemore as noted above. The net funds
raised will be used to meet the Group’s
near term material funding requirements,
addressing a working capital shortfall,
as well as capital expenditure and
restructuring costs. The Loan Notes are
not to be used for acquisitions or any
other material capital item. Further details
of the Loan Notes are included in notes 2
and 22 to the financial statements.
Term loan
Cash and cash
equivalents
Invoice discounting
facility
Revolving credit facility
Debt (net of cash)
2017
£m
5.8
2016
£m
7.6
(2.0)
(4.3)
15.3
–
19.1
–
6.5
9.8
Capital Expenditure
We have continued to invest in the
business although, in light of reduced
profits, capital expenditure was lower
than in the prior year.
IT hardware and
development costs
Property costs
Operations
Service development
Total capex
2017
£m
2016
£m
1.3
1.4
0.7
1.0
4.4
3.2
1.6
1.2
0.5
6.5
Taxation
The effective tax rate for the year (on the
results before exceptional items) was less
than the prevailing 19.75% (pro rata) UK
corporation tax rate. This reflects the
impact of capital allowances from the
long-term capital investment programme
and is because some of the profit derived
in the year is from DX’s operations in
Ireland and therefore bears a lower rate
of corporation tax.
Earnings Per Share
Adjusted earnings per share, which
excludes amortisation of intangibles and
exceptional items, was 0.1p (2016: 4.9p).
Results from operating
activities before
exceptional items
Add back/(deduct):
– Amortisation of
intangibles
– Finance costs
– Share of results
from associates
Adjusted profit
before tax
Tax
Adjusted profit
after tax
Adjusted earnings
per share (pence)
Basic earnings per
share (pence)
2017
£m
2016
£m
(0.5)
9.8
1.6
(0.9)
2.1
(0.5)
(0.2)
0.1
–
0.2
11.5
(1.7)
0.2
9.8
0.1
4.9
(0.6)
3.8
8
Key Performance Indicators
DX uses key performance indicators
(“KPIs”) to assess the development
and underlying business performance
of the Group. These KPIs are reviewed
periodically to ensure they remain
appropriate and meaningful measures
of the Group’s performance.
See summary table in the Financial
Review section for reconciliations of
alternative performance measures used
throughout this Report and Accounts,
as detailed in note 3 to the Accounts.
Revenue
£291.9m
(2016: £287.9m)
EBITDA
£7.2m
(2016: £18.0m)
Cash (Outflow)/Generation
(from operating activities)
£(2.0)m
(2016: £10.7m)
Debt (net of cash)
£19.1m
(2016: £9.8m)
Reported LPS
(40.3)p
(2016: (42.1)p)
Adjusted EPS
0.1p
(2016: 4.9p)
ANNUAL REPORT AND ACCOUNTS 2017
9
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT “DX has improved
its accident
reporting processes
and is now able to
capture and report
accidents more
effectively.”
Corporate Responsibility
Our commitment to Corporate Social Responsibility
(“CSR”) has yielded continued improvements through
tighter controls and management.
Environment
The DX environmental strategy focuses
on reducing our carbon footprint by
accurately assessing our impact on the
environment and then concentrating
on improving our practices to minimise
that impact.
The logistics industry has an unavoidable
impact on the environment, which we
aim to minimise by utilising leading
technological advancements and innovation
in our fleet. Much of our focus and efforts
to reduce our impact on the environment
centre on vehicle efficiency and route
optimisation. We have commissioned the
design of our own, bespoke 3.5 tonne
vehicles in order to reduce fuel emissions
while maximising payload. Following
successful trials, DX placed an order for
55 of these vehicles in 2017. In addition to
the environmental benefits, these will help
relieve the impact of the CPC-qualified
driver shortages.
DX’s Environmental Management System
operates under ISO 14001:2016 certification.
We are now seeing consistent reductions
in our carbon footprint (Scope 1 and 2),
as shown in the table below. In the 2017
financial year, our carbon footprint has
reduced to 29,146 tonnes in CO2 emissions,
which represents a 10% reduction
compared to the previous year. The
reduction is almost exclusively related
to improved efficiencies within our
commercial vehicle fleet, both in
respect of design standards and route
optimisation programmes.
Health and Safety
DX has improved its accident reporting
processes and is now able to capture
and report accidents more effectively.
This is primarily a result of a simplification
of accident reporting, improved
engagement with managers (through
safety training and risk review visits), and
a more focused approach at the Central
Hub. The absolute number of accidents
reported has increased as a result of
these improved processes. However, we
have also seen a significant drop in more
serious accidents and liability claims.
This reflects our efforts towards more
effective implementation of risk controls.
As a consequence, the risk profile of the
business has improved considerably.
Overall, the number of accidents reported
in FY17 increased by 17% year-on-year.
However, the number of more serious
accidents reported under the RIDDOR
Regulations (Reporting of Injuries,
Diseases and Dangerous Occurrences)
has fallen by 36% in the same period.
Going into the next financial year, we
anticipate a continuation of this general
trend, with a higher number of minor
accidents contributing to a rise in overall
accident reports, while the number of
serious accidents and claims declines.
Our primary area of focus is on the
Central Hub, where we have recruited
a new SHE Officer, implemented a new
Risk Review and Risk Assessment Process
for every Service Centre, introduced
a new Employee and Agency Safety
Handbook, and delivered Managers’
Safety Awareness Training to embed the
new DX Safety Standard. We believe that
the combined effect of these processes
is now clearly translating into reduced
risk across the network.
2014
2015
%
Change
2016
%
Change
2017
%
Change
CO₂ emissions
(tonnes)
38,259
35,692
-7% 32,346
-9% 29,146
-10%
CO₂ emissions
-10%
29,146 tonnes
10
Over the year under review, every
Service Centre was visited to conduct
and document new operational risk
assessments. An intrinsic component of
this process was the completion of Risk
Reviews (a SHE Audit) to benchmark
performance and help facilitate a
transition to the new DX Safety Standard,
which was set out in the form of our new
‘DX Managers’ Guide to Safety Standards’
at the start of the financial year. We took
the decision to use this opportunity
to provide a ‘hands-on’ approach to
auditing, to assist with the migration
to new and more simplified working
practices. As a consequence, whilst
scores and benchmarks were obtained
to enable risk profiling, these were not
formally published. The data has instead
been used to ensure a more targeted
approach to reducing risk in the future.
Road Safety
DX is committed to the highest standards
of road safety and holds a Transport
Management Board which consists of the
Executive Team and Operating Centre
licence holders. The Board meets on a
regular basis to discuss and review road
safety. We work with The Royal Society
for the Prevention of Accidents to deliver
training and qualifications to our driver
trainers. We are continuing to roll out
new initiatives and technology and are
completing the installation of state-of
the-art cameras in our 7.5 tonne and
new 5 tonne vehicles in the freight
operation. These cameras have already
shown they help to reduce incidents
and improve safety.
ANNUAL REPORT AND ACCOUNTS 2017
11
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Principal Risks
and Uncertainties
The Board recognises that the risks faced by the Group change and it regularly assesses
risks in order to manage and mitigate any impact. The Board has identified the following
risks as the primary risks to the Group’s successful performance:
Risk
Impact
Mitigation
Letter and
parcel volumes
in the UK
Market Risk
The market for letters is in structural decline and if the
decline of letter volumes in the UK is at a faster rate
than forecast or the growth in parcel volumes are lower
than DX forecasts (or DX fails to maintain or increase its
share of the parcel markets in which it operates), there
may be a material adverse effect on DX’s operations
and future financial condition. Low levels of economic
growth may also affect the business of DX, including
customers adopting cheaper service options for the
transmission of letters and parcels.
The parcel market
in which DX
operates is highly
competitive
Price Risk
The parcels market is highly competitive and DX
may be adversely affected by aggressive pricing
strategies. DX faces risks associated with the
expansion of ‘click and collect’ in the UK parcel
market and the increasing use of ‘pick up/drop
off’ points in high street shops and other
locations, which may lead to a reduction in
parcel volume delivered by DX.
IT systems
are critical to
DX’s business
operations
Operational Risk
Confidential and
sensitive items
Operational Risk
Any material failure in DX’s IT applications,
systems, certain key suppliers and infrastructure
may lead to operational and systems disruptions,
with an adverse effect on DX’s operations,
financial condition and future prospects. While
its software is being updated, DX’s operational
effectiveness could be impaired if its existing
bespoke software failed.
DX collects, sorts and delivers a range of
confidential and sensitive letters and parcels for
a variety of customers, including government
departments, local authorities and examination
boards. If confidential consignments were to be
misplaced, the reputation and brand of DX may
be adversely affected. If a high-profile incident
of this nature arose the existing or potential
customers may be unwilling to use DX for the
delivery of confidential or sensitive items.
DX seeks to win business in new
sectors and develop new services,
recognising the general move to
digital and electronic alternatives.
DX seeks to provide high levels of
customer service at prices that offer
customers best value. It also seeks to
maintain strong relationships with major
customers and develop new services,
such as DX Parcel Exchange, in response
to customer needs. The Group offers
a broad range of services within the
parcels market and is seeking to increase
its penetration within these sub-sectors.
DX has a business continuity plan in the
event of IT systems failure and further
investment is being made to enhance
capability. Further protections are in place
to defend DX’s systems against attacks.
These protections are to a level acceptable
to government departments. Prior to new
systems going live, DX conducts significant
testing in non-live environments.
All staff are fully vetted. All parcels
processed through our secure network
are tracked from end to end.
12
Risk
Impact
Mitigation
The DX network requires the use of 7.5 tonne
vehicles which must be driven by CPC-qualified
drivers. A shortage of such drivers would impact
the ability of DX to operate its network and
this could have a material adverse effect on
DX’s results of operations, financial condition
and prospects.
DX is re-profiling its fleet of vehicles
to reduce the reliance upon 7.5
tonne vehicles.
DX uses a large number of consultants, individual
sub-contractors and agency workers. In the event
of any legal claim as to worker status, DX could
be liable for increased costs (such as National
Insurance contributions) and liabilities (such as
employee rights), which could have an adverse
effect on its financial condition.
DX puts appropriate contractual and
operational arrangements in place.
DX continues to monitor cases to
ensure that it maintains compliance
with legislation.
Driver Certificate
of Professional
Competence
(“CPC”)
Operational Risk
Certain DX
consultants and
agency workers
could be deemed
to be employees
of DX
Liquidity Risk
By order of the Board
Bob Holt
Chairman
19 October 2017
ANNUAL REPORT AND ACCOUNTS 2017
13
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT James Hayward was appointed as Interim
Chief Financial Officer as of 14 July 2017.
This role is currently not a Board
appointment but James attends monthly
Board meetings.
OTHER BOARD CHANGES:
PETAR CVETKOVIC 3
CHIEF EXECUTIVE OFFICER
Petar stood down from the Board and left
the business on 14 July 2017.
IAN PAIN
CHIEF FINANCIAL OFFICER
As reported on 14 July 2016, Ian decided
to step down from his role and the
Board to pursue new opportunities. Ian
remained with the Group until the end
of October 2016 to ensure an orderly
handover to Daljit Basi, Finance Director,
who was promoted to the Board on
21 September 2016.
DALJIT BASI
FINANCE DIRECTOR
Daljit Basi was appointed as Finance
Director on 21 September 2016 in place
of Ian Pain. Daljit joined DX in 2012 as
Financial Controller and previously held
senior financial roles at divisional level
at Rentokil Initial Plc, TUI UK and John
Menzies plc. Daljit qualified at Baker Tilly
in London. Daljit stood down from the
Board on 14 July 2017.
Board of Directors
BOB HOLT 1,2,3
NON-EXECUTIVE CHAIRMAN
Bob joined DX as a Non-executive
Director, before becoming Chairman in
2014. He is also chairman of Mears Group
PLC, the support services group focused
on social housing and domiciliary care
services, having overseen the company’s
admission to AIM and subsequent listing
on the Main Market of the London Stock
Exchange. He is executive chairman of
Lakehouse plc, the asset and energy
support services group. He is also
non-executive chairman of Totally Plc
and is a director of a number of other
businesses. On 19 October 2017 Bob
retired as Chairman.
PAUL MURRAY 1,2,3
NON-EXECUTIVE DIRECTOR
Paul joined DX as a Non-executive
Director in 2014 and has over 25 years’
senior level experience in the transport
and logistics industry. Latterly he was
chairman of NetExpress Europe, the
pan-European road express specialist
which links leading companies in express,
freight and logistics and, before that, was
chief executive of Target Express Parcels
Limited, the national express parcels and
freight provider, for eight years and
managing director of the UK and Ireland
operations of Federal Express for over
ten years. He also chaired a healthcare
business and was a director of a fast-
growing marketing logistics business.
On 19 October 2017 Paul retired as a
Non-executive Director.
IAN GRAY 3
NON-EXECUTIVE DIRECTOR
Ian joined DX as a Non-executive Director
as of 1 July 2017. Over the past 20 years,
Ian has been advising companies on
business transformation and strategy
development. Ian has provided high-level
counsel to UK companies across a range
of industry sectors, including distribution,
retail and food production. He is currently
chairman of Avicenna plc, the UK’s largest
independent pharmacy support group,
and of Atlantic Holdings Limited, a
world-leading media production company.
RON SERIES
CHAIRMAN
On 19 October 2017 Ron joined DX as
Chairman. Ron is currently the Senior
Independent Director at Clipper Logistics
plc, where he has been a non-executive
director since its IPO in May 2014. He sits
on the audit committee, remuneration
committee and nominations committee.
He has previously held executive and
non-executive positions with a number of
companies with international operations
in transport, logistics, shipping, real estate
and information technology. Included
among them are Tuffnells Parcels Express
Limited where he was chairman during its
turnaround in 2002-2005.
LLOYD DUNN
CHIEF EXECUTIVE OFFICER
On 19 October 2017 Lloyd joined DX
as Chief Executive Officer and joined
the Board on 19 October 2017. Lloyd has
been in transport for 38 years. In 1985,
he joined Russell Black as a founding
member of Nightfreight. In 2002, he
joined Tuffnells and became Managing
Director in 2003 and CEO in 2005. He
led the company during its turnaround
leading to a sale for £135 million in 2015.
RUSSELL BLACK
NON-EXECUTIVE DIRECTOR
On 19 October 2017 Russell joined DX as
a Non-executive Director. Russell has over
40 years of experience in the transport
industry. He was founder and CEO of
Nightfreight from 1984 to 2002, during
which time it was listed on the London
Stock Exchange at an initial capital value
of £48 million.
PAUL GOODSON
NON-EXECUTIVE DIRECTOR
On 19 October 2017 Paul joined DX as a
Non-executive Director. Paul was Executive
Chairman of Great Bear Distribution, a
leading independent third party logistics
business, which he successfully sold to
Culina to create a £400 million group. Paul
spent 13 years with Barclay Private Equity,
during which time he was involved in the
purchase and sale of Nightfreight.
1 Audit Committee
2 Nomination Committee
3 Remuneration Committee
14
Chairman’s Introduction
to Corporate Governance
The Board strives to uphold and achieve high standards
of corporate governance, integrity and business ethics.
Dear Shareholder,
Principles of Corporate Governance
As Chairman, I lead DX’s Board of Directors and a key responsibility of mine is to ensure that we strive to uphold and achieve high
standards of corporate governance while at the same time building and maintaining a sustainable business that creates long-term
shareholder value. It is also my responsibility to ensure that the Board continually reviews its strategic goals and the progress made
towards achieving those goals.
There is a clear distinction between the responsibilities of the Board of Directors and those of the DX Executive Team. Petar Cvetkovic,
Chief Executive Officer, led the DX Executive Team for the financial year. With effect from 14 July 2017 the DX Executive Team
was headed up by Stuart Godman (Managing Director, Freight division) and Nick Cullen (Managing Director, Express division).
On 9 October 2017 Lloyd Dunn was appointed Chief Executive Officer. The Board acts on behalf of shareholders in constructively
reviewing and challenging the Company’s performance and the implementation of strategy, with an emphasis on accountability
to shareholders. I therefore encourage openness and constructive discussion in all Board meetings.
Both the Board and the Executive Team value integrity, transparency and fairness and seek to uphold these values within DX and
in our dealings with our customers and suppliers. Reflecting this, DX has a supplier code of conduct which sets out the minimum
standards that DX suppliers and business partners should meet. We have also introduced a new externally managed whistleblowing
hotline to ensure an open and ethical culture for the benefit of our colleagues, customers and other business partners.
We also seek to comply with the Quoted Companies Alliance corporate governance code (“the QCA Code”). While DX is not
required to comply with the UK Corporate Governance Code, since it is not listed on the Main Market, the Board recognises the
importance of the principles set out in the UK Corporate Governance Code. It therefore seeks to apply them as far as the Board
considers it appropriate for a company of DX’s size and nature. The Board believes that this approach helps to provide DX with
a firm foundation for successful growth.
I remain confident that the composition of DX’s Board reflects an appropriate blend of experience and backgrounds, and that the
Board is able to provide an independent and objective view of the Company’s performance against its strategic objectives and
future goals.
Bob Holt
Chairman
ANNUAL REPORT AND ACCOUNTS 2017
15
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Governance Report
The Board is responsible for ensuring the highest standards of corporate governance at DX and for promoting the long-term
success of DX.
The Board
The roles of the Chairman and Chief Executive Officer are separate with each having clearly defined duties and responsibilities.
The Chairman provides leadership to the Board. He is responsible for chairing the Board meetings and for setting the agenda for the
Board meetings (in consultation with the Chief Executive Officer) and ensuring that the Board has sufficient time to discuss issues
on the agenda, especially those relating to strategy. The Chairman is also responsible for ensuring that the Directors receive all of
the necessary information and reports.
The Chief Executive Officer is responsible for leadership of the DX management and its employees on a day-to-day basis. In conjunction
with the Executive Team, the Chief Executive Officer is responsible for the execution of strategy approved by the Board and the
implementation of Board decisions. He is also responsible for ensuring the market and regulators are kept appraised in a timely
manner of any material events and developments, and that the appropriate standards of corporate governance are effectively
communicated and adhered to throughout the business.
During the financial year, the Board comprised the Non-executive Chairman, Bob Holt, two Executive Directors, Petar Cvetkovic
(Chief Executive Officer) and Ian Pain (Chief Financial Officer)/Daljit Basi (Finance Director) and one Non-executive Director, Paul
Murray. The Non-executive Directors constructively challenge and help to develop DX’s strategic priorities. As of the date of this
Annual Report, the Board comprised the Non-executive Chairman, Bob Holt, and two Non-executive Directors, Paul Murray and
Ian Gray. On 9 October 2017 Lloyd Dunn was appointed as Chief Executive Officer. James Hayward was appointed as Interim Chief
Financial Officer as of 14 July 2017. This role is currently not a Board appointment but James attends monthly Board meetings.
Details of each Director’s background and experience can be found on page 14. The Board’s mix of skills and business experience
ensures an informed review and debate of performance and strategy.
Independence
The actions and decisions of all the Non-executive Directors who served during the year and up to the date of this report are
considered by the Board to be independent in both character and judgement.
Role of the Board
The Board meets regularly to review DX’s strategy and to ensure that this is aligned with creating sustainable shareholder value.
Directors are supplied with a comprehensive Board pack before all Board meetings which includes the agenda, previous minutes,
detailed financial information and all other supporting papers necessary to make a fully informed discussion. The Board ensures
that the necessary resources are in place to achieve DX’s strategic priorities. The key responsibilities of the Board (as set out in the
schedule of matters reserved for the Board) are:
• overall leadership and management of DX;
•
•
• oversight of DX’s operations and compliance;
• ensuring sound management and maintenance of an appropriate system of internal control and risk management;
• approval of any extension of DX’s activities into new business or geographic areas;
• approval of major investments or capital projects;
• decisions to cease to operate or dispose of any material part of DX’s business;
• changes to the Group’s financial, capital or corporate structure;
• approval of the financial statements, Annual Report and Accounts, material contracts and contracts not in the ordinary course
setting DX’s values and standards, long-term objectives, commercial strategy and strategic direction;
review and approval of DX’s annual operating and capital expenditure budgets;
of business;
• approval of dividend objective and dividend payments;
• communications with shareholders and the market;
• Board membership and composition of Board Committees;
• corporate governance and remuneration policy (including employee benefits); and
• any decision likely to have a material impact on DX from any perspective, including, but not limited to, financial, operational,
strategic or reputational.
A full copy of the schedule of matters reserved for the Board is available on www.dxdelivery.com.
Day-to-day operational and financial management is delegated to DX’s Executive Team. The Executive Team also meets monthly
and provides the Board with detailed monthly reports.
16
Operation of the Board
The Board meets monthly and there were 12 scheduled Board meetings during the financial year. Any specific actions arising during
meetings agreed by the Board are followed up and reviewed at subsequent Board meetings to ensure their completion. The Board
also keeps in close contact between formal meetings and will conduct ad hoc meetings as required. If a Director is unable to attend
a Board meeting, the Chairman will canvass his views in advance and ensure that the Director is promptly advised of the outcome of
the matters under discussion.
Attendance
Bob Holt
Paul Murray
Petar Cvetkovic
Ian Pain
Daljit Basi
Scheduled
Board meetings
Audit
Committee
Remuneration
Committee
Nomination
Committee
10/12
12/12
12/12
4/4 1
9/9 1
1/1
1/1
n/a
n/a
n/a
2/2
2/2
2/2
n/a
n/a
1/1
1/1
n/a
n/a
n/a
1 Ian Pain left the Group at end of October 2016 and Daljit Basi was appointed to the Board on 21 September 2016.
Each Director receives induction training on appointment including visits to principal sites and meetings with operational management,
and all Directors have access to independent legal advice on request.
All Directors act in what they consider to be the best interests of the Company, consistent with their statutory duties.
In recognition of its importance, the first standing item of business at every scheduled Board meeting is the consideration of the
health and safety report. Other regular reports include those from the Chief Executive Officer and Chief Financial Officer covering
business performance, markets and competition, investor and analyst updates as well as progress against strategic objectives and
capital expenditure projects. Board meetings are frequently held at different Group locations in order to review local operations.
Board Committees
The Board has delegated certain responsibilities to the Nomination Committee, the Audit Committee and the Remuneration
Committee. Each Committee operates according to its own terms of reference (available on www.dxdelivery.com).
The Audit Committee has primary responsibility for monitoring the quality of internal controls, ensuring that the financial performance
of DX is properly measured, ensuring the integrity of the financial statements, and reporting and reviewing reports from DX’s auditor
relating to DX accounting and internal controls, in all cases having due regard to the interests of shareholders. The Remuneration
Committee determines remuneration for the Executive Directors and the Executive Team. The Nomination Committee recommends
the appointment of Directors and is responsible for succession planning. Further information on each Committee is set out in the
relevant report on the following pages.
Investor Relations
DX places a great deal of importance on communication with all shareholders. There is regular dialogue with individual institutional
shareholders throughout the year and formal presentations after the interim and preliminary results.
DX has arranged a number of site visits for shareholders and other City commentators with the aim of providing them with increased
exposure to DX operations and management.
The 2017 Annual General Meeting (“AGM”) will be held on 8 December 2017 at 10am. The notice of the meeting is enclosed. It is also
available to download from www.dxdelivery.com.
The Board encourages dialogue between the Directors and investors and the Directors are available at each AGM to hear the views
of shareholders and to answer any questions about the business generally and about the resolutions proposed.
The principal methods of communication with private investors remain the Annual Report and Accounts, the interim statements
and DX’s website (www.dxdelivery.com). The website, which includes a DX Investor Centre, is viewed as an efficient and cost-effective
way to communicate widely with all shareholders and DX’s financial reports, publications and press releases can be viewed here
together with corporate governance information, key dates in the financial year, and news about DX, its services and issues affecting
the industry.
The Board also receives a regular summary of shareholder feedback from Zeus Capital (DX’s Nominated Adviser and Broker during
the financial year) and Numis Securities, joint Broker.
ANNUAL REPORT AND ACCOUNTS 2017
17
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT
Audit Committee Report
The members of the Audit Committee during the financial year were the two independent Non-executive Directors, Bob Holt
and Paul Murray. The Board is confident that the collective experience of the Audit Committee members enabled them, as a group,
to act as an effective Committee. Attendance at meetings of the Audit Committee by non-members is by invitation and at the
discretion of the Audit Committee. The Chief Executive Officer, the Chief Financial Officer and the KPMG LLP audit engagement
partner (DX’s external auditor) will normally be invited to attend meetings of the Audit Committee. The Chairman of the Audit
Committee meets regularly with the Chief Financial Officer and the external auditor.
The main duties of the Audit Committee are set out in its terms of reference and include the following:
•
to monitor the integrity of the financial statements of the Group, including its annual and half-year reports and any other formal
announcement relating to DX’s financial performance;
reviewing and reporting to the Board on any significant financial reporting issues and judgements which the financial statements
contain having regard to matters communicated to it by the auditor;
to review and challenge where necessary:
–
the consistency of, and any changes to, significant accounting policies both on a year-on-year basis and across the Group;
– whether DX has followed appropriate accounting standards and made appropriate estimates and judgements, taking into
account the views of the external auditor;
the clarity and completeness of disclosure in the financial reports; and
all material information presented with the financial statements;
–
–
to keep under review the adequacy and effectiveness of DX’s internal financial controls and internal control and risk
management systems;
to review and approve the content of the Annual Report and Accounts and advise the Board on whether, taken as a whole, it is
fair, balanced and understandable and provides the information necessary for shareholders to assess DX’s performance, business
model and strategy;
to review the adequacy of DX’s compliance, whistleblowing, controls for the prevention of bribery and procedures for
detecting fraud;
to regularly assess the need for an internal audit function;
to consider and make recommendations to the Board, to be put to shareholders for approval at the AGM, in relation to the
appointment, reappointment and removal of DX’s external auditor;
to oversee the relationship with the external auditor, including recommendations on their remuneration, approval of their terms
of engagement, annual assessment of their independence and objectivity taking into account relevant UK professional and
regulatory requirements, and the relationship with the auditor as a whole, including the provision of any non-audit services;
to meet regularly with the external auditor and at least once a year, without management being present, to discuss the auditor’s
remit and any issues arising from the audit; and
to review and approve the audit plan and review the findings of the audit.
•
•
•
•
•
•
•
•
•
•
For the financial year to 30 June 2017, the Audit Committee reviewed and endorsed the 2016 Annual Report and Accounts ahead
of their approval by the Board and reviewed and commented on the Company’s risk register and mitigation procedures.
External Auditor
To ensure the auditor’s independence and objectivity, the Audit Committee annually reviews DX’s relationship with the auditor.
Following the review in 2017, DX concluded that it has an objective and professional relationship with KPMG LLP and that there are
sufficient controls and processes in place to ensure the required level of independence. In addition, the auditor is required to review
and confirm its independence to the Audit Committee on a regular basis.
Having reviewed the auditor’s independence and performance, the Audit Committee is recommending that KPMG LLP be
reappointed as DX’s auditor at the next AGM.
Audit Process
KPMG LLP prepare an audit plan which sets out the scope of and approach to the audit, significant risks and other areas to be
targeted. This plan is reviewed and agreed in advance by the Audit Committee. Following their review, the auditor presents their
findings to the Audit Committee for discussion.
Non-Audit Services
KPMG LLP may also be employed where, as a result of its position as auditor, it either must, or is best placed to, perform the work
in question. A policy is in place in relation to the provision of non-audit services by the auditor to ensure that there is adequate
protection of its independence and objectivity.
18
Nomination Committee Report
The members of the Nomination Committee during the year were the two independent Non-executive Directors, Paul Murray
(Chair except when the matters under consideration related to his financial position) and Bob Holt. The Committee meets according
to DX’s requirements.
The responsibilities of the Committee are set out in its terms of reference and include:
•
•
reviewing the structure and composition of the Board (including the skills, knowledge, experience and diversity);
recommendations to the Board with regard to any changes and new appointments taking into account the challenges and
opportunities facing DX, and the skills and expertise needed on the Board in the future;
requiring that any proposed Director discloses any other business interests that may result in a conflict of interest and reports
any future business interests that could result in a conflict of interest;
succession planning for both Executive and Non-executive Directors and in particular for the key roles of Chairman, Chief Executive
Officer and the Executive Team;
the reappointment of any Non-executive Director at the conclusion of their specified term of office having given due regard
to their performance and ability to continue to contribute to the Board in the light of knowledge, skills and experience required;
the re-election of Directors by shareholders under the annual re-election provisions of the QCA Code or the retirement by
rotation provisions in DX’s Articles of Association (“Articles”);
•
•
•
•
• ensuring that on appointment to the Board, Non-executive Directors receive a formal letter of appointment setting out clearly
what is expected of them in terms of time commitment, Board Committee service and involvement outside Board meetings; and
• membership of the Audit and Remuneration Board Committees.
ANNUAL REPORT AND ACCOUNTS 2017
19
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Directors’ Remuneration Report
(Including the Remuneration Committee Report)
Dear Shareholder,
Chairman’s Annual Statement
DX adopts a simple and clear approach to remuneration. Our policy is to attract and retain the best possible people who have the
capability and drive to meet the Company’s strategic and financial objectives. Accordingly, we offer our Executive Directors a basic
salary that is fair and reasonable in comparison with companies of a similar size in similar industries and reflects each individual’s
experience and contribution to the Company.
As referred to earlier in this report, this year has been a challenging year for the business and for the logistics sector as a whole.
Despite hard work and dedication, the Company’s overall performance in the financial year has failed to reach the necessary triggers
and, as a result, no annual cash bonus is being paid to the Executive Directors. The VCP is also not performing as planned and
remains under review.
Report from the Remuneration Committee
The Board has delegated certain responsibilities for Executive Director remuneration to the Remuneration Committee.
The Remuneration Committee during the financial year was chaired by Paul Murray. Bob Holt and Petar Cvetkovic were its other
members. Any other attendees are at the invitation of the Committee Chairman only and will usually include the Chief People
Officer/HR Director. The Remuneration Committee meets according to DX’s requirements. There were two meetings held in the
financial year. The Remuneration Committee determines the remuneration packages for the Chairman, the Executive Directors and
the Executive Team and any major remuneration plans for the Group. This includes implementation of the Group’s share incentive
plans. The Committee’s role is to ensure that the principles of the Company’s remuneration policy are aligned with the business
strategy and promote long-term shareholder value.
Full terms of reference for the Committee are available on www.dxdelivery.com.
The Committee also receives advice and assistance from the Chief People Officer/HR Director, the people/HR team and its external
legal and tax advisers.
The main items of business considered by the Remuneration Committee during the financial year included reviews of:
•
•
remuneration strategy and policy; and
salary for Executive Directors.
There were no changes to the Chief Executive’s remuneration in the financial year. Daljit Basi’s remuneration was reviewed and
increased in December 2016 following his appointment as Finance Director in September 2016.
Executive Directors’ Service Contracts and Termination Policy
Executive Directors hold a service agreement with an indefinite term and a fixed maximum termination period of 12 months. Any
payments in respect of termination reflect base salary only and do not include annual bonus. The Company’s policy on the setting
of notice periods under the Executive Directors’ service agreements is considered to be in line with external market trends and is
reviewed by role to protect the Company’s knowledge and operations.
The base annual salaries for the Executive Directors for the year to 30 June 2018 will be as follows:
Lloyd Dunn (Chief Executive Officer) 1
1 Annual salary to be pro rata from appointment on 9 October 2017.
2018
£000
300
2017
£000
–
%
change
n/a
Non-executive Directors
Non-executive Directors have letters of appointment each with a term of three years (subject to re-election at the AGM) and a fixed
maximum termination period of three months.
The base annual fees for the Non-executive Directors for the year to 30 June 2018 will be as follows:
The base annual fees for the Non-executive Directors for the year to 30 June 2018 will be as follows:2018
£000
Ian Gray
42
2017
£000
–
%
change
n/a
The incoming Board has not yet approved a remuneration policy for the year ended 30 June 2018 for Ron Series, Russell Black and
Paul Goodson.
20
Pay for all other employees is based upon external market rates, job role, internal comparators and business impact. Both DX’s
financial and operational performance, and each person’s personal performance are also taken into account when setting salaries.
Directors’ Shareholdings
The Directors who held office at 30 June 2017 had the following interests, including family interests, in the shares of the Company
(excluding any entitlements that may become due under the VCP):
Petar Cvetkovic
Daljit Basi
Bob Holt
Paul Murray
Ordinary Shares
30 June 2017
5,529,593
118,405
100,000
nil
Total Single Figure of Remuneration for Directors
The table below sets out a single figure for the total remuneration received by each Director for the year ended 30 June 2017 and
the prior year.
Petar Cvetkovic
Ian Pain
Daljit Basi1
Bob Holt
Paul Murray
Executive Directors
Non-executive Directors
Base salary/fee
Benefits
Annual bonus
scheme
Long-term
incentive plan 1
Pension benefits
2017
£000
352
–
–
–
–
2016
£000
375
–
–
–
–
2017
£000
320
–
–
–
–
2016
£000
320
–
–
–
–
2017
£000
115
7
–
–
11
Total
352
375
320
320
133
2016
£000
2017
£000
2016
£000
2017
£000
2016
£000
–
–
–
–
–
–
90
–
n/a
n/a
n/a
90
90
–
n/a
n/a
n/a
90
40
–
n/a
n/a
n/a
40
40
–
n/a
n/a
n/a
40
1 Amounts for period when Executive Director.
2
Long-term performance related remuneration is achieved through participation in the VCP (see below).
The table below sets out the maximum bonus potential (100% of base salary) for each Director for the year ended 30 June 2017 and
the prior year.
Executive Directors
Non-executive Directors
Petar Cvetkovic
Ian Pain
Daljit Basi
Bob Holt
Paul Murray
2017
£000
2016
£000
2017
£000
2016
£000
2017
£000
2016
£000
2017
£000
2016
£000
2017
£000
2016
£000
Maximum bonus
potential 1
500
500
–
320
175
–
n/a
n/a
n/a
n/a
1
The Company’s overall performance in the financial year failed to reach the necessary triggers and, as a result, no annual cash bonus is being paid.
Executive Directors’ External Appointments
At the time of signing this report, there are no Executive Directors on the Board.
Relative Importance of Spend on Pay
The following table shows the Company’s actual spend on pay (for all employees) relative to dividends and retained profit.
Staff costs
Dividends
(Loss)/profit before tax 1
1
Excludes exceptional items.
2017
£m
£79.7
£3.0
£(1.6)
2016
£m
£74.7
£10.0
£9.4
Change
£m
£5.0
£(7.0)
£(11.0)
ANNUAL REPORT AND ACCOUNTS 2017
21
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Directors’ Remuneration Report
continued
Share Plans
To further incentivise and support the retention of senior management (including the Executive Directors and the Executive Team)
and therefore ultimately to enhance shareholder value, DX adopted share plans on Admission. The Company does not foresee any
awards being granted under these plans. The intention of the new Board is to approve a number of new incentive schemes in the
new financial year.
The Group’s existing schemes include a Value Creation Plan (“VCP”) for the benefit of senior executives, including the Executive
Directors. Under the VCP, A Ordinary Shares in DX (VCP) Limited (a subsidiary of the Company) were issued to the Executive
Directors and the six other members of the Executive Team. The A Ordinary Shares were issued at nil cost and PAYE and National
Insurance contributions have been accounted for on the value of these shares at acquisition. Retaining ownership of the A Ordinary
Shares is conditional on continuing employment. Specific rules will apply if the employee ceases employment during the vesting
period. As at the date of this Annual Report, Petar Cvetkovic, Ian Pain and five of the other members of the Executive Team who
were issued shares in DX (VCP) Limited have now transferred these shares back to the Company and no longer hold any shares
in DX (VCP) Limited. The A Ordinary Shares have no dividend rights and very limited voting rights.
The Executive Directors also acquired B Ordinary Shares in DX (VCP) Limited. The B Ordinary Shares were acquired at market value.
The B Ordinary Shares have limited economic rights but entitle each of the B shareholders to 5% of the voting rights in DX (VCP) Limited.
The Executive Directors’ (who served during the year) shareholdings in DX (VCP) Limited at 30 June 2017 are as follows:
Director
Petar Cvetkovic 1
Ian Pain 1
A Ordinary
Shares of
£0.01 each
B Ordinary
Shares of
£0.01 each
34
30
500
500
1
Subsequent to the year end, Petar Cvetkovic’s and Ian Pain’s A Ordinary and B Ordinary Shares were transferred to DX.
A Ordinary Shares in DX (VCP) Limited carry no voting rights; B Ordinary Shares entitled the holders to 10% of the voting rights
in that company.
The Company has also established an employee benefit trust which holds some shares in the VCP. This is a discretionary trust
and its aim is to reward long service in non-management level staff who remain with the Company for the qualifying period.
Paul Murray
Chairman of the Remuneration Committee
22
Directors’ Report
The names and biographical details of the Directors currently serving on the Board are set out on page 14.
The Company’s approach to the appointment and replacement of Directors is governed by its Articles (together with the relevant
legislation) and takes into consideration any recommendations of the QCA Code.
The Company’s Articles require that all Directors should be subject to election by shareholders at the first AGM following their
appointment and that one-third of the Directors (or the number nearest to but not less than one-third) retire by rotation at each
AGM, with each Director also being subject to re-election at intervals of not more than three years. The Board has the power to
appoint additional Directors or to fill a casual vacancy amongst the Directors. Any Director so appointed by the Board holds office
only until the next AGM and may then offer himself/herself for election by the shareholders. Given the recent Board changes all
the current Directors of the Company will offer themselves for re-election at the 2017 AGM.
The powers of the Directors are determined by the Articles, the Companies Act 2006 and other relevant legislation. At the 2016
AGM, the Directors were authorised to issue and allot shares and to disapply the statutory pre-emption rights. This authority remains
in place until the conclusion of the 2017 AGM. It will be proposed at the 2017 AGM that the Directors will be granted a new authority
to allot shares, to disapply the statutory pre-emption rights and the authority to buy back shares. The Company may by ordinary
resolution declare dividends not exceeding the amount recommended by the Board.
Results and Dividends
The results for the year ended 30 June 2017 are shown on page 31. The Group’s loss for the year after tax was £81.1 million.
As announced on 7 February 2017, no dividend will be payable for the foreseeable future. This will remain under review.
Principal Activities, Risks and Review of the Business
The Group’s continuing activities are the provision of parcels, freight, mail and logistics services in the UK and Ireland. The principal
activity of the Company is that of a holding company.
The Strategic Report set out on pages 1 to 13 provides a fair review of the Group’s business for the year ended 30 June 2017. It also
explains the objectives and strategy of the Group, its competition and the markets in which it operates, the principal risks and
uncertainties it faces, the Group’s financial position, key performance indicators and likely future developments of the business.
Risk Management and Internal Control
DX has in place a system of internal financial controls commensurate with its current size and activities.
The Board has overall responsibility for DX’s system of internal control to safeguard the Company’s assets and shareholders’
investments. The risk management process and systems of internal controls are designed to identify the main risks that the Group
is exposed to, and ensure that appropriate policies and procedures are in place to minimise these risks to the Group, including the
establishment of appropriate business continuity planning arrangements. The Company maintains a risk management register which
is managed by a Risk Management Committee and discussed every six months with the Executive Team and the Chairman of the
Audit Committee.
The Board has reviewed the effectiveness of the system of internal control for the year ended 30 June 2017 and up to the date
of the signing of the Annual Report and Accounts. The Board will continue to develop and implement internal control procedures
appropriate to DX’s activities and scale.
The Board recognises that an essential part of its responsibility is the effective safeguarding of assets, the proper recognition
of liabilities and the accurate reporting of results. The Group has a comprehensive system for regular reporting to the Board.
This includes monthly management accounts and an annual planning and budgeting system. The financial reporting system
compares against budget and prior year, and the Board reviews its financial year forecasts on a monthly basis.
The Board has established a formal policy of authorisation setting out matters which require its approval and certain authorities
which are delegated to the Executive Directors.
Going Concern
The Directors are satisfied that the Group has the appropriate capital structure to enable it to invest in facilities, equipment and staff
as required, and to continue in operational existence for the foreseeable future. Thus they continue to adopt a going concern basis
in preparing the financial statements.
Further details regarding the adoption of the going concern basis can be found in the basis of preparation of accounts in note 2 to
the financial statements.
ANNUAL REPORT AND ACCOUNTS 2017
23
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Directors’ Report
continued
Corporate Governance
The Board is fully committed to high standards of corporate governance. Details relating to the Company’s compliance with
the QCA Code for the financial year and a description of the Company’s management and reporting structure are given in the
Corporate Governance and Directors’ Remuneration Reports on pages 15 to 22.
Anti-Bribery and Corruption
DX takes a zero-tolerance approach to bribery and corruption and has a formal anti-corruption and bribery policy in place. Training
is provided to set the clear expectation that staff must act professionally and with integrity in all business dealings and colleagues
are required to complete the gift register.
Whistleblowing
DX has whistleblowing procedures under which colleagues are encouraged to inform the Executive Team or any Director of any
concerns they may have that the practices of DX or individuals are wrongful or contravene any applicable laws or regulations.
DX has also introduced a new externally managed whistleblowing hotline to ensure an open and ethical culture for the benefit
of our colleagues, customers and other business partners.
Modern Slavery
DX has issued a modern slavery transparency statement for the current financial year which can be found on www.dxdelivery.com.
DX has also introduced a supplier code of conduct requiring all suppliers and business partners to adhere to the Modern Slavery
Act 2015 and to conduct business in accordance with the standards of conduct acceptable to DX.
Corporate Responsibility
Information on corporate responsibility matters are set out on pages 10 to 11. These include disclosures on DX’s environmental
policies (including details of the Group’s greenhouse gas emissions as required to be disclosed under the Companies Act 2006)
and health and safety policies. Further details can also be found on the DX website www.dxdelivery.com.
Our Colleagues
DX aims to create a culture where colleagues of all backgrounds and experience feel appreciated and valued. This is underpinned
by the culturally diverse workforce employed by the Group, which reflects the local populations in the areas where DX operates.
In all cases the Group fulfils its legal obligations under the Equality Act 2010. Additionally, DX audits gender pay equality biannually.
DX strives to surpass its legal obligations through the implementation of its policies and programmes for recruitment, career
development and promotion which are based solely on the ability and performance of the individual and the needs of the
Group’s business.
Our continued focus remains driver safety and competence through the Certificate of Professional Competence but also through
Driver Assessors who are qualified through ROSPA (The Royal Society for the Prevention of Accidents). Investment in management
training in regard to transport regulations and fleet management ensures operator licence compliance and a pipeline of talent for
these critical areas.
Apprenticeship programmes are available to our colleagues that focus on enhancing their skills within their current roles; these
range from customer service to warehouse apprenticeships. Our induction programme ensures our colleagues understand our
full product range and our vision.
All colleagues are offered a competitive benefits package, including a provision for death in service. There are a number of voluntary
benefits to support colleagues’ welfare and the opportunity to participate in one of the Group’s stakeholder pension schemes.
The Group encourages an active interest in Company activities at all levels and seeks to receive and consider the views of colleagues
over a wide range of subjects. This aim is achieved through a fully representative colleague partnership programme, which ensures
two-way communications and colleague involvement through biannual meetings. The colleague partners have access to the
Executive Team to report and discuss any issues arising. Regular news bulletins are distributed throughout the Group and a quarterly
newspaper is produced with a mixture of business and colleague news. Senior management also attend regular calls and conferences
to ensure cohesive engagement throughout the Company and to raise awareness of the financial and economic factors affecting the
Company’s performance.
Labour Turnover
Labour turnover is reported at Group level, showing voluntary leavers during the last financial year. Voluntary leavers over the 12 months
since June 2016 have fallen to 24.0% compared to that of the previous year (26.5%).
24
Disabled Employees
Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant
concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the
Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development
and promotion of disabled persons should, as far as possible, be identical to that of other employees.
Notifiable Interests
The Company has been notified of direct and indirect interests in voting rights equal to or exceeding 3% of the Ordinary Share
capital of the Company as set out in the table below:
Fund Manager
Gatemore Capital Management LLP
J O Hambro Capital Management
Ruffer LLP
Hargreaves Lansdown AM
Chelverton Asset Management
Hargreave Hale Limited
Interactive Brokers
Barclays Wealth & Investment Management (UK)
Per shareholder register as at 29 September 2017.
29 September 2017
Percentage
holding
Number
of shares
47,799,591
23.84%
18,219,838
9.09%
7.79%
15,613,276
5.25% 10,530,709
8,775,000
4.38%
7,352,702
3.67%
6,471,893
3.23%
6,337,292
3.16%
Share Capital
Details of the Company’s share capital are set out in note 19 to the financial statements. The Company’s issued share capital consists
of 200,525,500 Ordinary Shares with a nominal value of £0.01 each. All shares rank equally and are fully paid. No person holds shares
carrying special rights with regard to the control of the Company. Each share carries the right to one vote at general meetings of the
Company and no right to fixed income. The Company has no treasury shares.
Directors’ Interests
The number of Ordinary Shares of the Company in which the Directors are beneficially interested is set out in the Directors’
Remuneration Report on page 21.
No Executive Directors had any dealings in the shares of the Company during the financial year.
No Directors had any dealings in the shares of the Company between 30 June 2017 and the date of this report.
Director Indemnities and Insurance
In accordance with the Companies Act 2006 and the Company’s Articles, the Company has purchased Directors’ and Officers’
liability insurance, which remains in place at the date of this report. The Company reviews its insurance policies on an annual basis
in order to satisfy itself that its level of cover remains adequate.
Amendment to Company’s Articles
The Company may alter its Articles by special resolution passed at a general meeting.
Donations
Charitable donations in the year ended 30 June 2017 amounted to £1,000 (2016: £4,000).
No payments were made to any political parties (2016: £nil).
Disclosure of Information to Auditor
Each of the persons who were Directors of the Company at the date of approval of this Directors’ Report that they confirm, that, so
far as they are aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken
all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that
the Company’s auditors are aware of that information.
ANNUAL REPORT AND ACCOUNTS 2017
25
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Statement of Directors’ Responsibilities
in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in
accordance with applicable law and regulations.
The Company has chosen to include certain matters in its Strategic Report that would otherwise be disclosed in this Directors’
Report. An indication of likely future developments may be found in the Strategic Report.
Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. As required
by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with
International Financial Reporting Standards as adopted by the EU (IFRSs as adopted by the EU) and applicable law and have
elected to prepare the parent Company financial statements on the same basis.
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 their profit or loss for that period. In preparing each of the
Group and parent Company financial statements, the Directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and reliable;
•
• assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to
state whether they have been prepared in accordance with IFRSs as adopted by the EU;
going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to
ensure that its financial statements comply with the Companies Act 2006. They are 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, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report and a Directors’ Report
that complies with that law and those regulations.
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’s performance, business model and strategy.
Each of the current Directors, whose names and functions are listed on page 14 of the Annual Report confirm that, to the best of
their knowledge:
•
the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and loss/profit of the Group;
the Strategic Report and Directors’ Report include a fair review of the development and performance of the business and the
position of the Group, together with a description of the principal risks and uncertainties that it faces;
there is no relevant audit information of which the Company’s auditors are unaware; and
they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit
information and to establish that the Company’s auditor is aware of that information.
•
•
•
By order of the Board
Bob Holt
Chairman
19 October 2017
26
Independent Auditor’s Report
to the members of DX (Group) plc
1 Our opinion is unmodified
We have audited the financial statements of DX (Group) plc (“the Company”) for the year ended 30 June 2017 which comprise the
Consolidated statement of comprehensive income, Consolidated statement of financial position, Company statement of financial
position, Consolidated statement of changes in equity, Company statement of changes in equity, Consolidated statement of cash
flows, Company statement of cash flows and the related notes, including the accounting policies in note 3.
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 30 June 2017
and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
as adopted by the European Union (IFRSs as adopted by the EU);
the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and
as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
•
•
•
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the
audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
Overview
Materiality:
Group financial statements as a whole
Coverage
Risks of material misstatement vs 2016
Recurring risk
New risk
2 Material uncertainty related to going concern
Goodwill valuation
Cost of Investment
Going Concern
£1m (2016: £645,000)
2017: 0.34% of revenue
(2016: 5% of adjusted profit before tax)
100% (2016: 100%) of revenue
The risk
Our response
Presentation appropriateness
Clear and full disclosure of the facts
and the Directors’ rationale for the use
of the going concern basis of preparation,
including that there is a related material
uncertainty, is a key financial statement
disclosure. Significant judgement is
required in assessing the disclosures.
Our procedures included:
• Assessing transparency: Assessing
the completeness and accuracy of the
matters covered in the going concern
disclosure by assessing its consistency
with the cash flow forecasts prepared
by the Group and the terms of the
loan notes issued.
We assessed whether the disclosure
was balanced, understandable and
sufficiently prominent, and referred
to there being a material uncertainty.
Going concern disclosure
We draw attention to note 2 to the
financial statements concerning the
Group’s and the parent Company’s
ability to continue as a going concern,
in particular the need for shareholder
approval of the convertibility of the
Tranche 2 loan notes as a condition-
precedent for their issue. These conditions,
along with the other matters explained in
note 2, indicate the existence of a material
uncertainty which may cast significant
doubt on the Group’s and the parent
Company’s ability to continue as a going
concern. The financial statements do not
include the adjustments that would result
if the Group and the parent Company
were unable to continue as a going
concern. Our opinion is not modified
in respect of this matter.
ANNUAL REPORT AND ACCOUNTS 2017
27
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Independent Auditor’s Report continued
to the members of DX (Group) plc
3 Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us,
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 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. Going concern is a significant key
audit matter and is described in section 2 above. In arriving at our audit opinion above, the other key audit matters, in decreasing
order of audit significance, were as follows:
The risk
Our response
Recoverability of Group goodwill and
parent’s investment in subsidiaries
Group £30m (2016: £102m); parent £30m
(2016: £104m).
Refer to page 40 (accounting policy) and
page 49 (financial disclosures).
Forecast-based valuation
The carrying amount of goodwill in
the Group and the parent Company’s
investments in subsidiaries are significant
and at risk of irrecoverability due to
challenging trading conditions. The
estimated recoverable amounts are
subjective due to the inherent uncertainty
involved in forecasting and discounting
future cash flows.
Our procedures included:
• Historical comparisons: Evaluating
the track record of assumptions used
versus actual results in order to assess
the historical accuracy of the Group’s
forecasting process.
• Benchmarking assumptions:
With the support of our valuation
specialists we compared key inputs,
such as the growth rate, long-term
growth rate and discount rate to
external data such as market and
competitor information.
• Sensitivity analysis: Performing
a sensitivity analysis by changing
various key inputs and assessing
the impact on the valuation.
• Assessing transparency: Assessing
whether the Group’s and parent
Company’s disclosures about the
sensitivity of the outcome of the
impairment assessment to changes
in key assumptions reflected the risks
inherent in the valuation of goodwill
and investment in subsidiaries.
28
4 Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £1,000,000, determined with reference to a benchmark
of revenue of which it represents 0.34% (2016: £645,000 determined with reference to a benchmark of Profit before tax and
exceptional items of which it represented 5%). We consider total revenue to be the most appropriate benchmark as profit could
no longer be used without making significant adjustments and revenue is expected to provide a more stable measure year on year
going forward. Materiality for the parent Company financial statements as a whole was set at £950,000, determined with reference
to total assets of which it represents 3% (2016: £645,000, determined with reference to net assets of which it represents 1%).
We have updated our benchmark to total assets as net assets could no longer be used without making significant adjustments.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £50,000
(2016: £32,250), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 15 (2016: 15) reporting components, we subjected 12 (2016: 12) to full scope audits for Group purposes.
The components within the scope of our work accounted for 100% of Group revenue, Group loss before tax and Group total assets.
The 3 components not subject to full scope audits contained only balances that eliminated on consolidation. Significant balances
in the parent Company were audited separately to the materiality level noted above.
The work on those 12 reporting components (2016: 12) and the audit of the parent Company was performed by the Group team.
Revenue
Group materiality
Group materiality
£1m (2016: £645k)
£1m
Whole financial statements materiality
(2016: £645k)
£950k
Range of materiality at 12 components (£1k-£950k)
(2016: £300k to £645k)
£50k
Misstatements reported to the audit committee (2016: £32k)
5 We have nothing to report on the other information in the Annual Report
The Directors are responsible for the other information presented in the Annual Report together with the financial statements.
Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work,
the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on
that work we have not identified material misstatements in the other information.
Strategic Report and Directors’ Report
Based solely on our work on the other information:
• we have not identified material misstatements in the Strategic Report and the Directors’ Report;
•
•
in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance with the Companies Act 2006.
ANNUAL REPORT AND ACCOUNTS 2017
29
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Independent Auditor’s Report continued
to the members of DX (Group) plc
6 We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent Company financial statements are not in agreement with the accounting records and returns; or
•
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
7 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 26, the Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair view; 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; assessing
the Group and 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 they either intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
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 our opinion in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not 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 aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
8 The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for
the opinions we have formed.
James Ledward
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Arlington Business Park
Theale
Reading
RG7 4SD
19 October 2017
Company registered number 08696699
30
Consolidated Statement
of Comprehensive Income
for the year ended 30 June 2017
Notes
5
6
2017
Exceptional
items
£m
–
(80.7)
(80.7)
Trading
£m
291.9
(292.4)
(0.5)
–
–
–
–
(74.4)
1.0
(7.3)
(80.7)
–
–
(80.7)
1.0
(79.7)
–
(79.7)
7.2
(2.9)
(3.2)
(1.6)
–
–
–
(0.5)
(0.9)
(0.2)
(1.6)
0.2
(1.4)
–
(1.4)
(0.6)
0.1
9
9
9
10
11
21
Total
£m
291.9
(373.1)
(81.2)
7.2
(2.9)
(3.2)
(1.6)
(74.4)
1.0
(7.3)
(81.2)
(0.9)
(0.2)
(82.3)
1.2
(81.1)
–
(81.1)
2016
Total
£m
287.9
(370.2)
(82.3)
18.0
(3.0)
(3.1)
(2.1)
(88.4)
–
(3.7)
(82.3)
(0.5)
0.1
(82.7)
(1.7)
(84.4)
(0.1)
(84.5)
(42.1)
4.9
(39.7)
(40.3)
Revenue
Operating costs
Results from operating activities
Analysis of results from operating activities
Earnings before interest, tax, depreciation and
amortisation (“EBITDA”)
Depreciation
Amortisation of software and development costs
Amortisation of other intangibles
Impairment
Other exceptional items (income)
Other exceptional items (expenses)
Results from operating activities
Net finance costs
Share of results from associates
Loss before tax
Tax expense
Loss for the year
Other comprehensive expense not subsequently reclassified
Foreign currency translation differences
Total comprehensive expense for the year
Earnings/(loss) per share (pence):
Basic (and diluted)
Adjusted
Adjusted earnings per share is calculated after:
• excluding amortisation of other intangibles; and
• excluding exceptional items.
The notes on pages 38 to 58 form part of these financial statements.
ANNUAL REPORT AND ACCOUNTS 2017
31
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Consolidated Statement of Financial Position
as at 30 June 2017
Non-current assets
Property, plant and equipment
Intangible assets and goodwill
Investments in associates
Deferred tax assets
Total non-current assets
Current assets
Assets held for sale
Trade and other receivables
Current tax receivable
Cash and cash equivalents
Total current assets
Total assets
Equity
Share capital
Share premium
Translation reserve
Retained earnings
Total equity
Non-current liabilities
Loans and borrowings
Provisions
Total non-current liabilities
Current liabilities
Current tax payable
Loans and borrowings
Trade and other payables
Deferred income
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
13
14
16
24
13
17
18
19
20
20
20
22
23
22
25
2017
£m
12.0
38.7
–
1.4
52.1
3.5
43.3
1.8
2.0
50.6
102.7
2.0
–
–
14.0
16.0
4.8
6.3
11.1
–
15.9
40.1
19.6
75.6
86.7
102.7
2016
£m
17.3
113.3
2.0
1.3
133.9
–
39.1
–
4.3
43.4
177.3
2.0
–
–
98.1
100.1
6.2
3.2
9.4
0.7
7.7
36.6
22.8
67.8
77.2
177.3
The financial statements were approved by the Board of Directors on 19 October 2017 and signed on its behalf by:
Bob Holt
Chairman
Paul Murray
Director
The notes on pages 38 to 58 form part of these financial statements.
Company registered number 08696699
32
Company Statement of Financial Position
as at 30 June 2017
Non-current assets
Investments
Total non-current assets
Current assets
Other receivables
Total current assets
Total assets
Equity
Share capital
Share premium
Retained earnings
Total equity
Non-current liabilities
Loans and borrowings
Trade and other payables
Total non-current liabilities
Current liabilities
Current tax payable
Loans and borrowings
Trade and other payables
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
15
17
19
20
20
22
25
22
25
2017
£m
30.0
30.0
0.3
0.3
30.3
2.0
–
2.4
4.4
5.2
19.0
24.2
1.1
0.6
–
1.7
25.9
30.3
2016
£m
104.0
104.0
6.7
6.7
110.7
2.0
–
81.2
83.2
6.2
12.5
18.7
1.0
7.7
0.1
8.8
27.5
110.7
The financial statements were approved by the Board of Directors on 19 October 2017 and signed on its behalf by:
Bob Holt
Chairman
Paul Murray
Director
The notes on pages 38 to 58 form part of these financial statements.
Company registered number 08696699
ANNUAL REPORT AND ACCOUNTS 2017
33
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT
Consolidated Statement of Changes in Equity
for the year ended 30 June 2017
At 1 July 2015
Total comprehensive expense for the year
Loss for the year
Other comprehensive expense
Share premium cancellation
Total comprehensive expense for the year
Transactions with owners of the Company,
recognised directly in equity
Dividends
Share-based payment transactions
Total transactions with owners of the Company
At 30 June 2016
Total comprehensive expense for the year
Loss for the year
Other comprehensive expense
Total comprehensive expense for the year
Transactions with owners of the Company,
recognised directly in equity
Dividends
Total transactions with owners of the Company
At 30 June 2017
Notes
Share
capital
£m
2.0
–
–
–
–
–
–
–
2.0
–
–
–
–
–
2.0
20
Share
premium
£m
181.4
–
–
(181.4)
(181.4)
Translation
reserve
£m
0.1
–
(0.1)
–
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Retained
earnings
£m
10.7
(84.4)
–
181.4
97.0
(10.0)
0.4
(9.6)
98.1
(81.1)
–
(81.1)
(3.0)
(3.0)
14.0
Total
£m
194.2
(84.4)
(0.1)
–
(84.5)
(10.0)
0.4
(9.6)
100.1
(81.1)
–
(81.1)
(3.0)
(3.0)
16.0
In the prior year £181.4 million was transferred from share premium to retained earnings following approval to cancel the share
premium account by both the shareholders and the High Court of Justice.
The notes on pages 38 to 58 form part of these financial statements.
34
Company Statement of Changes in Equity
for the year ended 30 June 2017
At 1 July 2015
Total comprehensive expense for the year
Loss for the year
Share premium cancellation
Total comprehensive expense for the year
Transactions with owners of the Company,
recognised directly in equity
Dividends
Total transactions with owners of the Company
At 30 June 2016
Total comprehensive expense for the year
Loss for the year
Total comprehensive expense for the year
Transactions with owners of the Company,
recognised directly in equity
Dividends
Total transactions with owners of the Company
At 30 June 2017
Notes
Share
capital
£m
2.0
–
–
–
–
–
2.0
–
–
–
–
2.0
20
20
Share
premium
£m
181.4
–
(181.4)
(181.4)
–
–
–
–
–
–
–
–
Retained
earnings
£m
12.6
(102.8)
181.4
78.6
(10.0)
(10.0)
81.2
(75.8)
(75.8)
(3.0)
(3.0)
2.4
Total
£m
196.0
(102.8)
–
(102.8)
(10.0)
(10.0)
83.2
(75.8)
(75.8)
(3.0)
(3.0)
4.4
The notes on pages 38 to 58 form part of these financial statements.
ANNUAL REPORT AND ACCOUNTS 2017
35
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Consolidated Statement of Cash Flows
for the year ended 30 June 2017
Cash generated from operations
Interest paid
Tax paid
Net cash (used in)/generated from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Software and development expenditure
Acquisitions of Legal Post and First Post
Net cash used in investing activities
Net (decrease)/increase in cash before financing activities
Cash flows from financing activities
Movement on revolving credit facility
Movement on invoice discounting facility
Repayment of bank borrowings
Equity dividends paid
Loan issue costs paid
Net cash generated from/(used in) financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at end of year
The notes on pages 38 to 58 form part of these financial statements.
Notes
26
18
2017
£m
–
(0.6)
(1.4)
(2.0)
0.9
(1.8)
(2.6)
(0.3)
(3.8)
(5.8)
(6.5)
15.3
(1.8)
(3.0)
(0.5)
3.5
(2.3)
4.3
–
2.0
2016
£m
14.7
(0.4)
(3.6)
10.7
0.8
(2.3)
(4.2)
(3.1)
(8.8)
1.9
6.5
–
(1.2)
(10.0)
–
(4.7)
(2.8)
7.0
0.1
4.3
36
Company Statement of Cash Flows
for the year ended 30 June 2017
Cash generated from operations
Interest paid
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Investing activities
Net cash used in investing activities
Net increase in cash before financing activities
Cash flows from financing activities
Movement on revolving credit facility
Repayment of bank borrowings
Equity dividends paid
Loan issue costs paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The notes on pages 38 to 58 form part of these financial statements.
Notes
26
18
2017
£m
11.6
(0.2)
–
11.4
–
–
11.4
(6.5)
(1.8)
(3.0)
(0.1)
(11.4)
–
–
–
2016
£m
4.9
(0.2)
–
4.7
–
–
4.7
6.5
(1.2)
(10.0)
–
(4.7)
–
–
–
ANNUAL REPORT AND ACCOUNTS 2017
37
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Notes to the Financial Statements
for the year ended 30 June 2017
1 Reporting entity
The principal activity of DX (Group) plc (“the Company”) and its subsidiaries (together, “the Group” or “DX”) is the provision of
parcels, freight, mail and logistics delivery services. The Company is incorporated and domiciled in the United Kingdom. The address
of its registered office is: Ditton Park, Riding Court Road, Datchet, Slough, SL3 9GL. The registered number of the Company
is 08696699.
The Company was incorporated and registered in England and Wales on 19 September 2013 under the Companies Act 2006 as a
private company limited by shares with the name Tralee Properties Limited. The Company changed its name to DX Newco Limited
on 29 January 2014 and to DX (Group) Limited on 12 February 2014. The Company was reregistered as a public limited company
under the name DX (Group) plc on 19 February 2014.
On 20 February 2014 the Company (through a new wholly owned subsidiary, DX (VCP) Limited) acquired all of the issued share
capital of DX Holdings Limited and DX Secure Mail Limited from DX Finance Limited (a wholly owned subsidiary undertaking of the
former parent undertaking). As a result of these acquisitions DX (Group) plc is the parent undertaking of the subsidiaries acquired
from DX Group Limited.
On 27 February 2014 the Company’s shares were Admitted to the AIM market of the London Stock Exchange through a placing
of 185,000,000 Ordinary Shares of £0.01 each at £1.00 per Ordinary Share and a vendor placing of 15,525,500 Ordinary Shares
of £0.01 each at £1.00 per share.
2 Basis of preparation
Statement of compliance
The consolidated and Company financial statements have been prepared and approved by the Directors in accordance with
International Financial Reporting Standards (“IFRSs”) as adopted by the European Union (‘Adopted IFRSs’). The parent Company
financial information is shown separate to the consolidated financial information.
The consolidated financial statements were authorised for issue by the Board of Directors on 19 October 2017.
Judgements and estimates
The preparation of financial information in conformity with IFRSs requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount,
event or actions, actual amounts ultimately may differ from those estimates.
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set
out in the Chairman’s Statement on pages 3 to 5, the Financial Review on pages 6 to 8, and the Directors’ Report on pages 23 to 25.
These statements describe the financial position of the Group; its cash flows, liquidity position and borrowing facilities; the Group’s
objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments
and hedging activities; and its exposure to credit risk and liquidity risk. As at 30 June 2017 the Group had net current liabilities of
£25.0 million (2016: £24.4 million) and had a loss before tax of £82.3 million (2016: £82.7 million) for the year then ended. Of the net
current liabilities, £19.6 million (2016: £22.8 million) of deferred income included in current liabilities represents an obligation to
deliver a service but not a cash liability.
Following a review of the Group’s capital structure the Board has taken significant steps to strengthen the Group’s financial position.
As noted in note 22, the Company has entered into a binding agreement, subject to the required resolution explained below, on
9 October 2017 for a £24.0 million fundraising (the “Fundraising”) to be in the form of secured Loan Notes with conditional conversion
rights, to be subscribed for in two tranches. Tranche 1 of £16.3 million becomes receivable from the date of this report whilst the receipt
of Tranche 2 of £7.7 million is conditional upon agreement to the fundraising from existing finance providers, which the Directors are
confident of receiving once this report has been issued, and on shareholder approval (the “Resolution”) of the conversion rights to be
comprised in the Loan Notes, which will be sought as soon as reasonably practicable, and, in any case, by no later than 31 December 2017.
The Directors have prepared cash flow forecasts for a period to 30 June 2019 that indicate the fundraising is required in the next
six months. The Directors have concluded that the Group’s new capital structure, after receiving approval from the shareholders on
the convertibility of the Loan Notes, provides sufficient headroom to cushion against downside operational risks and one-off costs
whilst the Group carries out its turnaround.
38
If the Resolution to allow convertibility of the Loan Notes to equity is not passed by the Company’s shareholders, the receipt of
Tranche 2 will not proceed. In the event that the Resolution is not passed and therefore the new capital structure does not come
into effect, the Group would have some options available to it that might potentially avoid the Group being unable to meet its
obligations as they fall due. However, no assurance can be given that any such options would be successful, particularly given the
limited time that would be available to the Group. Such options might include:
•
•
seeking to agree with the Group’s existing lenders or other parties an alternative refinancing of the Existing Facilities; and
seeking to dispose of some or all of the Group’s assets or a merger or acquisition transaction involving the Company (although
there is no certainty that such sales or transactions could be realised in the available timeframe on acceptable terms, or at all).
As these actions require the participation, agreement or approval of external parties, the Directors are not confident that any such
alternative courses of action could be achieved in the limited time available, or that they ultimately would be successful. Accordingly,
the Directors believe that the successful completion of the issue of the Loan Notes represents the realistic practical option available
to the Company. The need for shareholder approval of the conversion therefore represents a material uncertainty that may cast
significant doubt about the Group’s and Company’s ability to continue as a going concern such that the they may be unable to
realise their assets and discharge their liabilities in the normal course of business.
Nevertheless, based on the Group’s expectation that the shareholders’ approval of the notes’ convertibility will be received, in addition
to the Group’s current trading and forecasts, the Directors believe that the Group will be able to meet its obligations as they fall due,
and accordingly have formed a judgement that it is appropriate to prepare the financial statements on a going concern basis. Therefore,
these financial statements do not include any adjustments that would result if the going concern basis of preparation was inappropriate.
3 Significant accounting policies
The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the
preceding year unless otherwise stated.
The financial statements have been prepared under the historical cost convention.
Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and
loss account.
The Group use alternative performance measures (“APMs”) to measure performance. These APMs are applied consistently from one
period to the next and the Directors believe that this information is important for the shareholders as it allows them to understand
the difference between the reported results and the trading performance excluding certain non-cash charges and items which are
not expected to recur. The Group presents EBITDA, adjusted PBT, adjusted EPS, underlying results from operating activities, which
are calculated as the statutory measures stated before amortisation of other intangible assets and exceptional items, including
related tax where applicable. Reconciliations between these APMs and statutory reported measures are shown in the strategic review.
The consolidated financial information is presented in sterling and, unless otherwise stated, has been rounded to the nearest
£0.1 million (£m).
Basis of consolidation
The financial information comprises a consolidation of the financial information of DX (Group) plc and all its subsidiaries. The financial
year ends of all entities in the Group are coterminous.
Subsidiaries are all entities over which the Group has control over the entity, which is when it is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect those returns through its power over the investee
generally accompanying a shareholding of more than half of the voting rights. Subsidiaries are fully consolidated from the date
on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The excess of the consideration transferred over the fair value of the Group’s share of the identifiable net assets acquired is recorded
as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference
is recognised directly in the statement of comprehensive income.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised
losses are also eliminated except to the extent they provide evidence of impairment of the asset transferred.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker
(“the CODM”). The CODM, who is responsible for allocating resources and assessing performance of operating segments, has been
identified as the Board of Directors.
ANNUAL REPORT AND ACCOUNTS 2017
39
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT
3 Significant accounting policies continued
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial information 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 information is presented in sterling, which
is the functional and presentation currency of the Company and all of the subsidiaries based in the United Kingdom. The functional
currency of the Group’s Irish operation is the euro.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated
at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined.
Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive income and
accumulated in the translation reserve.
Revenue
Revenue represents the value of sales, apportioned over the period to which it relates after excluding trade discounts, value added
tax and similar sales related taxes.
DX Exchange subscription income invoiced in advance is deferred and recognised as revenue on a straight-line basis over the period
in which the related service is provided. Deferred subscription income is included in the statement of financial position as deferred
income within current liabilities.
Revenue in respect of all other services (DX 1-Man, DX Courier, DX 2-Man, DX Secure, DX Mail and DX Logistics) is recognised on
delivery of the service to which it relates, based on agreed rates.
Property, plant and equipment
Property, plant and equipment are stated at historic purchase cost less accumulated depreciation. 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.
Depreciation is provided at the following annual rates in order to write off each asset on a systematic basis:
Land
Freehold buildings
Short leasehold properties
Plant, machinery and other equipment
Nil
2-2.5%
4-20%
10-33%
The assets’ residual values and useful lives are reviewed and adjusted if appropriate at each statement of financial position date.
Assets held for sale
A non-current asset is classified as held for sale if its carrying amount will be recovered principally through sale rather than through
continuing use, it is available for immediate sale and sale is highly probable within one year.
On initial classification as held for sale, non-current assets are measured at the lower of previous carrying amount and fair value
less costs to sell with any adjustments taken to profit or loss. The same applies to gains and losses on subsequent remeasurement
although gains are not recognised in excess of any cumulative impairment loss. Intangible assets and property, plant and equipment
once classified as held for sale or distribution are not amortised or depreciated.
Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets
of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets.
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill
are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing, which in the case of the Group represents one
cash-generating unit.
40
Notes to the Financial Statements continuedfor the year ended 30 June 2017 (b) Other intangible assets
Other intangible assets are stated at historic purchase cost less accumulated amortisation. Cost includes the original purchase price
of the asset and the costs attributable to implementing the expenditure for its intended use. Third party and internal development
costs are capitalised when the relevant criteria are met.
Amortisation is provided at annual rates of not less than 20% in order to write off each asset on a systematic basis.
(c) Impairment of non-financial assets
Assets that have an indefinite life, such as goodwill, are not subject to amortisation and are tested annually for impairment. Assets
that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. An impairment loss is recognised in the income statement when the asset’s carrying value
exceeds its recoverable amount. Its recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
Investments in associates
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and
operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power
of another entity.
Investments in associates are accounted for under the equity method and are recognised initially at cost. Goodwill on acquisitions
is tested annually for impairment and carried at cost less accumulated impairment.
The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of equity-
accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant
influence commences until the date that significant influence ceases.
Trade and other receivables
Trade receivables are recognised initially at fair value and subsequently at amortised cost, 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 significant delinquency in payments are considered indicators
that the trade receivable may be impaired.
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 income statement within other external charges. 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 other external charges
in the income statement.
Other receivables are non-interest bearing and are recognised initially at fair value and subsequently at amortised cost.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks.
Trade and other payables
Trade payables are obligations to pay for goods and services which have been acquired in the commercial operations of the Group.
Accounts payable are classified as current liabilities if payment is due within one year or less. If not they are presented as non-
current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised
cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over
the period of the borrowings using the effective interest method. Fair value is calculated based on the present value of future principal
and interest cash flows, discounted at the market rate of interest at the measurement date.
Leases
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the
Group. All other leases are classified as operating leases. For property leases, the land and building elements are treated separately
to determine the appropriate lease classification.
ANNUAL REPORT AND ACCOUNTS 2017
41
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT 3 Significant accounting policies continued
Operating leases
Assets leased under operating leases are not recorded in the statement of financial position. Rental payments are charged directly
to the statement of comprehensive income on a straight-line basis.
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be
estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation.
Taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that
it relates to items recognised directly in other comprehensive income or in equity. In this case the tax is also recognised directly
in other comprehensive income or in equity.
(a) Current taxation
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted by
the statement of financial position date. 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.
(b) Deferred taxation
Deferred tax is recognised using the statement of financial position liability method, on temporary differences arising between
the tax base of assets and liabilities and their carrying amount in the financial statements. The following temporary differences are
not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor
taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they
will probably not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that have been enacted or substantively
enacted by the statement of financial position date and are expected to apply when the related deferred tax asset is realised or the
deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the
temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each statement of financial position date.
Deferred tax assets and liabilities are offset against each other when there is a legally enforceable right to set off current assets
against current liabilities and it is the intention to settle these on a net basis.
Pension costs
The Group operates a number of defined contribution pension schemes. The assets of the schemes are held separately from those
of the Group in independently administered funds. The amount charged to the income statement in respect of pension costs and
other post-retirement benefits is the contributions payable in the year. Differences between contributions payable in the year and
contributions actually paid are shown as amounts either payable or receivable in the statement of financial position.
Share-based payment transactions
The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount
recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance
conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards
that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with
non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is
no true-up for differences between expected and actual outcomes.
Exceptional items
The Group treats certain items which are considered to be one-off and not representative of the underlying trading of the Group
as exceptional in nature.
The Directors apply judgement in assessing the particular items, which by virtue of their scale and nature should be classified as
exceptional items. The Directors consider that separate disclosure of these items is relevant to an understanding of the Group’s
financial performance.
Critical accounting estimates and assumptions
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
42
Notes to the Financial Statements continuedfor the year ended 30 June 2017 The Group makes certain estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The areas involving a higher degree of judgement or complexity, or areas where assumptions
and estimates are significant to the consolidated financial information are considered to relate to:
(a) Carrying value of goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy with detailed
disclosure in note 14. In assessing impairment, the majority of goodwill has been allocated to the cash-generating unit which is
the Group as a whole, as it arose on the reverse acquisition referred to in note 1 and therefore relates to the Group as a whole.
The remaining goodwill of £2.4 million relates to the Legal Post and First Post acquisitions, which is allocated to a separate cash-
generating unit. The recoverable amount of the goodwill is measured as the higher of its fair value less costs to sell and value in use.
Value in use calculations require the estimation of future cash flows to be derived from the cash-generating units and to select an
appropriate discount rate in order to calculate their present value. The estimation of the timing and value of underlying projected
cash flows and the selection of appropriate discount rates involves management judgement. Subsequent changes to these
estimates or judgements may impact the carrying value of the goodwill.
(b) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable
that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. The amount of the
provision requires estimation of the extent and timing of probable outflows of resources and to select an appropriate discount rate
in order to calculate their present value. The estimation of the timing and value of underlying projected outflows of resources and
the selection of appropriate discount rates involves management judgement. These judgements are informed with reference to
contractual obligations, historical data and specifically identified factors.
Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (principally interest rate risk), credit risk and liquidity risk.
The Group uses derivative financial instruments to hedge certain risk exposures where it considers it appropriate.
The policy for each of the above risks is described in more detail below.
(a) Market risk
The Group finances its operations through a mixture of Ordinary Shares and bank borrowings. The Group’s interest rate risk arises
from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially
offset by cash held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
The Group has previously managed its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate
swaps have the economic effect of converting borrowings from floating rates to fixed rates. However, no such swap arrangements
are currently considered necessary in the current low interest climate and given the low level of ongoing debt.
The Group is exposed to a negligible element of foreign exchange risk, with only a limited number of supplies from abroad and the
majority of sales made in the UK.
(b) Credit risk
The Group’s principal current assets are cash deposits, cash and accounts receivable. The credit risk associated with cash is limited.
The principal credit risk arises from non-recovery of trade receivables. In order to maintain credit risk, limits are set for customers
based on a combination of payment history and third party credit references. Credit limits are reviewed by the credit controller on
a regular basis in conjunction with debt ageing and collection history.
(c) Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash
safely and profitably. Short-term flexibility is achieved by the use of an invoice discounting facility. The maturity of borrowings is
set out in note 22.
Capital risk management
The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to
shareholders through optimising the debt and equity balance. The capital structure of the Group consists of debt, which includes
the borrowings disclosed in note 22, cash and cash equivalents, and equity attributable to equity holders of the parent comprising
issued capital, reserves and retained earnings as disclosed in notes 19 and 20 and the statement of changes in equity. In order to
maintain or adjust the capital structure, the Group may issue new shares, raise new borrowings or sell assets to reduce debt. The
Group’s capital is not restricted.
ANNUAL REPORT AND ACCOUNTS 2017
43
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT 4 New standards and interpretations not yet adopted
The following new standards and amendments are in issue but not yet effective and have not been adopted early by the Group:
•
•
•
IFRS 9 ‘Financial instruments’ – new standard for financial instruments accounting;
IFRS 15 ‘Revenue from contracts with customers’ – new standard for revenue recognition; and
IFRS 16 ‘Leases’ – new standard for lease accounting.
The Group is currently assessing the impact of adopting IFRS 16, which will result in the recognition of assets and liabilities relating
to leases which are currently being accounted for as operating leases, to have a material impact on the consolidated results and
financial position of the Group.
The implementation of the other new standards is not expected to have a material impact:
• under IFRS 15 revenue is recognised when the customer obtains control of goods and services transferred by the Group and the
related performance obligations have been satisfied. The Group does not expect IFRS 15 to have a significant impact on the total
revenue recognised for customer contracts; and
IFRS 9 will result in changes to the measurement and disclosure of financial instruments, and introduces a new expected loss
impairment model. The Group does not currently expect adoption of the standard to have a significant impact on its consolidated
results or financial position, but it will result in increased disclosures.
•
5 Segment information
Revenue:
Parcels and freight
Mail and packets
Logistics
Total revenue
EBITDA
Depreciation and amortisation
Exceptional items
Results from operating activities
Finance charges (net)
Share of results from associates
Loss before tax
2017
£m
160.3
113.4
18.2
291.9
7.2
(7.7)
(80.7)
(81.2)
(0.9)
(0.2)
(82.3)
2016
£m
159.3
113.8
14.8
287.9
18.0
(8.2)
(92.1)
(82.3)
(0.5)
0.1
(82.7)
The Board of Directors is considered to be the chief operating decision-maker (“the CODM”). Due to the integrated nature of the
operations the CODM considers there to be only one operating unit and reviews profitability, assets and liabilities on a Group basis.
The CODM also considers there to be only one material geographical segment, being the United Kingdom and the Republic
of Ireland.
6 Operating costs
Other external charges
Employee benefit expense (see note 8)
Depreciation of property, plant and equipment
Amortisation of intangible assets
Profit on sale of property, plant and equipment
Operating lease rentals
Other operating income
Impairment charges
Total operating costs
Trading activities
Exceptional items (see note 9)
Total operating costs
44
2017
£m
190.8
79.7
2.9
4.8
(0.2)
21.1
(0.4)
74.4
373.1
292.4
80.7
373.1
2016
£m
181.7
74.7
3.0
5.2
(0.1)
17.4
(0.1)
88.4
370.2
278.1
92.1
370.2
Notes to the Financial Statements continuedfor the year ended 30 June 2017 Amounts charged by the Group’s auditor are as follows:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and its associates for other services to the Group:
The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Other services:
– tax services
– other1
Total non-audit fees
Total fees
2017
£000
87
91
178
80
471
551
729
2016
£000
33
87
120
60
28
88
208
1
Includes due diligence fees of £416,000 for the proposed reverse takeover of the Distribution division of John Menzies plc. As announced on 14 August 2017
discussions with John Menzies plc ended subsequent to the year end.
Fees payable to KPMG LLP and their associates for non-audit services to the Company are disclosed on a consolidated basis and
therefore no separate disclosure for DX (Group) plc on an individual basis is required.
7 Directors’ emoluments
Total remuneration
Emoluments
Amounts accrued under money purchase pension schemes
Pension benefits
Highest paid Director
Emoluments
Details of transactions with Directors are disclosed in note 31.
8 Employees
Employee benefit expense
Wages and salaries
Social security costs
Other pension costs
Share-based payment transactions
Average number of persons employed (including Executive Directors)
Sales and marketing
Operations networks
Management and administration
2017
£000
934
2017
£000
11
2017
£000
352
2017
£m
72.3
6.3
1.1
–
79.7
2016
£000
825
2016
£000
–
2016
£000
375
2016
£m
67.4
5.8
1.1
0.4
74.7
2017
Number
98
2,662
284
3,044
2016
Number
116
2,623
243
2,982
ANNUAL REPORT AND ACCOUNTS 2017
45
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT 9 Exceptional items
Impairment charges
Property dilapidations provision
Restructuring, professional costs and other
Senior management departures
CMA investigation
Additional auto enrolment costs
VAT refund
Planning and acquisition costs on proposed hub
Share-based payments accelerated charge
2017
£m
74.4
2.8
2.6
1.0
0.6
0.3
(1.0)
–
–
80.7
2016
£m
88.4
–
–
–
–
–
–
3.3
0.4
92.1
Impairment charges
During the year management reviewed the carrying value of the Group’s goodwill and concluded that an impairment charge of
£72.4 million was required (2016: £88.4 million). This charge followed the continued challenging industry conditions and decline
in profits since the prior year which suggested a further indicator of impairment. The recoverable amount of goodwill (in both the
current and prior year) is calculated with reference to its value in use based on future cash flow projections. The key assumptions
used in the calculation are disclosed in note 14.
In addition, management concluded that the Group’s non-controlling interest in associate Gnewt Cargo Limited (“Gnewt”) should be
fully impaired following a period of challenging trading for Gnewt, representing a £2.0 million impairment charge. Subsequent to the
year end on 31 August 2017 the Group disposed of its interest in Gnewt for £1.
Property dilapidations provision
Provisions have been made for dilapidation costs in respect of leasehold properties that we have vacated or where there is a possible
exit within two years. This represents a change in methodology of the provision estimate from a general provision in the prior year
to specific provisions in the current year.
Restructuring, professional costs and other
Professional fees of £1.1 million were incurred relating to the proposed reverse takeover of John Menzies Distribution Limited (“MDL”)
that was announced on 31 March 2017. As previously reported on 14 August 2017 discussions with MDL were terminated.
Costs of £1.3 million were incurred as a result of restructuring and professional costs relating to the refinancing of the Group.
£0.2 million of other costs were incurred in respect of external legal fees.
Senior management departures
Amounts of £1.0 million represent payments to former members of the Executive Team following their departure from the Group.
CMA investigation
As previously reported, in July 2016 the Competition & Markets Authority (“CMA”) commenced a review of the acquisitions of Legal
Post and First Post, serving an Initial Enforcement Order at the same time, which halted our integration process. This order was
revoked in September allowing us to recommence the integration process. The Group incurred £0.6 million of costs in the period
as a result of this process.
Additional auto enrolment costs
Additional auto enrolment costs are in relation to the underpayment of contributions in the financial years 30 June 2014 to
30 June 2016.
VAT refund
Prior to the end of the financial year the Group was notified of a VAT refund arising from a long-standing dispute with HMRC
in respect of VAT paid on professional fees. Amounts of £1.0 million were received subsequent to the year end.
Planning and acquisition costs on proposed hub
This £3.3 million cost in the prior year included planning and acquisition costs relating to a proposed new hub which were expensed
following the decision by the local authority not to approve and grant planning permission.
46
Notes to the Financial Statements continuedfor the year ended 30 June 2017 Share-based payments accelerated charge
This non-cash charge relating to share-based payment arrangements followed the cancellation of the Company Share Option Plan
(“CSOP”) and Share purchase plan (equity-settled) (“SAYE”) in the prior year. The £0.4 million accelerated charge represented the
remaining amount of the total grant-date fair value of the share-based payment awards granted to employees not previously recognised
as an expense, with a corresponding amount added back in equity. The Value Creation Plan (“VCP”) as referred to in the Governance
Report remains in operation.
10 Net finance costs
Finance income
Bank interest
Total finance income
Finance costs
Interest on bank loans and other
Amortisation of financing costs
Total finance costs
Net finance costs
11 Income tax expense
(A) Analysis of charge in year
Current tax
United Kingdom corporation tax
Current year
Adjustments in respect of prior periods
Total United Kingdom corporation tax
Overseas taxation
Total current tax
Deferred tax
Current year
Adjustments in respect of prior periods
Changes in tax rates
Total deferred tax
Tax expense
Trading
Exceptional items
Tax expense
2017
£m
–
–
0.6
0.3
0.9
0.9
2017
£m
1.5
0.1
1.6
(0.5)
1.1
0.5
(0.3)
(0.1)
0.1
1.2
0.2
1.0
1.2
2016
£m
–
–
0.4
0.1
0.5
0.5
2016
£m
(1.5)
0.2
(1.3)
(0.4)
(1.7)
(0.1)
0.3
(0.2)
–
(1.7)
(1.7)
–
(1.7)
ANNUAL REPORT AND ACCOUNTS 2017
47
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT 11 Income tax expense continued
(B) Factors affecting the tax expense for year
The tax expense for the year differs from the expected amount that would arise using the weighted average rate of corporation tax
in the UK for each year. The differences are explained below:
Loss before tax
Loss before tax at the standard rate of UK corporation tax of 19.75% (2016: 20.0%)
Factors affecting charge for year:
– Impairment charges not deductible for tax purposes
– Other exceptional charges not deductible for tax purposes
– Adjustments in respect of prior years
– Effect of different tax rates
– Other
Tax expense
2017
£m
(82.3)
16.3
(14.7)
(0.2)
(0.2)
(0.1)
0.1
1.2
2016
£m
(82.7)
16.5
(17.7)
(0.7)
0.1
(0.2)
0.3
(1.7)
(C) Factors that may affect future tax charges
The UK corporation tax rate is 19% with effect from 1 April 2017. A reduction to 17% (effective 1 April 2020) was substantively
enacted on 6 September 2016. This will reduce the Group’s future current tax charge accordingly. The deferred tax asset at
30 June 2017 has been calculated based on these rates.
12 Loss attributable to the Company
The loss for the year includes a loss of £75.8 million (2016: £102.8 million loss) attributable to the Company after an exceptional
impairment charge of £80.0 million (2016: £106.8 million).
13 Property, plant and equipment / Assets held for sale
Cost
At 1 July 2015
Additions
Disposals
At 30 June 2016
At 1 July 2016
Additions
Disposals
Transferred to assets held for sale
At 30 June 2017
Depreciation
At 1 July 2015
Charge for the year
Disposals
At 30 June 2016
At 1 July 2016
Charge for the year
Disposals
Transferred to assets held for sale
At 30 June 2017
Net book value
At 30 June 2017
At 30 June 2016
Freehold
land and
buildings
£m
Short
leasehold
land and
buildings
£m
Plant and
equipment
£m
Vehicles
£m
13.1
–
(1.0)
12.1
12.1
–
(1.3)
(5.3)
5.5
4.8
0.2
(0.3)
4.7
4.7
0.2
(0.6)
(1.8)
2.5
3.0
7.4
15.0
1.2
–
16.2
16.2
1.2
–
–
17.4
11.6
0.8
–
12.4
12.4
0.8
–
–
13.2
4.2
3.8
42.7
1.2
–
43.9
43.9
0.6
(7.1)
–
37.4
35.8
2.0
–
37.8
37.8
1.9
(7.1)
–
32.6
4.8
6.1
0.3
–
–
0.3
0.3
–
(0.3)
–
–
0.3
–
–
0.3
0.3
–
(0.3)
–
–
–
–
Total
£m
71.1
2.4
(1.0)
72.5
72.5
1.8
(8.7)
(5.3)
60.3
52.5
3.0
(0.3)
55.2
55.2
2.9
(8.0)
(1.8)
48.3
12.0
17.3
The cost of land not being depreciated is £2.8 million (2016: £2.8 million).
48
Notes to the Financial Statements continuedfor the year ended 30 June 2017 Prior to the year end, five freehold properties with a cost of £5.3 million and a carrying value of £3.5 million were put up for sale by the
Group. These assets were therefore transferred to held for sale within current assets. Subsequent to the year end on 29 September 2017
the Group completed a sale and leaseback of these five freehold properties for an aggregate cash consideration of £4.5 million.
14 Intangible assets and goodwill
Cost
At 1 July 2015
Additions
Disposals
At 30 June 2016
At 1 July 2016
Additions
Disposals
At 30 June 2017
Amortisation
At 1 July 2015
Charge for the year
Impairment
Disposals
At 30 June 2016
At 1 July 2016
Charge for the year
Impairment
Disposals
At 30 June 2017
Net book value
At 30 June 2017
At 30 June 2016
Goodwill
£m
Software and
development
costs
£m
Customer
relationships
£m
Trademarks
and domain
names
£m
Outstanding
orders
£m
189.1
2.4
–
191.5
191.5
–
–
191.5
0.7
–
88.4
–
89.1
89.1
–
72.4
–
161.5
30.0
102.4
27.9
4.2
–
32.1
32.1
2.6
(0.7)
34.0
20.6
3.1
–
–
23.7
23.7
3.2
–
(0.7)
26.2
7.8
8.4
8.1
1.0
–
9.1
9.1
–
–
9.1
5.2
1.6
–
–
6.8
6.8
1.4
–
–
8.2
0.9
2.3
1.0
–
–
1.0
1.0
–
–
1.0
0.3
0.5
–
–
0.8
0.8
0.2
–
–
1.0
–
0.2
0.4
–
–
0.4
0.4
–
–
0.4
0.4
–
–
–
0.4
0.4
–
–
–
0.4
–
–
Total
£m
226.5
7.6
–
234.1
234.1
2.6
(0.7)
236.0
27.2
5.2
88.4
–
120.8
120.8
4.8
72.4
(0.7)
197.3
38.7
113.3
Goodwill has an indefinite useful life and is subject to annual impairment testing. The goodwill all relates to the Group’s principal
activity therefore has been allocated to the cash-generating unit which represents the Group as a whole for the purposes of
impairment testing.
The £30.0 million (2016: £102.4 million) recoverable amount of the goodwill has been calculated with reference to its value in use.
The key assumptions used in this calculation are shown below:
Impairment charge recognised (see note 9)
Period on which management approved forecasts are based
Growth rate applied beyond approved forecast period
Maximum discount rate
2017
2016
£72.4m
Two years
1.5%
15.0%
£88.4m
One year
2.2%
8.8%
The cash flow projections are based on the budget approved by the Board for the forthcoming financial year including 12 months
beyond. Cash flows beyond these 24 months are extrapolated with reference to historical trends, expected developments, and using
estimated growth rates, not exceeding the long-term growth rate stated above.
Forecasts assume that there is a continued decline in the DX Exchange market in line with recent years, although this is more than
offset by the expected rate of growth in the parcels market, therefore the Directors consider that the appropriate growth rate to use
is that issued by the Institute for Fiscal Studies for the UK economy as a whole. A 1% change in the growth rate or the discount rate
have a £1.2 million and £2.2 million impact respectively on the carrying value of goodwill.
ANNUAL REPORT AND ACCOUNTS 2017
49
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT 15 Investments
Company
Cost
At 1 July 2015
Additions
Disposals
At 30 June 2016
At 1 July 2016
Additions
Disposals
At 30 June 2017
Provisions
At 1 July 2015
Impairment
At 30 June 2016
At 1 July 2016
Impairment
At 30 June 2017
Net book value
At 30 June 2017
At 30 June 2016
Shares
in Group
companies
£m
Loans to
Group
companies
£m
0.1
–
–
0.1
0.1
–
–
0.1
–
0.1
0.1
0.1
–
0.1
–
–
206.7
4.0
–
210.7
210.7
6.0
–
216.7
–
106.7
106.7
106.7
80.0
186.7
30.0
104.0
Total
£m
206.8
4.0
–
210.8
210.8
6.0
–
216.8
–
106.8
106.8
106.8
80.0
186.8
30.0
104.0
The carrying value of £30.0 million (2016: £104.0 million) of loans to Group companies has been calculated with reference to its
value in use, applying the same assumptions used for the value in use of Group goodwill as shown in note 14.
At 30 June 2017 DX (Group) plc owned, directly or indirectly, 100% of each class of issued shares of the following companies, save
that in the case of DX (VCP) Limited, in which 8,856 Ordinary £0.01 Shares are by the DX (Group) plc, whilst certain employees hold
a minority interest in the Company. All directly and indirectly owned companies form part of the consolidated results:
Directly owned:
DX (VCP) Limited
Indirectly owned:
DX Network Services Limited
DX Secure Limited
DX Network Services Ireland Limited (registered and operates in the Republic of Ireland)
DX Freight Limited
DX Holdings Limited
DX Secure Mail Limited
DX Services Limited
DX McBride Limited
Ewenny Limited
QYJ Limited
DX (EBT Trustees) Limited
DX Business Direct Limited
DX Electronic Services Limited
Special Mail Services Limited
Principal activity
Intermediate holding company
Mail services
In Members’ Voluntary Liquidation
Mail services
In Members’ Voluntary Liquidation
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Dormant
Dormant
Dormant
Dormant
The above companies are registered and operate in England and Wales unless otherwise stated.
The registered office of all of the above companies is the same as that of the Company, with the exception of DX Network Services
Ireland Limited which has a registered office of Unit 6B, Northern Cross Business Park, Finglas, Dublin 11.
During the year ended 30 June 2015 the trade and assets of DX Secure Limited and DX Freight Limited were transferred in entirety
to DX Network Services Limited. Further to the completion of the transfers, the resulting non-trading shell company subsidiaries
have no assets or third party liabilities and are being eliminated by way of a Members’ Voluntary Liquidation. These two companies
are exempt from preparing accounts.
50
Notes to the Financial Statements continuedfor the year ended 30 June 2017 16 Investments in associates
Gnewt Cargo Limited
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Group’s share of net assets
Goodwill
Carrying amount of investment
Group
2017
£m
0.2
0.7
–
(0.9)
–
–
–
–
2016
£m
0.3
0.9
–
(0.8)
0.4
0.2
1.8
2.0
Company
2017
£m
2016
£m
–
–
–
–
–
–
–
–
During the year the Group fully impaired its 49.8% interest in Gnewt Cargo Limited (“Gnewt”) following a period of challenging
trading for Gnewt. Subsequent to the year end on 31 August 2017 the Group disposed of its 49.8% interest in Gnewt for £1.
–
–
–
–
–
–
–
–
2016
£m
–
–
–
6.7
–
6.7
2016
£m
–
Group
Company
2017
£m
23.5
2.6
17.2
–
–
43.3
Group
2017
£m
2.0
2016
£m
21.2
2.6
15.3
–
–
39.1
2016
£m
4.3
2017
£m
–
–
–
0.3
–
0.3
Company
2017
£m
–
Number
(000)
200,525
£000
2,005
17 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Amounts owed by subsidiary undertakings
Amounts owed by associates (see note 31)
18 Cash and cash equivalents
Cash and cash equivalents
19 Share capital
Allotted, called up and fully paid – 2016 and 2017
Group and Company
Ordinary Shares of 1p each
The holders of Ordinary Shares are entitled to receive dividends when declared and are entitled to one vote per share at meetings of
the Company.
There were no changes in share capital during the year.
ANNUAL REPORT AND ACCOUNTS 2017
51
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT 20 Share premium and reserves
Group
At 1 July 2015
Loss for the year
Exchange adjustments
Share premium cancellation
Dividends
Share-based payment transactions
At 30 June 2016
At 1 July 2016
Loss for the year
Dividends
At 30 June 2017
Company
At 1 July 2015
Loss for the year
Share premium cancellation
Dividends
At 30 June 2016
At 1 July 2016
Loss for the year
Dividends
At 30 June 2017
Share
premium
£m
Translation
reserve
£m
Retained
earnings
£m
181.4
–
–
(181.4)
–
–
–
–
–
–
–
0.1
–
(0.1)
–
–
–
–
–
–
–
–
Share
premium
£m
181.4
–
(181.4)
–
–
–
–
–
–
10.7
(84.4)
–
181.4
(10.0)
0.4
98.1
98.1
(81.1)
(3.0)
14.0
Retained
earnings
£m
12.6
(102.8)
181.4
(10.0)
81.2
81.2
(75.8)
(3.0)
2.4
Share premium cancellation
At a shareholder General Meeting on 24 March 2016 the shareholders approved a special resolution to cancel the share premium
account which was subsequently approved by the High Court of Justice on 20 April 2016. As a result, £181.4 million was transferred
from the share premium account to retained earnings in the prior year.
21 Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 June 2017 is based on the loss after exceptional items for the year of £81.1 million
(2016: £84.4 million loss) and average number of shares in issue of 200.5 million (2016: 200.5 million) calculated as follows:
Loss for the year
2017
Exceptional
items
£m
(79.7)
Trading
£m
(1.4)
2016
Total
£m
(84.4)
2016
Number
(000)
Total
£m
(81.1)
2017
Number
(000)
Number of Ordinary Shares at 30 June
200,525
200,525
Loss per share
2017
Exceptional
items
p
Total
p
(39.7)
(40.3)
2016
Total
p
(42.1)
Trading
p
(0.6)
Diluted earnings per share
There is no dilution of the basic earnings per share at 30 June 2017 (2016: no dilution). Dilution is dependent on share price
movements therefore there remains the possibility for future dilution of earnings per share, albeit the Directors consider this
possibility as remote and any financial impact would be immaterial.
52
Notes to the Financial Statements continuedfor the year ended 30 June 2017 22 Loans and borrowings
(A) Third party
Non-current liabilities
Bank loans
Deferred loan issue costs
Current liabilities
Invoice discounting facility
Revolving credit facility
Bank loans
Group
2017
£m
5.2
(0.4)
4.8
15.3
–
0.6
15.9
2016
£m
6.4
(0.2)
6.2
–
6.5
1.2
7.7
Company
2017
£m
5.2
–
5.2
–
–
0.6
0.6
2016
£m
6.4
(0.2)
6.2
–
6.5
1.2
7.7
Amounts due under the bank term loan facility and the revolving credit facility are secured by means of a charge over the assets of
subsidiary undertakings within the Group.
(B) Terms and conditions of outstanding loans were as follows:
At 30 June 2016
Bank term loan
At 30 June 2017
Bank term loan
All loans are denominated in sterling.
Nominal
interest rate
LIBOR + 2.00%
Year of
maturity
2017
Nominal
interest rate
LIBOR + 3.50%
Year of
maturity
2018
Face
value
£m
7.6
Face
value
£m
5.8
Carrying
amount
£m
7.6
Carrying
amount
£m
5.8
During the year the Group completed a refinancing on its loans and borrowings. The Group entered into a £22.0 million invoice
discounting facility up to 30 September 2018 with an interest rate of LIBOR plus 3.50%, replacing the existing revolving credit facility
which was closed during the year. Drawings of £15.3 million were made under this facility as at 30 June 2017. The term loan was also
extended by a year to 30 September 2018 with an interest rate on the revised term of LIBOR plus 3.50%.
Subsequent to the year end the Group entered into an unsecured loan agreement with GCM Partners II LP, a fund controlled by its
major shareholder Gatemore Capital Management LLP (“Gatemore”), for a loan to the Group of £2.0 million. Interest on the loan is
10% per annum. These funds were used to enable the Group to repay its bank term loan in full. There were no early repayment costs
incurred by the Group for the repayment of the term loan.
As referred to in note 2 to the Accounts, the Group also entered into an agreement subsequent to the year end for a £24.0 million
fundraising in the form of secured Loan Notes with conditional conversion rights. As previously mentioned, the Board considers
that a fundraising by way of Loan Notes with conditional conversion rights is the most appropriate route for the Group to raise the
capital it needs in the timescale available.
Loan Notes to be issued in two tranches:
• Tranche 1 of £16.3 million to be issued principally to Gatemore and the new Directors. The existing £2.0 million unsecured loan
from Gatemore referred above is rolled into the Tranche 1 subscription; and
• Tranche 2 of £7.7 million to be issued principally to Hargreave Hale Limited acting as investment manager for Marlborough
Special Situations Fund (“Hargreave Hale”), conditional on shareholder approval of conversion rights.
Subject to receiving the requisite shareholder approvals, these convertible Loan Notes will be capable of conversion at 10 pence per
new DX share, which represents a premium of c.28% to the average closing price of DX Ordinary Shares over the 20 trading days
immediately prior to 9 October 2017.
ANNUAL REPORT AND ACCOUNTS 2017
53
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT 22 Loans and borrowings continued
The Loan Notes will have a term of 36 months. Interest on the Loan Notes is at 8.0% per annum, accruing monthly from the date
of issue and payable annually in arrears until conversion to new DX shares. On the application of the Company, and at the election
of each Lender, interest due to that Lender on any interest payment date may be rolled into the principal as Payment in Kind (“PIK”).
Interest on Tranche 1 will increase if (a) the requisite shareholder approvals are not obtained, and (b) security on the Loan Notes is
not granted prior to 31 December 2017 (fixed charge on certain freehold properties and a floating charge over the entire undertaking
of the Group), in each case by 8.0%, to 24.0% in total.
The Company will seek shareholder authority for the issue of new shares and disapplication of pre-emptive rights to permit the
conversion of the full amount of the Loan Notes, plus any PIK interest thereon, which is a condition to the subscription of the
Tranche 2 Loan Notes, by no later than 31 December 2017.
23 Provisions
At 1 July 2015
(Credited)/charged to income statement
Utilised
At 30 June 2016
At 1 July 2016
(Credited)/charged to income statement
Utilised
At 30 June 2017
Property
dilapidation
costs
£m
Insurance
provision
£m
Other
provisions
£m
1.9
(0.7)
–
1.2
1.2
3.1
–
4.3
0.9
1.1
(0.9)
1.1
1.1
1.3
(1.4)
1.0
0.7
0.7
(0.5)
0.9
0.9
0.7
(0.6)
1.0
Total
£m
3.5
1.1
(1.4)
3.2
3.2
5.1
(2.0)
6.3
As disclosed in the accounting policies, management uses judgement to determine appropriate provisions to recognise, in particular,
for the amounts and timing of outflows.
Provisions are made for dilapidation costs for leased properties (that have been vacated or where there is a possible exit within
two years), motor insurance claims not yet settled, and other provisions including future losses arising from onerous property lease
contracts. The provisions are expected to be utilised over the period to June 2030.
The property dilapidation costs provision represents management’s judgement, for amounts that could be payable for leased
properties that have been vacated or where there is a possible exit within two years. Management uses judgement with reference
to historical data and specifically identified factors, to determine the amount and timing of outflows, and thus the provision required.
In addition, the Group self insures against certain risks and based on such risks provides for all estimated future expected liabilities
relating to the current and prior financial years, based on the level of historic claims experience.
24 Deferred tax assets
At 1 July 2015
Credited to the income statement
At 30 June 2016
At 1 July 2016
Credited to the income statement
At 30 June 2017
54
Group
£m
Company
£m
1.3
–
1.3
1.3
0.1
1.4
–
–
–
–
–
–
Notes to the Financial Statements continuedfor the year ended 30 June 2017 The deferred tax asset is made up as follows:
Intangible assets
Accelerated capital allowances
Other timing differences
Group
2017
£m
(0.1)
1.3
0.2
1.4
2016
£m
(0.7)
1.9
0.1
1.3
Company
2017
£m
–
–
–
–
2016
£m
–
–
–
–
The unrecognised deferred tax assets of the Group at 30 June 2017 total £1.1 million (2016: £1.2 million) which, in the opinion of the
Directors, are not expected to be utilised in the future. There are no unrecognised deferred tax assets for the Company at 30 June 2017
(2016: £nil).
25 Trade and other payables
Non-current liabilities
Amounts owed to subsidiary undertakings
Current liabilities
Trade payables
Social security and other taxes
Other payables
Accruals
Amounts owed to subsidiary undertakings
Group
2017
£m
–
–
14.1
5.5
2.3
18.2
–
40.1
2016
£m
–
–
16.5
5.6
1.2
13.3
–
36.6
Company
2017
£m
19.0
19.0
–
–
–
–
–
–
2016
£m
12.5
12.5
–
–
–
–
0.1
0.1
Non-current amounts owed to subsidiary undertakings bear interest at the interest rate payable by the Group on its bank borrowings
(see note 22) and are repayable no earlier than 30 June 2020.
26 Reconciliation of loss for the year to cash generated from operations
Cash flows from operating activities
Loss for the period
Adjustments for:
– Impairment charges
– Depreciation
– Amortisation of intangible assets
– Finance costs/(income)
– Tax (credit)/expense
– Gain on sale of property, plant and equipment
– Share of results from associates
– Equity-settled share-based payment transactions
Net cash profit
Changes in:
– Trade and other receivables
– Trade and other payables
– Deferred income
– Provisions
Net change in working capital
Cash generated from operations
Group
2017
£m
2016
£m
Company
2017
£m
2016
£m
(81.1)
74.4
2.9
4.8
0.9
(1.2)
(0.2)
0.2
–
0.7
(4.1)
3.6
(3.2)
3.0
(0.7)
–
(84.4)
(75.8)
(102.8)
88.4
3.0
5.2
0.5
1.7
(0.1)
(0.1)
0.4
14.6
(0.3)
1.8
(1.2)
(0.2)
0.1
14.7
80.0
–
–
(5.1)
1.1
–
–
–
0.2
6.2
5.2
–
–
11.4
11.6
106.8
–
–
(4.8)
1.0
–
–
–
0.2
(6.5)
11.2
–
–
4.7
4.9
ANNUAL REPORT AND ACCOUNTS 2017
55
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT 27 Financial instruments
Short-term debtors and creditors have been excluded from the following disclosures.
(A) Interest rate profile
The table below shows the levels of fixed and floating third-party financial liabilities.
Bank term loan
Fixed rate
Floating rate
Total
2017
£m
–
5.8
5.8
2016
£m
–
7.6
7.6
(B) Fair values
Financial instruments utilised by the Group during the years ended 30 June 2016 and 30 June 2017, together with information
regarding the methods and assumptions used to calculate fair values, can be summarised as follows:
Current assets and liabilities
Financial instruments included within current assets and liabilities (excluding cash and borrowings) are generally short-term
in nature and accordingly their fair values approximate to their book values.
Borrowings and cash
The carrying values of cash and short-term borrowings approximate to their fair values because of the short-term maturity
of these instruments.
The financial instruments held by the Group do not, either individually or as a class, create potentially significant exposure to the
market, credit, liquidity or cash flow interest rate risk.
Fair values of financial assets and liabilities
Carrying amount and fair value
The fair value of all financial assets and liabilities is considered to be equal to the carrying values of these items due to their short-
term nature. Cash is held with counterparties with a Moody’s credit rating of A3 and Ba1.
£0.5 million (2016: £1.0 million) of net financial assets and liabilities at the statement of financial position date were denominated
in euros. All other net financial assets and liabilities were denominated in sterling. A 10% strengthening of sterling against the euro
at 30 June 2017 would have reduced equity and profit by £0.1 million (2016: £0.1 million).
A 1% increase or reduction in the interest rate applicable to the Group’s borrowings would have had a £0.2 million (2016: £0.1 million)
impact on the profit for the year.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers and investment securities. The maximum exposure
to credit risk is the amount of the receivables balance.
The ageing of trade receivables at the statement of financial position date that were not impaired was as follows:
Neither past due nor impaired
Past due 1-30 days
Past due 31-90 days
Past due more than 90 days
56
2017
£m
21.4
1.3
0.7
0.1
23.5
2016
£m
19.6
1.3
0.3
–
21.2
Notes to the Financial Statements continuedfor the year ended 30 June 2017 The movement in the provision for bad and doubtful debts in respect of trade and other receivables was as follows:
At 1 July 2015
Increase in provision
At 30 June 2016
At 1 July 2016
Increase in provision
Decrease in provision
At 30 June 2017
Individual
provisions
£m
Collective
provisions
£m
–
–
–
–
0.3
–
0.3
0.5
0.1
0.6
0.6
–
(0.4)
0.2
The Group considers that the amounts for which no provision has been made, are still collectable in full, based on historic payment
behaviour and extensive analysis of customer credit risk, including underlying customers’ credit ratings, when available.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. As referred to in note 2,
subsequent to the year end the Group has entered into a binding agreement for a £24.0 million fundraising. The Directors believe
that the receipt of such amounts will ensure that the Group is able to meet its obligations as they fall due.
28 Employee benefits
Pension commitments
The Group operates defined contribution pension schemes for all qualifying employees. The assets of the schemes are in managed
funds and are therefore held separately from the assets of the Group.
The total cost charged to income of £1.1 million (2016: £1.1 million) represents contributions payable to these schemes by the Group
at rates specified in the rules of the schemes.
Contributions amounting to £0.2 million (2016: £0.2 million) were payable to the schemes at 30 June 2017 and are included in creditors.
29 Commitments
Capital expenditure contracted but not provided for
Group
2017
£m
–
2016
£m
–
Operating leases
At the statement of financial position date the Group had the following future minimum lease payments under non-cancellable
operating leases:
Land and buildings:
Within one year
Between two and five years
After five years
Other operating leases:
Within one year
Between two and five years
After five years
Group
2017
£m
8.5
22.6
17.4
48.5
7.7
12.6
0.3
20.6
2016
£m
8.2
19.1
11.1
38.4
5.0
9.4
0.3
14.7
Operating leases typically consist of leases for premises and vehicles such to operate from and service the Group’s customers.
Leases of land and buildings are usually subject to rent reviews at specified intervals and provide for the lessees to pay all insurance,
maintenance and repair costs.
ANNUAL REPORT AND ACCOUNTS 2017
57
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT 30 Contingencies
The Company is party to a continuing guarantee and indemnity in respect of the bank term loan described in note 22. The amounts
outstanding under these facilities at 30 June 2017 totalled £5.8 million. Subsequent to the year end the bank term loan of £5.8 million
was repaid in full.
No provisions are required or have been made in respect of these contingencies since, in the opinion of the Directors, they are not
expected to result in financial loss for the Company.
31 Related parties
The following transactions were carried out with connected parties:
Key management personnel
Key management comprises the Executive Directors, the Non-executive Directors and members of the Executive Team. The key
management compensation is as follows:
Salaries, fees and other short-term employee benefits
Pension contributions
Compensation for loss of office
2017
£000
2,586
84
223
2,893
2016
£000
2,135
80
73
2,288
Included in the above table is £52,000 paid to OwensHR Limited. Hugh Owens, Chief People Officer, is a director and shareholder
of OwensHR Limited. Hugh provided interim consultancy services to the Group prior to joining the Executive Team during the year.
Sales and purchases of goods and services
The Group has trading relations with the associate, Gnewt Cargo Limited (see note 16). The transactions during the year included
£363,000 purchases for the year to 30 June 2017 (2016: £313,000) with an amount of £9,000 (2016: £10,000) owed by the Group
at 30 June 2017. At 30 June 2017 the Group was owed £137,000 (2016: £nil) from working capital provided to Gnewt Cargo Limited.
Interest charged on working capital provided during the year was £5,000 (2016: £11,000).
The Group also has trading relationships with Parcel Monkey Limited. Stuart Godman, Managing Director, is a director of Parcel Monkey
Limited. Transactions in the year with this entities included £337,000 sales (2016: £317,000), £15,000 purchases (2016: £15,000) and
an amount owed to the Group at 30 June 2017 of £34,000 (2016: £11,000).
All transactions were undertaken at arm’s length and on normal commercial terms.
32 Subsequent events
Subsequent events have been disclosed in the relevant note to which they relate. See notes 13, 16 and 22 for details regarding
subsequent events.
58
Notes to the Financial Statements continuedfor the year ended 30 June 2017 Notes
ANNUAL REPORT AND ACCOUNTS 2017
59
GOVERNANCE REPORTFINANCIAL STATEMENTSSTRATEGIC REPORT Notes
60
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POSTAL ADDRESS:
DX (GROUP) PLC
DITTON PARK
RIDING COURT ROAD
DATCHET
SLOUGH
SL3 9GL
DX EXCHANGE ADDRESS:
DX1 DITTON PARK
www.dxdelivery.com