Ebiquity
Annual Report 2016

Plain-text annual report

E b i q u i t y p l c | A n n u a l r e p o r t a n d fi n a n c i a l s t a t e m e n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 6 CREATING CLARITY ANNUAL REPORT AND FINANCIAL STATEMENTS for the year ended 31 December 2016 CONTENTS Strategic report Financial highlights At a glance Chairman’s statement Market overview Chief Executive Officer’s review Business model Our strategy Case studies Chief Financial Officer’s review 2 4 6 7 8 16 18 20 24 Governance Board of Directors Corporate governance report Audit & Risk Committee report Remuneration Committee report Directors’ report 28 Financial statements Statement of Directors’ responsibilities 30 Independent auditors’ report Consolidated income statement 34 36 39 Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Independent auditors’ report Company statement of financial position Company statement of changes in equity Notes to the Company financial statements Advisers Shareholder information Glossary 41 42 44 44 45 46 47 48 80 82 83 84 91 91 92 Visit us online at www.ebiquity.com/en/investors Today’s marketing ecosystem is complex, at times confusing, and often opaque. Being an effective marketer has never been more challenging. Multi-channel marketing presents brands with a bewildering cocktail of opportunities and obstacles. Each new link in the adtech supply chain commands attention and competes for constrained resources. Advertisers have never needed more help in understanding where, why, and how they should allocate their marketing investments. DIGITAL COMPLEXITY Today’s marketing ecosystem is complex, at times confusing, and often opaque. Being an effective marketer has never been more challenging. Multi-channel marketing presents brands with a bewildering cocktail of opportunities and obstacles. Each new link in the adtech supply chain commands attention and competes for constrained resources. Advertisers have never needed more help in understanding where, why, and how they should allocate their marketing investments. DIGITAL COMPLEXITY STRATEGIC REPORT At Ebiquity, we help brands to navigate the complexity of the evolving marketing ecosystem to achieve their marketing and business objectives. We generate data‑driven insights through our unique combination of independent consultancy services, multi‑channel media analytics, and marketing optimization tools. This is how we empower our clients to become more effective and efficient marketers. It’s by creating clarity in the ever‑more digital, increasingly opaque media landscape that we help them to become better advertisers. CREATING CLARITY Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 1 Strategic reportFINANCIAL HIGHLIGHTS Final results for the year ended 31 December 2016 Ebiquity, a leading independent marketing analytics specialist, announces final results for the year ended 31 December 2016. Ebiquity provides services to 80 of the top 100 global advertisers, with data‑driven insights spanning over 90 countries. REVENUE £m FY20161 CY20152 FY20153 +9.1% UNDERLYING OPERATING PROFIT £m FY20161 CY20152 FY20153 0 +4.4% UNDERLYING DILUTED EPS pence FY20161 CY20152 FY20153 (0.4) +5.0% 43.3 83.6 76.6 13.0 12.4 11.3 10.8 Michael Karg, PhD, CEO, commented: “ We have seen continued strong performance from our consultancy businesses MVM and MPO, which are at the core of the changing nature of the media landscape particularly around effectiveness and efficiency of marketing investments. We have already made good progress with our Growth Acceleration Plan which will replicate our service offering across key territories, further strengthening our ability to service global clients. Investments into expanding our digital services across our three practice areas coupled with events in the media marketplace – such as the debate around the performance of digital advertising – create significant medium‑term growth opportunities. The implementation of our plans, the opportunities arising from the changing nature of the industry, make us excited for the future.” 27 March 2017 2 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORTContinued revenue, profit and earnings growth • Revenue up 9.1% to £83.6m (CY2015: £76.6m), with like‑for‑like4 constant currency5 revenue growth of 2.1% • Underlying operating profit up 4.4% to £13.0m (CY2015: £12.4m) • Underlying PBT up 5.5% to £11.8m (CY2015: £11.2m) • Underlying diluted EPS up 5.0% to 11.3p (CY2015: 10.8p) • Underlying net cash inflow from operations £11.3m (CY2015: £13.7m) with cash conversion from underlying operating profit of 88% • Net debt reduced to £28.1m (31 December 2015: £28.9m) • Proposed dividend of 0.65p per share continuing progressive dividend policy Growing revenue contribution from Media Value Measurement and Marketing Performance Optimization • Media Value Measurement (‘MVM’) achieved total revenue growth of 12.3% over CY2015, an increase of 3.6% on a like‑for‑like constant currency basis • Marketing Performance Optimization (‘MPO’) continued to deliver strong revenue growth with total revenue growth of 31.2% over CY2015 and like‑for‑like constant currency revenue growth of 21.6% • Together MVM and MPO accounted for 72% of Group revenues (CY2015: 68%) • Market Intelligence (‘MI’) revenues were down by 5.2% on a total basis and by 8.5% on a like‑for‑like constant currency basis, with the decrease largely due to an expected substantial decline in revenues from our project‑based research business Delivered on a number of milestones set out in Growth Acceleration Plan • Formally launched Strategic Media Consultancy service offering in Q4 2016 • Commenced rollout of marketing effectiveness practice into Germany, France and Asia Pacific, with first local projects in Continental Europe in Q1 2017, Asia Pacific in H2 2016 • Digital product development on track with rollout of Portfolio Digital commencing in Asia Pacific and launch of digital attribution service expected in Q2 2017 • Talent review programme undertaken in Q1 2017, kicking off first phase of the Growth Support Programme 1. FY2016 is the year ended 31 December 2016 (audited). 2. CY2015 is the calendar year from 1 January 2015 to 31 December 2015 (unaudited). 3. FY2015 is the financial period from 1 May 2015 to 31 December 2015 (audited). 4. Like‑for‑like means prior year results are adjusted to include the results of recent acquisitions as if they had been owned for the same period in the prior year. 5. Constant currency is calculated by taking current year denominated results restated at last year’s foreign exchange rates. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 3 Strategic reportAT A GLANCE Ebiquity, a leading, independent, technology‑enabled marketing and media analytics consultancy. WE GO TO MARKET WITH THREE PRACTICE AREAS Media Value Measurement (‘MVM’) Helping clients to increase efficiency and transparency in their media performance REVENUE % 56% Market Intelligence (‘MI’) Providing clients with a clear picture of their own and their competitors’ advertising REVENUE % 28% Marketing Performance Optimization (‘MPO’) Enabling clients to decide where to allocate and how to optimize marketing investment REVENUE % 16%    READ MORE ABOUT THE THREE PRACTICE AREAS ON PAGE 12. 4 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORTEbiquity, a leading, independent, technology‑enabled marketing and media analytics consultancy. MARKET PRESENCE   Our clients We work with 80 of the top 100 global advertisers. Global locations Global expertise and offices in 14 countries across North America, Europe, and Asia Pacific. Our people Employing over 900 people including data scientists, developers, modellers, analysts, and digital and media experts.    FOR A FULL LIST OF LOCATIONS PLEASE VISIT www.ebiquity.com/en/contact-us Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 5 Strategic report CHAIRMAN’S STATEMENT Highlights • Revenue up 9.1% to £83.6m • Profit up 4.4% to £13.0m • Diluted EPS up 5% to 11.3p • Michael Karg, PhD new Group CEO • Leading global transparency debate We are a leader in the debate about media transparency. Our independence is paramount, and we must remain at the heart of the marketing ecosystem. Michael Higgins Non‑Executive Chairman Financially, reported revenue grew 9.1% to £83.6 million, underlying operating profit increased 4.4% to £13.0 million and underlying fully diluted earnings per share were up 5% to 11.3p. I am also pleased to report we have continued to increase the dividend in line with our progressive dividend policy, with a proposed payment of 0.65p per share. Change has been a constant during the year, both in the marketing industry and at Ebiquity. Technology has helped make the broad marketing ecosystem ever‑more complex, inevitably more confusing, and often less transparent than one might expect. This is particularly true when we reflect that digital data should – if anything – enable much more detailed and meaningful analysis. It is a striking fact that today only about 40% of digital programmatic advertising investment reaches the publisher, with value being eroded by the multiple links between advertisers and publishers, fraud, lack of viewability and non‑human traffic. I don’t envy any business leader who has to tell his Board and shareholders that they’re investing in anything that suffers up to 60% wastage. The trouble is, that’s what many CMOs should be saying. Digital complexity and the increasing calls for transparency mean that our clients – the world’s biggest advertisers – need more help than ever from an independent firm with the necessary knowledge and expertise to navigate their way through this. Within Ebiquity itself there was significant change in 2016. Michael Karg, PhD took the helm as Group CEO early in the year and undertook a complete review of the business. There were great foundations in place, with businesses around the world, tremendous talent and expertise, and a client list that includes more than three quarters of the world’s biggest advertisers. Michael has now set about moving these individual businesses into a single, aligned organization that can address the global requirements of our international clients as well as the local needs of domestic ones. Meeting these challenges will be achieved both by continuing to bring in and develop talent, but also by increasing the underpinning processes and technology that enables us to handle the demands of analyzing and drawing actionable intelligence from the avalanche of data that digital marketing creates. We are, I believe, a leader in the ongoing debate about media transparency, and that position has only been enhanced throughout 2016. Our independence is paramount, and we must remain at the heart of the marketing ecosystem, enabling marketers to seize the opportunities offered by digital. 2016 was just the beginning of the process of evolution in the industry, but as it gathers momentum the opportunities for Ebiquity can only grow. There will also be more change to come, as – for example – in 2018 new regulations over the use of personal data come into force in Europe. These will add another level of complexity and will reinforce the need for the professional independent expert – Ebiquity. As always, we couldn’t achieve any of this without the people around the world who bring their individual expertise and efforts to the business and create the capability that the whole Group can deploy for the benefit of its clients. Thank you to you all. Michael Higgins Non‑Executive Chairman 27 March 2017 6 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORTMARKET OVERVIEW Today’s marketing ecosystem is complex, at times confusing, and often opaque. It has never been more challenging to be an effective marketer or marketing procurement professional. Every week a new link appears in the adtech supply chain, every month a new social platform commands attention and competes for finite resources. And although programmatic platforms are revolutionizing how all media inventory is traded, this advance potentially comes at the expense of both transparency and advertisers’ access to data. In response to this growing complexity, the clamour for clarity and impartial analysis of media performance is growing in the global advertiser community. Advertisers – whose advertising dollars fund the entire ecosystem – have never needed more help in understanding where they should allocate their marketing investments and why. They have never needed more the services of a partner that can give informed, long‑term strategic, and above all independent advice on how to help secure optimal ROI. This is where Ebiquity can help, as our products and consultancy services are designed to create clarity, efficiency, and effectiveness for advertisers in all aspects of their marketing investment. The advertising market today It is predicted1 that the global advertising market will be worth almost US$750 billion by 2020, with 38% (US$280 billion) in both TV and digital, 18% (US$135 billion) in print, and 6% (US$48 billion) in out of home. This will represent a compound annual growth rate of 6% in the five years from 2016. Digital advertising has been around for more than 20 years and revenues from digital advertising are now approaching or overtaking spend on TV in many markets. These include the US and some of the bigger, mature, Western European markets. So, digital advertising can no longer be categorized as “new”  media. The digital advertising ecosystem has rapidly developed. Today, it is highly concentrated, with the leading platforms Google and Facebook accounting for more than 70% of all global online advertising revenue. At the same time, it has evolved to become highly fragmented, with a vast number of players offering adtech and martech solutions. One consequence of this complexity is that – for many brand owners – online advertising has become increasingly opaque. What’s more, many experts in digital attribution and Marketing Performance Optimization repeatedly find it difficult to detect significant returns on investment for digital advertising. These factors are driving the world’s leading advertisers to scrutinize digital with increasing intensity, as evidenced by Marc Pritchard, Chief Brand Officer of the world’s biggest advertiser, Procter & Gamble, in his January 2017 address to the Internet Advertising Bureau. This follows P&G scaling back on targeted Facebook advertising in summer 20162, and Coca Cola’s Chief Marketing Officer advocating for TV as still delivering “the best bang for buck” and “very, very critical for our business” in December. In the same speech3, he questioned his company’s historical digital spend. Advertisers have never needed more help in creating clarity out of the complexity of the ever‑more digital marketing ecosystem. It is encouraging that some of the world’s most progressive marketers are now leading from the front in looking to make digital work harder for them. Ebiquity is proud to be many advertisers’ partner in these initiatives. 1. http://bit.ly/2kQ1Z8n 2. http://on.wsj.com/2maj4z2 3. http://bit.ly/2gjKdIw Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 7 Strategic reportCHIEF EXECUTIVE OFFICER’S REVIEW Highlights • Strong growth in revenue and profit • New practice: Strategic Media Consultancy • Corporate purpose launched: “creating clarity” • Chief Client Officer appointed • Matrix organizational structure introduced • Digital investment: Portfolio, OPTIX, Attribution, Connect Ebiquity’s long term ambition is to become the world’s leading, independent, technology‑enabled consultancies specializing in marketing and media analytics. Michael Karg, PhD Group Chief Executive Officer 2016 in review 2016 represented another good year of revenue and profit growth for Ebiquity. Underlying operating profit growth over the year was on track with the growth plan we outlined in Autumn 2016. Revenues grew 9.1% to £83.6 million over pro‑forma revenue for the 12 months ended 31 December (CY2015). Underlying operating profit increased to £13.0 million. This represents an increase of 4.4% over CY2015, reflecting a slight drop in underlying operating margin to 15.5%, at the higher end of our direct peer group. Underlying profit before tax increased by 5.3% to £11.8 million. Reported operating profit grew to £7.7 million, up from £3.6 million in CY2015, and reported profit before tax increased to £6.5 million, up from £2.5 million in CY2015. With approximately 68% of revenue denominated in currencies other than sterling, revenue was significantly boosted by the depreciation of sterling during the year. In total, foreign exchange benefited revenue by 5.8%, with acquisitions further increasing revenue by 1.2%. This resulted in like‑for‑like constant currency revenue growth of 2.1%. Our Media Value Measurement (‘MVM’) practice reported revenue increase of 12.3%, an increase of 3.6% on a like‑for‑like constant currency basis. ‘MVM’ now accounts for 56% of Group revenue. Revenue grew fastest from our international media practice and business units in Continental Europe, and we continued to see strong demand for both our digital and pitch management services. Overall ‘MVM’ revenue growth was held back by a decline in revenue from our contract compliance business, FirmDecisions, due to clients reflecting on the findings of the U.S. Association of National Advertisers’ (‘ANA’) media transparency report. We continue to view the ongoing industry debate about media transparency as a long‑term growth driver for the ‘MVM’ practice. Underlying operating margins dropped from those achieved in CY2015 principally as a result of the decline in revenue from our contract compliance business feeding through to profitability. Revenue from our Marketing Performance Optimization (‘MPO’) practice continued to grow strongly, with reported revenue growth of 31.2% and like‑for‑like constant currency revenue growth of 21.6%. Revenue grew from both our US‑based Multi‑Channel Analytics practice (13.9%) and our European based Marketing Effectiveness practice (30.7%). Our underlying operating margin rose slightly year on year. Together, our faster growing practices – MVM and MPO – now represent 72% of Group revenues. Revenue from our Market Intelligence (‘MI’) practice declined by 5.2% on a reported basis, and by 8.5% on a like‑for‑like constant currency basis. As indicated in our half‑year report, revenue from our project‑based research business declined sharply following the loss of a specific contract at the beginning of the year. The decline in revenue was largely anticipated, and the cost base of the business was managed appropriately. The market intelligence sector is highly competitive, mature, and experiencing low growth rates across the world. Revenue from Portfolio, our Advertising Intelligence (‘AI’) subscription service, grew by 1.7% on a reported basis. Eliminating the impact of currency, revenue from AI declined 8 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORTIn addition to our strong financial performance overall, 2016 was a significant year for Ebiquity because of our ongoing leadership role in the global debate about media transparency. 1.7% owing to the loss of three contracts in our US business unit at the beginning of the year. Renewal rates were 88% on a value basis, and we have already seen a positive reaction from clients to the upgrade to our new Portfolio media platform rolled out from September 2016 onwards. Due to good cost control and a decline in revenue contribution from our project‑based research business, underlying operating margins rose year on year. Sector and thought leadership In addition to our strong financial performance overall, 2016 was a significant year for Ebiquity due to our ongoing leadership role in the global debate about media transparency, the launch of our Strategic Media Consultancy services, and our programme of product development and roll‑out. Here are some highlights. 1. In June, the ANA published its long‑awaited study into media transparency. Written by independent investigative services firm K2 Intelligence, the study reported for the first time evidence that rebates and other non‑transparent practices may be pervasive in the US media market. This study was followed by the July publication of a report which we co‑authored with the ANA and our specialist contract compliance business, FirmDecisions. The report was titled Media Transparency: Prescriptions, Principles, and Processes for Advertisers. Following the findings of the K2 study, this report provided advertisers with a practical roadmap to manage and mitigate media agencies’ non‑transparent and non‑disclosed practices. In this way, we are providing guidance to help advertisers optimize their media management. The ANA report has put media transparency firmly on the management agenda of the world’s leading advertisers. For example, speaking at the Internet Advertising Bureau’s (‘IAB’) annual leadership conference in January 2017, Marc Pritchard, Chief Brand Officer at the world’s biggest advertiser Procter & Gamble, called time on the digital media supply chain, dubbing it “murky at best, and fraudulent at worst”. Transparency now matters to advertisers, agency groups, and media owners. This includes online platforms such as Facebook, which recently agreed to undergo audits of its metrics by the Media Ratings Council, following concerns over transparency1. Our evolving range of products and services are designed to create clarity about marketing investments, particularly in digital. Consequently we are well positioned to grow our business through practical, impartial media consultancy advice. 2. For today’s progressive advertiser, the media landscape offers unprecedented opportunities to connect with customers – often directly. But its complexity threatens to overwhelm even the best‑informed marketer. That’s why in 2016 we launched a new, specialized, Strategic Media Consultancy offering. Our suite of bespoke services enables advertisers to address their most pressing needs: from owning and managing data and ad technology, to choosing and managing the right agency and technology partners; from creating the right internal team structure to manage marketing communications, to helping advertisers develop the optimal media strategies and plans. 1. http://on.wsj.com/2kzSSf8 Bob Liodice, President & CEO at the ANA: “ Ebiquity is an outstanding friend and partner. Even more, they are superb analysts and strategists. In the ANA’s media transparency work, Ebiquity provided the intellectual capital to translate major industry findings into workable business process prescriptions. These were critical action steps that successfully completed many years of productive efforts.” Laetitia Zinetti, Global Practice Principal of Strategic Media Consulting: “ Our deep global media expertise means we are best placed to help marketers capitalize on the evolving market. We always start with “Why?”, encouraging clients to be clear about the drivers of their marketing strategies. We then collaborate with our clients to enable them to make better strategic decisions and build future‑proofed media capabilities.” Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 9 Strategic reportCHIEF EXECUTIVE OFFICER’S REVIEW continued Our ability to put ourselves in our clients’ shoes is every bit as important as technical skills like digital attribution and media value measurement. 3. Long recognized as one of the leading providers of market intelligence to the global advertising community, in 2016 we completely overhauled our advertising intelligence service. Our Portfolio advertising platform offers the world’s richest and most searchable repository of both offline and online advertising combining creative and spend data. This allows advertisers to research and analyze exactly what campaigns their competitors are running, in which media, at what frequency, and at what cost. Portfolio now covers advertising across 15 European countries and approaching 90 territories worldwide, and a database of 25 million individual ads. The evolving nature of online advertising has also required us to create new ways to identify, capture, and tag the increasing variety of formats of digital ads. To do this, we had to develop pioneering search and spidering technology that experiences the internet like people do. We are fast approaching the roll‑out of a new digital service, and this will be integrated into the new platform. Building for the future I became Group Chief Executive Officer in January 2016, and inherited a company with great foundations on which to build. A company with a global presence, a client base including 80 of the world’s top 100 advertisers, and a strong brand with global leadership in MVM. With advertisers under increasing pressure to validate and justify marketing expenditure, I also found a powerful and thriving MPO practice: strong talent, unique and proprietary methodologies, and growing revenue. Since I took the helm of Ebiquity, we’ve put in place several important building blocks we need to ensure that the business is fit for the next stage of our development and growth. These are significant steps on the road to transforming Ebiquity from what was effectively a collective of independently‑run, local entities into a global, professional services business. What’s more, this is more straightforward to achieve currently, with most of our acquisitions now beyond earn‑out and becoming fully integrated into the Ebiquity business. Founder entrepreneurs of these companies are therefore less concerned about individual profitability and more focused on our collective journey of change. 1. To achieve this transformation, we have developed and articulated a distinctive statement of corporate purpose, grounded in our clients’ needs: “we are creating clarity for our clients”. This statement of purpose is designed to change the way we think and talk about why we do what we do, and how we do it. “Creating clarity” is not a one‑off statement. Rather, it represents the start of a continuous process that takes courage and conviction, guided by our teams’ expertise. It requires us always to deliver analysis and recommendations that are straightforward, transparent, and precise. 2. To achieve this transformation, we are now taking a dedicated, client‑first approach. We have identified and appointed a global Chief Client Officer – Andrew Challier – who is responsible for several of our most important client relationships. We are embedding our client‑first approach across the business through clear client partner job profiles, training, and development by region, by market, and by expertise. We want to work closer still with those clients who partner with us because they see the greatest value in our services. By providing them with the right level of service, we can help them to become even more effective and efficient advertisers. We know that deepening and expanding the relationships with our key clients will be a critical lever of growth. 3. To achieve this transformation, we’ve introduced a matrix organizational structure, creating global practice responsibilities. This is designed to drive better and clearer accountability to those responsible for markets and those running products and services across geographies. We have done this to ensure that we deliver our products and services at consistently‑high standards. And we have done this to ensure that these products and services reflect and accommodate local‑market differences. Andrew Challier, Chief Client Officer: “ Understanding our clients’ business and marketing objectives is just good business practice. But the combination of our independence, our ability to put ourselves in the clients’ shoes, and our mastery of the technical tools of the trade is business dynamite.” 10 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORTWe are starting to benefit from a closer collaboration between our MVM and MPO practices: 50% €800k $1m In 2016, over 50% of our incremental MPO revenues in the UK were generated from an existing MVM relationship. First, multi discipline, multi‑market pitch led to €800k revenues via a single contract. In the US joint selling resulted in over $1m incremental revenues this year. 4. And to achieve this transformation, we’ve started to develop more sophisticated approaches to talent management. During 2016, we developed new global processes for reviewing our talent base to drive development and retention programmes, and to support succession planning. These are rolling out into the business in 2017. We are committed to also continue to improve our ability to recruit the specialist talent that our clients’ needs demand, and to further enhance employee engagement. Our investments in digital Currently, less than 20% of our revenue comes from digital. As the marketing ecosystem becomes increasingly dominated by digital technology and Big Data – and as our clients allocate an ever‑increasing proportion of their marketing budgets in digital – we are investing in technology‑based solutions to deliver against their requirements. 1. For example, with Portfolio we are modernizing and enhancing our advertising intelligence platform. It is our ambition that it should become one of the most comprehensive, best‑tagged, and most searchable real‑time archives of advertising creative executions and spend data. It has been designed to cover more than 40 major markets around the world with an authoritative and intelligent, living database of digital display and traditional media advertising content on any system in the world. Our new Portfolio Digital platform is intended to explore websites and experiences ads like people do, recognizes the different adtech used to serve digital ads, and harnesses and presents a broad array of ad data, metadata, and metrics in a simple, clear, and unified way. We have launched this in pilot in selected markets and it is our ambition to roll it out progressively across the world during 2017 and beyond. 2. For example, with OPTIX we are developing a comprehensive data measurement platform (‘DMP’) for benchmarking digital advertising performance. Online advertising is complex, fragmented, and sprawling. It offers millions of opportunities to reach billions of consumers directly, across multiple technologies and platforms. It is also characterized by many more links in the transactional chain between the advertiser and the publisher than traditional advertising. OPTIX is a DMP designed to help advertisers cut through the complexity of online advertising. A combined software and consultancy service, it brings together all relevant data that describe both media cost and media quality under a single, global methodology. This will empower advertisers to use the same benchmarking methodology and metrics across multiple markets, platforms, and brands. This single standard has been designed to be genuinely scalable across the world. 3. For example, our MPO practice is developing a Digital Attribution service that uses modelling to enable our consultants to understand how different digital media channels and activations each play a part and interact during our clients’ customers’ path to purchase. In conjunction with our econometrics team, this service identifies the relative and absolute contribution of both digital and traditional media to business and marketing KPIs. Attribution is a major concern for marketers using digital media to stimulate a response, and our attribution modelling service addresses this concern. 4. And for example, with Connect we’ve developed a fully‑automated DMP for media agencies to upload raw media data from all different media categories to our pool, in a clear and consistent fashion. This makes life quicker and easier for our advertiser clients’ media agency partners to provide the data we need to calculate media efficiency and effectiveness. It removes the potential for human error, inconsistencies, and inaccuracy. And it means that clients can be certain that we have unfiltered access to their data. It truly is a triple‑win for all partners in this ecosystem – advertiser, consultant, and agency. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 11 Strategic reportCHIEF EXECUTIVE OFFICER’S REVIEW continued Our evolving range of products and services are designed to create clarity about marketing investments, particularly in digital. Our service offering Today, we go to market in three, core practice areas. Media Value Measurement (‘MVM’) We empower clients to increase the efficiency and transparency of their media performance through media auditing, benchmarking, and performance measurement. We help them to select and manage their media trading partners. We enable them to make the right, long‑term decisions through our new, Strategic Media Consultancy service. We also report on agencies’ compliance with contractual terms via our specialist contract compliance business, FirmDecisions. In MVM, we have one of the world’s richest and most comprehensive pool of benchmarking media spend data across all media channels. This is interrogated by our world‑leading team of 300 media experts in 14 countries who have been optimizing media efficiency for global brands for decades. Market Intelligence (‘MI’) We provide clients with a clear picture of their own and their competitors’ in‑market creative executions, ad spend, and media strategies. Our Portfolio media platform was thoroughly reconfigured and launched in September 2016, and now incorporates optimized charting and presentation facilities, automated reporting functionality, and an enhanced user interface. In MI, our global team captures, categorizes, analyzes, and delivers advertising and communications intelligence in more than 40 languages from over 80 major markets. The team’s insights are designed to enable advertisers to plan more effectively, respond smarter, and so enhance their marketing performance. In 2017, we plan to start rolling out a new Portfolio Digital service, providing coverage of creative and spend data for the world’s digital advertising content. Portfolio is supported by specialist insight, market, and earned media research experts who enhance automated analytics with experienced, native‑language human analysis. Marketing Performance Optimization (‘MPO’) We guide clients to decide where to allocate and how to optimize their marketing investments, which marketing technologies to select, and how to leverage data to improve digital customer journeys. Our work in this rapidly‑growing practice has two distinct service offerings: econometrics and multi‑channel analytics. In MPO, our award‑winning team of marketing econometricians build cause and effect models to help brands understand and exploit consumer paths to purchase. Our data scientists are skilled at integrating and analyzing data sets from any source to deliver evidence‑based insights that optimize marketing performance. We have particular expertise in working with data generated by digital customer touchpoints, including owned media properties, online stores, social media platforms, and digital kiosks. In these ways, we take the guesswork out of marketing investment. 12 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORTFor today’s progressive advertiser, the media landscape offers unprecedented opportunities to connect with customers – often directly. Dietmar Kruse, Global Practice Principal of Media Measurement: “ To invest with confidence in the most effective and efficient media channels, advertisers need proper access to the right data. To optimize budgets, they need to know how effective their spend is compared with their competitors’ and peers’ investments, and what they need to do to improve. Advertisers need to know whether their agencies are delivering, how they’re performing, and so how best they should reward them.” Stephen Broderick, CEO of Ebiquity’s contract compliance business, FirmDecisions: “ Because of the pace of change in all media – but especially digital – advertisers should review the contracts they have with their media agency of record at least annually. This will help them be sure they have access to the data they need to have the level of transparency over their marketing spend that’s right for them. Put simply, it’s good governance.” Morag Blazey, Global Practice Principal of Market Intelligence: “ Advertisers and their agencies need a complete picture of what their competitors are saying, who they are talking to, how often, and in which media. This information allows marketers and their insight teams make better‑informed decisions when setting communications budgets, strategies, and messaging decisions.” Mike Campbell, Head of Ebiquity’s International Effectiveness Practice: Maigiri Jinkiri, Head of Ebiquity’s North American Multi‑Channel Analytics Practice: “ Given the sheer volume of media and marketing data, it has never been more challenging to work out what each marketing investment contributes to overall brand performance. At the same time, it has never been more possible to improve the impact investments have on KPIs.” “ Maximizing each customer interaction demands a rounded understanding of emerging technology, big data analytics, and customer behavior. Our consultants maintain a unique blend of technological, analytical, and business management skills to ensure that clients capitalize on the marketplace opportunity.” Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 13 Strategic report CHIEF EXECUTIVE OFFICER’S REVIEW continued An aspiration for the future Ebiquity as the partner of choice for the media, data, and adtech communities. The purpose of our business is creating clarity for our clients on the return on investment that their media investments yield for them in all channels. By understanding simply and clearly the effectiveness and efficiency of their media choices, we help them to optimize performance. This performance is mediated through an increasingly diverse range of partner businesses. The most significant of these partners is usually the advertiser’s media agency of record, although it now also includes an array of specialist digital, technology, and data businesses across the adtech and martech ecosystem. Because we evaluate the performance of the output of our clients’ agencies, it is our long‑term ambition and aspiration to work in partnership with them too. It is our role to test – independently – and demonstrate the real value that they are delivering for our clients, as well as to recommend strategies for improving media performance still further. This is why we would like – over the coming years – to become the partner of choice for our clients’ partner agencies too. This is true across all our services, from pitch management to marketing performance optimization; from media value measurement to market intelligence; from strategic media consultancy to contract compliance reviews. We recognize that some of our services – including agency pitch management and contract compliance reviews – are a cost of doing business for agencies. Nevertheless, they are important aspects of good governance, and we try to deliver these services in a straightforward and professional manner for all parties. Our desire to become the partner of choice for the media industry is also why – for instance – we are developing our new Connect data management platform to allow seamless and automated uploads of media data from media agencies. This will reduce the load on agencies, improving the accuracy of data, and save time for agencies and advertisers. If an advertiser decides to change its agency of record, for instance, and we’re appointed to manage the pitch process, it’s important that we should have good relationships with and deep knowledge of the capabilities of all potential media agency partners. We also need good relationships with the leadership of agencies, data partners, and adtech providers such as ad servers and DSPs. We are building these relationships in both local markets and at a global level. Part of our commitment to being the partner of choice to the global advertiser community extends to our close working relationship with leading industry trade bodies. This includes the World Federation of Advertisers (‘WFA’), the Incorporated Society of British Advertisers (‘ISBA’), the U.S. Association of National Advertisers (‘ANA’), and representative bodies in other key global markets including Australia, France, Germany, and Spain. Our Growth Acceleration Plan Across our one global Ebiquity, we are now actively embedding our matrix structure, our people strategy, and our narrative purpose as fundamentals required to grow the business. In the next stage of our development, we are actively transforming Ebiquity into a technology‑enabled consultancy. Stephan Loerke, CEO at the World Federation of Advertisers “ The WFA has worked with Ebiquity for a number of years now, and we highly value our partnership with them. Their expertise has been very valuable in helping us to guide our advertiser members towards best‑practice in marketing and media effectiveness, and to provide real clarity into the complexity of today’s marketing landscape.” Our clients demand and rightly expect quick turnaround of analysis of large volumes of data. Over the coming years, we can only meet these expectations and scale our business by making our products and services technology‑enabled throughout. We have identified that, compared with similar services firms, we have been running “too lean” – delivering 15‑16% underlying operating profit margin against 10‑11% for comparable firms. By investing in technology to make our business technology‑enabled, we should nevertheless be able to deliver above average margin of 12‑13%. Enhanced technology is critical to our future success, right across our three, core practice areas. 14 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORTOur corporate purpose of “creating clarity” shapes everything we do. As we start to meet these objectives, we will increasingly be known as one of the leading, independent, technology‑enabled marketing and media analytics consultancies, right around the world. Board‑level executives will trust us more deeply. Our services and methodologies will help to set the standards for the industry. And advertisers, industry bodies, analysts, and the media will increasingly seek out our thought leadership. Michael Karg, PhD Chief Executive Officer 27 March 2017 In Marketing Performance Optimization, we face a rapidly‑growing need to analyze enterprise scale sets of consumer and media, behavioural and transactional data. Our ability to deliver here will be underpinned by technology. In Media Value Management, we need to ingest and integrate large sets of media data from multiple different sources – from ad servers to demand side platforms – to help our clients optimize campaigns in near real time. Our ability to deliver here will be underpinned by technology. And in Market Intelligence, we bring together the world’s display advertising – from print, broadcast, and online services; creative executions, media placement, and spend data – into fully searchable, properly tagged databases. Our ability to deliver here will be underpinned by technology. Our approach Our corporate purpose of “creating clarity” shapes everything we do. This includes the clear and straightforward strategy we have adopted to deliver our Growth Acceleration Plan. We call this the 5Ps, and it covers: People, Product, Process, Profile, and Performance. We believe that by having the right people and products in place, developed and delivered using the right processes, we will deliver the strong performance that our current and future stakeholders demand. By raising the profile of our cutting‑edge approaches to creating clarity of marketing performance for our advertiser clients, we will further enhance our performance. Indeed, performance – in terms of revenue, profit and underlying operating profit – will be a consequence of our focus on the first 4Ps. This straightforward framework has allowed us to simplify management reporting on People, Product, Process, and Profile, and we are driving these through the business. This applies to both near‑term financial management at an operational level, as well as the longer‑term strategic management of the business. Just as we are straightforward in all our client engagements designed to create clarity about effectiveness and efficiency of marketing investments, so we are clear about what we want to achieve over the next five years. Our five-year objectives Our 5Ps strategy provides the framework for our five‑year objectives: 1: PEOPLE Attract, retain and develop high calibre talent from the media, data science and consultancy sectors. 2: PRODUCT Launch proprietary products and services that harness our data and insights and enable us to be trusted advisers for our clients. 3: PROCESS Shape the organization and its processes to support broader and deeper client relationships. 4: PROFILE Raise our brand profile and broaden the perception of our expertise to support our growth plans. 5: PERFORMANCE Delivery of our Growth Acceleration Plan resulting in sustainable double‑digit revenue growth at sustainable operating margins.    READ MORE ABOUT THE FIVE Ps ON PAGES 18 AND 19. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 15 Strategic reportBUSINESS MODEL Applying data‑driven insights to help advertisers achieve greater marketing return on investment. Our business model Common across all our diverse products and services, and central to our business model, is our data‑driven approach to creating clarity from complexity. We always start an engagement with a strategic review of where our clients are today, where they want to get to, and what their motivations are for action. This is true for both long‑established and first‑time clients. This process of triage enables us to determine the most effective order in which to address specific priority tasks. We then capture data; we cleanse, organize, and harmonize that data; we apply advanced analytics to the data; we generate actionable insights; and, we tell our clients data‑driven stories from which they can take tangible, practical, and measurable action. This is how we empower our clients to take rightful ownership of their digital marketing strategy, technology, data, and spend. Inputs: data & insights 1) Client data (e.g. media spend, sales) 2) Consumer data (e.g. behavioural data, web data) 3) Market data (e.g. creative assets) Example sources: Clients, third‑party data/agencies, Ebiquity automated tracking programs We organize data DATA SCIENTISTS We capture data DEVELOPERS IN G T A E R C C L A R IT Y STRATEGIC CONSULTANTS We conduct strategic reviews    FIND OUT MORE ABOUT OUR DIVISIONS ON PAGE 12. 16 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORT We apply advanced analytics MODELLERS IN G T A E R C C L A R IT Y ANALYSTS MEDIA EXPERTS We generate actionable insights Outputs: improved media & marketing decisions Increase sales (e.g. optimized marketing investments, increased marketing response) Reduce costs (e.g. ensure trading partners deliver against savings claims) DIGITAL EXPERTS CLIENT PARTNERS We tell data-driven stories    FIND OUT MORE IN OUR STRATEGY SECTION ON PAGES 18 AND 19. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 17 Strategic report OUR STRATEGY Our long term strategic ambition is for Ebiquity to be known as the leading, independent, technology‑enabled marketing and media analytics consultancy globally. GOAL PEOPLE PRODUCT Attract, retain and develop high calibre talent from the media, data science and consultancy sectors. Launch proprietary products and services that harness our data and insights and enable us to be trusted advisers to our clients. PROCESS PROFILE PERFORMANCE Shape the organization and its processes to support broader and deeper client relationships. Raise our brand profile and broaden the Delivery of our Growth Acceleration Plan perception of our expertise to support our resulting in sustainable double‑digit growth plans. revenue growth at sustainable operating margins. PROGRESS • Appointed leadership for each of our • Launched Strategic Media global practices. Consultancy service offering. • Commenced talent review process to identify key talent within the organization. • Launched Portfolio Media upgrade in September 2016 and commenced the rollout of the first phase of our Portfolio Digital Service in APAC. • Hired Operations Director to develop tools and processes to enhance our internal operational capabilities. • Appointed Chief Client Officer to • Became recognized as an industry • Introduced matrix organization focus on growing some of our largest leader on the topic of media enabling clear accountability at global clients. transparency following the publication practice and regional levels. of the ANA report in July 2016. • Set out clear goals for financial performance over the next five years and published specific milestones for 2017 and 2018. PRIORITIES • Develop training programme for our client‑facing employees focusing on client development and engagement. • Create a competency framework to assess, maintain and monitor the skills and attributes of our employees. • Continue rollout of our Portfolio Digital Service. • Launch our digital paid media performance measurement platform “Optix”. • Launch “Connect”. • Grow our key clients by identifying and • Publication of thought leadership • Launch of digital services offerings realizing cross‑selling opportunities. articles providing insightful and and expansion of MPO services to • Evolve our Operations function to support actionable points of view to our clients. new markets. growth and provide timely and improved • Increased presence at relevant • Delivery against the milestones management data. industry events. published within our growth acceleration plan. KPIs • Targeting a voluntary annual employee turnover rate of less than 20%. • Expand our Marketing Effectiveness footprint in Europe and APAC. • Increase the proportion of revenue generated from new/enhanced products and services. • Percentage of clients taking two or more • Increased speaking engagements • Revenue CAGR of +10% between products/services. at leading industry events. 2016‑2021. • Publication of thought leadership pieces. • Medium term underlying operating profit margin target of 12‑13%. RISKS • Our talent continues to be highly in demand due to the breadth of experience that it gains through our unique positioning. There is a risk of an industry‑wide talent shortage for data scientists in particular as demand by clients, agencies, internet platforms and publishers increases. We work hard on a number of initiatives to make Ebiquity a great place to work and foster retention. • The media landscape is constantly changing, resulting in increasing pressure to develop/refine products and services faster. Through evolving our delivery methods and creating product owners we aim to stay highly relevant to our clients. • Our clients often have complex • The recent high profile cases of • Identifying key talent to enable decentralized management structures transparency and ad fraud issues may expansion of MPO could take longer requiring considerable investment of have created strained relationships than expected due to scarcity in time to negotiate global commercial between some clients, agencies the market. agreements. We ensure we devote and publishers. We continue to appropriate commercial and senior educate and advise on these topics client facing resource to expedite the to provide objective, sound and negotiation of commercial agreements. independent advice. • Clients may be slower to respond to issues in media transparency and data driven marketing causing a delay in potential revenue growth. We leverage our relationships with clients and industry bodies to influence change. 18 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORTGOAL PEOPLE PRODUCT Attract, retain and develop high calibre Launch proprietary products and talent from the media, data science and services that harness our data and consultancy sectors. insights and enable us to be trusted advisers to our clients. PROCESS PROFILE PERFORMANCE Shape the organization and its processes to support broader and deeper client relationships. Raise our brand profile and broaden the perception of our expertise to support our growth plans. Delivery of our Growth Acceleration Plan resulting in sustainable double‑digit revenue growth at sustainable operating margins. PROGRESS • Appointed leadership for each of our • Launched Strategic Media global practices. Consultancy service offering. • Commenced talent review process • Launched Portfolio Media upgrade to identify key talent within the in September 2016 and commenced organization. the rollout of the first phase of our Portfolio Digital Service in APAC. PRIORITIES • Develop training programme for our • Continue rollout of our Portfolio client‑facing employees focusing on Digital Service. client development and engagement. • Launch our digital paid media • Create a competency framework to performance measurement assess, maintain and monitor the skills platform “Optix”. and attributes of our employees. • Launch “Connect”. • Appointed Chief Client Officer to • Became recognized as an industry focus on growing some of our largest global clients. • Hired Operations Director to develop tools and processes to enhance our internal operational capabilities. leader on the topic of media transparency following the publication of the ANA report in July 2016. • Introduced matrix organization enabling clear accountability at practice and regional levels. • Set out clear goals for financial performance over the next five years and published specific milestones for 2017 and 2018. • Grow our key clients by identifying and realizing cross‑selling opportunities. • Evolve our Operations function to support growth and provide timely and improved management data. • Publication of thought leadership articles providing insightful and actionable points of view to our clients. • Launch of digital services offerings and expansion of MPO services to new markets. • Increased presence at relevant industry events. • Delivery against the milestones published within our growth acceleration plan. KPIs • Targeting a voluntary annual employee • Increase the proportion of revenue • Percentage of clients taking two or more • Increased speaking engagements • Revenue CAGR of +10% between turnover rate of less than 20%. generated from new/enhanced products/services. at leading industry events. 2016‑2021. • Publication of thought leadership pieces. • Medium term underlying operating profit margin target of 12‑13%. • Expand our Marketing Effectiveness footprint in Europe and APAC. products and services. RISKS • Our talent continues to be highly • The media landscape is constantly • Our clients often have complex • The recent high profile cases of • Identifying key talent to enable in demand due to the breadth of changing, resulting in increasing experience that it gains through our pressure to develop/refine products unique positioning. There is a risk of an and services faster. Through evolving industry‑wide talent shortage for data our delivery methods and creating scientists in particular as demand by product owners we aim to stay highly clients, agencies, internet platforms relevant to our clients. and publishers increases. We work hard on a number of initiatives to make Ebiquity a great place to work and foster retention. decentralized management structures requiring considerable investment of time to negotiate global commercial agreements. We ensure we devote appropriate commercial and senior client facing resource to expedite the negotiation of commercial agreements. transparency and ad fraud issues may have created strained relationships between some clients, agencies and publishers. We continue to educate and advise on these topics to provide objective, sound and independent advice. expansion of MPO could take longer than expected due to scarcity in the market. • Clients may be slower to respond to issues in media transparency and data driven marketing causing a delay in potential revenue growth. We leverage our relationships with clients and industry bodies to influence change. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 19 Strategic reportCASE STUDY AUTOMOTIVE CLIENT (MVM) Client objectives Our client is one of the world’s biggest motor manufacturers. They were looking to achieve savings in their investment in paid media across two dozen major markets. Just because our business and digital marketing is complex doesn’t mean it’s impossible to understand. Ebiquity have helped us make sense of our investment, in traditional and digital media, and delivered substantial cost savings and efficiencies in the process. Automotive client CMO Our approach We have a network of 300 media experts in 14 countries who have been optimizing media efficiency for global brands for decades. We deployed this expertise to verify cost savings and then consolidated the results globally. This “glocal” approach benefited our client in two ways. Our deep market knowledge, local market data pools, and country‑level service and delivery enabled us to develop customized savings per market. We then created standardized global quality control processes, reporting procedures, and outputs to give a truly global worldview to central teams. 300 media experts 14 countries Business outcomes Our analysis generated more than £60 million in value for our client over three years. This was made up of more than £25 million of media savings, promised to the client by the agency in the spirit of their agreement, as well as in excess of £35 million of value in cash refunds, additional free space and/or other forms of agency volume bonification. £25m £35m of value in cash refunds, additional free space and/or other forms of agency volume bonification of media savings £60m in value generated from our analysis, for our client, over three years 20 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORTCASE STUDY UNILEVER #unstereotype (MI) Client objectives At the 2016 Cannes Lions Festival, Unilever CMO Keith Weed announced that the company had begun to remove stereotypical portrayals of gender from its ads around the world. It took this decision because of global research showing that campaigns that are more relevant for today’s consumers are better for society and better for brands. Progressive advertising has been found to generate stronger engagement, more talkability, and better branded impact. It’s hard to understand what you need to improve before you see what it is that you’re doing today. I think everyone was struck when they saw our audit. You don’t often get that whole picture based on what is actually hitting consumers’ TVs in the markets. Having a partner like Ebiquity has allowed us that view, helped us make the opportunity to improve visibility, and provided us with a strong impetus to act. Josh Cleveland Global Marketing Manager at Unilever Our approach To know with certainty which adverts for which products in which markets needed to change, Unilever commissioned Ebiquity to review how the company and its competitors portray women and men in ads across its global portfolios of refreshment, food, personal care, and home care products. We gathered hundreds of ads from our Portfolio database. All were reviewed and coded by analysts, and evaluated against a comprehensive set of criteria to identify the extent to which both women and men were presented stereotypically. Criteria included whether (or not, as was often the case) the ads portrayed women as funny, in leadership roles, in multiple environments or just in the home, and as whole people or ‘disembodied’ (e.g. just an arm, leg, or face only for beauty products). Business outcomes Informed by this comprehensive, strategic review from our Advertising Intelligence Insight team, Unilever is now using a set of global benchmarks to train its brand marketing teams to produce ads that avoid stereotypical, outdated gender roles. These guidelines are also now routinely used to brief creative and media agencies. Weed and CEO Paul Polman underlined Unilever’s commitment to the #unstereotype campaign1 in a flagship speech at the World Economic Forum in Davos in January 2017. 1. http://bit.ly/2jZewX1 50% 12% of FMCG ads in 2016 researched contained stereotypical portrayals of women ads felt to be progressive have 12% more impact on consumers Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 21 Strategic reportCASE STUDY DIRECT LINE GROUP (MPO) Client objectives Direct Line Group (‘DLG’) became the UK’s largest home and motor insurance company by subverting the industry in the 1980s through cutting out the middle man, the insurance broker. When online price comparison websites commoditized the market, DLG needed to innovate again to differentiate its offer and reassert leadership. The starting point was a new philosophy, embodied in the new positioning and campaign featuring Harvey Keitel, reprising his “fixer” role of Winston Wolf from the movie Pulp Fiction for the company’s flagship Direct Line brand. The Direct Line ‘Fixer’ campaign improved brand measures like ‘Integrity’, ‘Preference’ and perceived ‘Quality’. It was also successful in terms of the econometric ROI and topline customer growth. It’s rare for campaigns to demonstrate effectiveness across so many different types of metric. Carl Bratton DLG Our approach Ebiquity’s Marketing Performance Optimization experts worked in partnership with DLG’s in‑house insight and effectiveness teams and its media, creative, and research agencies to build best‑in‑class econometric models. These enabled Direct Line to optimize its media and direct response activity, and deliver sustainable improvements in return on investment. Our work assisted DLG to validate and drive fundamental operational changes right across the organization, from direct mail to paid social, from enhancing the impact of digital display to optimizing mass media such as TV and search. Business outcomes The Direct Line campaign improved brand health measures including ‘Integrity,’ ‘Preference,’ and perceived ‘Quality.’ It was successful in terms of the econometric ROI. And it drove topline customer growth. DLG’s innovative use of econometric modelling was recently awarded a gold in the prestigious, biennial marketing effectiveness awards from the Institute of Practitioners in Advertising (‘IPA’). £11m £1.22 inefficient spend cut from annual marketing budget ROI for every £1 invested in IPA paper – and still improving 22 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORTCASE STUDY TRAVEL CLIENT (MCA) Client objectives We worked with a leading company in the travel and hospitality industry, looking to move from a decentralized to a centralized data management structure. The business wanted to streamline its multi‑channel data analytics technology, personnel, and processes to create the best possible customer experience at all touchpoints. It was looking to harness the untapped potential to provide highly personalized and targeted offers to its customers based on their individual patterns, seasonality, and frequency of travel. The company could see the opportunity that taming its digital data offered in terms of incremental revenue, and it needed a partner to help it set a vision and deliver against a clear and actionable strategy. Our relationship with Ebiquity has enabled us to make data work harder for the business. We now extract meaningful insights from customer behaviour which means we are ‘there’ in the right way to enhance the consumer experience. Travel client Head of Analytics Our approach We built an analytics programme for the newly‑centralized business from the ground up. This covered everything from collecting and analyzing data to generating the insights required to improve the customer journey and so enhance sales. Those insights are then used to drive the optimization efforts across the entire business. We started by creating a strategic roadmap to direct future performance. This included a full vendor evaluation – made more complicated because the project required the integration of multiple legacy systems and sets of vendors – and implementation of the roadmap. This involved data integration, data analysis and benchmarking, and finally continuous optimization. Our consultants are unusual for this industry in that most have a hybrid of technological and business management skills. They can therefore both conceptualize enhanced data management systems and then go on to deliver a genuine digital transformation. Business outcomes We have enabled the travel company to deliver an incremental, year‑on‑year revenue lift of tens of millions of dollars. The strategic roadmap streamlined the personnel, processes, and technology our client uses to optimize customer experience, removing overlapping or conflicting vendors, technology and services. Inside a month of our first engagement, we operationalized analytics data across all stakeholder groups. Within three months, we had given multiple functional units the confidence to answer complex business questions with certainty. With enhanced data collection governance and processes, the right data now goes to the right people at the right time. $30m >50% incremental revenue annually total ad tech vendors better than halved Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 23 Strategic reportCHIEF FINANCIAL OFFICER’S REVIEW Delivering double digit growth with strong cash conversion. Highlights • 9% revenue growth, with significant benefit from foreign exchange, 2.1% LFL CC revenue growth • Underlying operating profit margin of 15.6% • Growth in underlying diluted EPS to 11.3p • Increase in proposed dividend to 0.65p per share • Underlying cash conversion of 88% Andrew Noble Chief Financial Officer Summary of results Revenues grew to £83.6 million which represents 9.1% total revenue growth over £76.6 million recorded over the 12 months ended 31 December 2015 (‘CY2015’). Ebiquity received a very positive revenue benefit from the depreciation of sterling against the US dollar and euro. With 33% of revenues denominated in euros, and 26% in US dollars the depreciation of sterling against these currencies by 11%, both led to a revenue boost of £4.5 million or 5.8%. Revenue growth was further benefited by the impact of the acquisition of Fairbrother Marsh Company Limited (‘FMC’) in March 2016 and the full year impact of our acquisition of Media Value SL in March 2015. The impact on revenue was to increase revenue growth by 1.2% over CY2015. Discounting the impact of currency movements and the impact of current and prior year acquisitions, like‑for‑like constant currency revenue growth was 2.1% over CY2015. Taken together our Media Value Measurement and Marketing Performance Optimization practices contributed 72% of revenue (CY2015: 68%). Together the two practices achieved like‑for‑like constant currency revenue growth of 7%. Further detail of performance by practice is outlined on pages 25 and 26. Underlying operating profit increased by 4.4% from £12.4 million in CY2015 to £13.0 million and reflected a slight decrease in underlying operating profit margin from 16.2% to 15.6%. Reported operating profit increased from £3.6 million in CY2015 to £7.8 million in 2016. The prior year included a non‑cash charge in respect of the impairment of goodwill, purchased intangible assets and related capitalized development costs of the Reputation business. Net finance costs were £1.1 million in the year to December 2016 (CY2015: £1.2 million), the reduction reflects lower gross debt in 2016 compared with 2015. Underlying profit before tax was 5.3% higher at £11.8 million in the year to December 2016 (CY2015: £11.2 million). Reported profit before tax increased by £4.1 million to £6.6 million in the year to December 2016 (CY2015: £2.5 million), due to the non‑cash goodwill impairment booked in the prior period. Earnings per share Underlying diluted earnings per share was 11.3p in the year to 31 December 2016 (CY2015: 10.8p), being an increase of 5% comparable with the increase in underlying profit before tax. Highlighted items Highlighted items total £5.2 million in the year to December 2016, (CY2015: £8.8 million). Highlighted items comprised the following: • £1.9 million related to purchased intangible asset amortization (CY2015: £2.0 million); • £0.6 million share‑based payment expenses (CY2015: £0.8 million); • £2.0 million of acquisition related costs, (CY2015: credit £0.1 million) including £0.8 million in relation to the increase of the Stratigent earn‑out and deferred consideration adjustments of £0.6 million resulting from foreign exchange differences net of the impact of discounting to present value; and • £0.7 million of integration costs, (CY2015: £1.6 million) including the cost of management restructure of £0.5 million and a further £0.2 million relating to fees in relation to the appointment of the new Group CEO. 24 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORTHeadline financials REVENUE £m OPERATING PROFIT £m DILUTED EPS pence 83.6 FY20161 13.0 FY20161 76.6 CY20152 12.4 CY20152 11.3 10.8 FY20161 CY20152 FY20153 43.3 FY20153 0 +9.1% +4.4% Revenue Media Value Measurement Marketing Performance Optimization Market Intelligence Total revenue Underlying operating profit/(loss) Media Value Measurement Marketing Performance Optimization Market Intelligence Central costs Total underlying operating profit/(loss) Highlighted items Reported operating profit/(loss) Net finance costs Share of profit of associates Reported profit/(loss) before tax Underlying profit/(loss) before tax Underlying diluted earnings per share Performance by practice is outlined below: MVM – Media Value Measurement (56% of total revenue) Revenue Underlying operating profit/(loss) Underlying operating profit/(loss) margin % FY20153 (0.4) +5.0% FY2016 Audited for the year ended 31 December 2016 £’000 CY2015 Unaudited for the year ended 31 December 2015 £’000 FY2015 Audited eight month period ended 31 December 2015 £’000 47,161 13,048 23,360 83,569 12,124 3,739 3,902 (6,806) 12,959 (5,202) 7,757 (1,132) — 6,625 11,827 11.3p 41,998 9,936 24,650 76,584 12,057 2,802 3,668 (6,116) 12,411 (8,768) 3,643 (1,199) 18 2,462 11,230 10.8p FY2016 Audited £’000 47,161 12,124 25.7% CY2015 Unaudited £’000 41,998 12,057 28.7% 20,409 6,899 16,002 43,310 (81) 1,874 2,070 (3,866) (3) (6,656) (6,659) (800) 13 (7,446) (790) (0.4)p FY2015 Audited £’000 20,409 (81) (0.4)% Our Media Value Measurement (‘MVM’) practice reported revenue increase up 12.3%, an increase of 3.6% on a like‑for‑like constant currency basis. MVM now accounts for 56% of Group revenue. The recent acquisitions of FMC in Ireland and the full year impact of the 2015 acquisition of Media Value SL in Spain increased revenue by 2.2%. Revenue growth was held back by a decline in revenue from our contract compliance business which itself represents less than 10% of total MVM revenue. Excluding contract compliance, the MVM practice achieved 6.6% like‑for‑like constant currency revenue growth. 1. FY2016 is the year ended 31 December 2016 (audited). 2. CY2015 is the calendar year from 1 January 2015 to 31 December 2015 (unaudited). 3. FY2015 is the financial period from 1 May 2015 to 31 December 2015 (audited). Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 25 Strategic report CHIEF FINANCIAL OFFICER’S REVIEW continued MVM – Media Value Measurement continued Operating margin reduced to 25.7% from 28.7% in FY2015 primarily as a result of the revenue decline in the contract compliance business which directly impacted operating profit, investment in additional resources in our media business in China to enable sustainable revenue growth in that rapidly evolving market and the shift in revenue to lower margin international benchmarking engagements. MPO – Marketing Performance Optimization (16% of total revenue) Revenue Underlying operating profit Underlying operating profit margin % FY2016 Audited £’000 13,037 3,739 28.7% CY2015 Unaudited £’000 9,936 2,802 FY2015 Audited £’000 6,899 1,874 28.2% 27.2% Revenue from our Marketing Performance Optimization (‘MPO’) practice continued to grow strongly, with reported revenue growth of 31.2% and like‑for‑like constant currency revenue growth of 21.6%. MPO now accounts for 16% of total revenue (CY2015: 13%), which we expect to continue to grow as a proportion of our total business. Operating margins were marginally ahead of CY2015 at 28.7%, with resources growing largely in line with revenue growth. As we expand our MPO practice into new markets and resource for sustainable growth, we anticipate a reduction from current operating margin levels. MI – Market Intelligence (28% of total revenue) Revenue Underlying operating profit Underlying operating profit margin % FY2016 Audited £’000 23,360 3,902 16.7% CY2015 Unaudited £’000 24,650 3,668 14.9% FY2015 Audited £’000 16,002 2,070 12.9% Revenue from Market Intelligence (‘MI’) declined by 5.2% on a reported basis, and by 8.5% on a like‑for‑like constant currency basis. As indicated in our half‑year report and as largely anticipated, revenue from our project‑based research business declined sharply during the year and now represents less than 10% of MI revenues. Revenue from Portfolio, our Advertising Intelligence (‘AI’) subscription service, and related insight services grew by 1.7% on a reported basis. Eliminating the impact of currency, revenue from AI declined 1.7% owing to the loss of three contracts in our US business unit at the beginning of the year. Despite the decline in revenue, operating margins improved by 1.8% to 16.7% in 2016 because of both cost control within the AI business and the change in business mix, with costs being managed down with revenue in the lower margin project‑based research business. Central costs Central costs FY2016 Audited £’000 CY2015 Unaudited £’000 (6,806) (6,116) FY2015 Audited £’000 (3,866) Central costs include central salaries (Board, Finance, IT, Marketing and HR), legal and advisory costs and property costs. Central costs have increased by £0.7 million or in 2016 due to increased staff costs, travel costs and IT costs. The increase in travel costs, especially in the second half of the year, reflected the need to bring management teams together more often as our matrix organization was implemented. Taxation The total tax charge for the year ended December 2016 is £2.2 million (FY2015 credit: £1.3 million) representing a current tax charge of £1.8 million (FY2015: credit of £0.1 million) and a deferred tax charge of £0.4 million (FY2015: £1.2 million). On a calendar year comparative basis, the effective rate of tax on underlying profit before tax for the year ended 31 December 2016 is 21.7% (CY2015: 22.2%). The effective rate of tax is raised by under provision from previous periods. Excluding the release of provisions the underlying effective tax rate is 21.0%. Dividend It is the Board’s intention to pay a dividend of 0.65p per share for the 12 months ended 31 December 2016, (FY15: 0.4p per share). This would represent an increase in dividend per share on a pro‑rata basis and would also represent the continuation of a progressive dividend policy which commenced with our maiden dividend paid in October 2015. The dividend will be recommended as a final dividend at the Company’s AGM on 10 May 2017. Equity During the 12 months to December 2016, 38,063 shares were issued upon the exercise of employee share options. As a result our share capital increased to 77,199,751 ordinary shares (31 December 2015: 77,161,688). Acquisitions On 11 March 2016, the Group acquired the outstanding 50% interest in its Irish media consultancy associate, FMC. The 50% interest in FMC was acquired for an initial cash consideration of €150,000 (£118,000). €643,000 (£500,000) in deferred consideration was recognized at acquisition, however the maximum total purchase consideration is up to €2,000,000 (£1,559,000), payable in cash, depending on the performance of the FMC business during the period ending 31 December 2020. 26 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 STRATEGIC REPORT Cash conversion Reported cash from operations Underlying cash from operations Underlying operating profit/(loss) Cash conversion Year ended Eight month Year ended period ended 31 December 31 December 31 December 2015 Audited £’000 2015 Unaudited £’000 2016 Audited £’000 10,782 11,342 12,959 87.5% 11,515 13,673 12,411 110.2% 5,028 6,889 (3) n/a Underlying cash from operations represents the cash flows from operations excluding the impact of highlighted items. The underlying net cash inflow from operations was £11.3 million in the year ended 31 December 2016 (CY2015: £13.7 million). After highlighted items are considered, reported net cash inflow from operations for 2016 was £10.8 million (CY2015: £11.5 million). Cash conversion has improved significantly since the interim results due to the seasonality of cash flows, but is below the very strong cash conversion in CY2015. Improvement in the processes around working capital management remains a key focus for the business in 2017. Net debt and banking facilities Net cash Bank debt1 Net debt1 31 December 31 December 2015 Audited £’000 2016 Audited £’000 4,600 (32,750) (28,150) 6,364 (35,250) (28,886) 1. Bank debt in the statement of financial position at 31 December 2016 is shown net of £0.1 million (31 December 2015: £0.2 million) of loan arrangement fees that have been paid and which are amortized over the life of the facility. The bank debt stated above excludes these costs. All bank borrowings are held jointly with Barclays and Royal Bank of Scotland (‘RBS’). The committed facility, totalling £40,000,000, comprises a term loan of £10,000,000 (of which £3,750,000 remains outstanding at 31 December 2016 (31 December 2015: £6,250,000)), and a revolving credit facility of £30,000,000 (of which £29,000,000 was drawn down at 31 December 2016 (31 December 2015: £29,000,000)). During the period, the Group continued to trade within each of its banking facilities and associated covenants. Net debt to EBITDA ratio was 1.94x at 31 December 2016 (31 December 2015: 2.04). Statement of financial position and net assets Net current assets as at 31 December 2016 increased by £3.6 million to £9.2 million (2015: £5.6 million) and total net assets increased by £9.7 million to £52.1 million (2015: £42.4 million) as a result of the profit for the year of £4.7 million and foreign exchange gains on the translation of overseas subsidiaries. Trade and other receivables increased by £4.1 million to £28.4 million reflecting an increase in trade receivables of £3.0 million and accrued income of £1.8 million. Goodwill as at 31 December 2016 was £58.0 million (2015: £54.8 million) with the increase due to foreign exchange gains on retranslation of overseas subsidiaries of £2.8 million and the acquisition of FMC in Ireland adding £0.4 million to goodwill. Deferred contingent consideration has decreased by £2.9 million since 31 December 2015 to £2.0 million, due to the settlement of deferred consideration. Two earnouts relating to our recent acquisitions ended during 2016, and in total £5.1 million was paid to former shareholders. At 31 December 2016 of the remaining deferred consideration of £2.0 million, which relates to the recent acquisition of FMC and our media business in China, £1.8 million is expected to be settled in the next 12 months. Outlook Our delivery on the milestones set out in the Growth Acceleration Plan, coupled with events in the media marketplace – such as the debate around the performance of digital advertising – create significant medium‑term growth opportunities. The implementation of our plans, the opportunities arising from the changing nature of the industry, make us excited for the future. By order of the Board Andrew Noble Chief Financial Officer 27 March 2017 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 27 Strategic report BOARD OF DIRECTORS The Board of Directors has overall responsibility for the Group and aims to represent the interests of shareholders and provide leadership and control in order to ensure the growth and development of the business. Michael Higgins Non‑Executive Chairman Michael, in addition to chairing the Ebiquity Board, chairs the Nomination Committee and sits on the Remuneration Committee and the Audit & Risk Committee. Experience Michael qualified as an accountant at Price Waterhouse (now PwC). He then worked at Saudi International Bank and Charterhouse before becoming a partner at KPMG in 1996, from which he retired in 2006. Michael is currently senior independent director of Plant Health Care plc, a leading provider of novel patent protected biological products to the global agricultural market, and a non‑executive director of Progility plc. Michael is also a non‑executive director of the Quoted Companies Alliance and is an alternate member of the Panel on Takeovers and Mergers on behalf of the Quoted Companies Alliance. Committees Michael Karg, PhD Group Chief Executive Officer Michael took up his post on 1 January 2016. Experience Michael was previously CEO International for Razorfish, the digital business transformation agency of Publicis Groupe, and held senior international leadership positions with both Razorfish and Digitas over a 15‑year career. A native of Austria, he has been based in Boston, Paris and London. He advised clients globally across industries on marketing and digital strategies, worked closely with technology partners, and led the integration of acquired businesses. Michael holds a degree in Finance and Accounting and a doctorate in Management from the University in St Gallen, Switzerland and was a visiting Fellow at Harvard University from 1999 to 2000. Michael is a member of the Board and Chair of the Compensation Committee of Travelzoo Inc. Committees Andrew Noble Chief Financial Officer Andrew joined Ebiquity early in 2015 as Group Finance Director, before becoming Chief Financial Officer in September 2016. Experience Having obtained his degree in Politics, Philosophy and Economics from Oxford University he joined PwC where he spent four years before joining market research company Synovate where he held a number of finance roles, culminating in his appointment as Director of Financial Reporting and Control. Following the acquisition of Synovate by Ipsos in 2011, he became Global Chief Financial Officer within their marketing division, overseeing financial performance and developing strategy. Nick Manning Chief Strategy Officer Nick joined Ebiquity in October 2007 as Chief Operating Officer with special responsibility for the Analytics division before becoming President, International, in overall charge of Ebiquity’s non‑UK based operations and subsequently Chief Strategy Officer. Experience Nick has spent 37 years in the media industry, principally having co‑founded Manning Gottlieb Media (‘MGM’) in 1990. MGM became one of the most highly respected and fastest growing media specialist agencies before becoming part of Omnicom in 1997. His most recent agency position was CEO of OMD’s operations in the UK. Nick also co‑founded Opera, the media negotiation arm for OMD and PHD, with billings of £1 billion. 28 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 CORPORATE GOVERNANCE Morag Blazey Managing Principal, Market Intelligence In 2016 Morag took up the new role of Managing Principal for Ebiquity’s Market Intelligence practice. Morag is a fellow of the IPA. Experience Morag spent more than 20 years in ad agencies as a TV buyer, planner and account director. She became Managing Director of PHD in 1999 and served as CEO from 2006 to 2008. She assisted PwC and Fishburn Hedges in the development of a communications strategy for the pensions reform bill, and worked with the Olympic Delivery Authority before joining Ebiquity in 2009 as International Practice Leader for Advertising Intelligence. In 2012 Morag became CEO of Ebiquity’s UK business and in 2015 she was appointed as an executive director. Richard Nichols Non‑Executive Director Richard is Chairman of Ebiquity’s Audit & Risk Committee and also sits on the Nomination Committee. Julie Baddeley Non‑Executive Director Julie is Chairman of Ebiquity’s Remuneration Committee and sits on the Nomination Committee. Experience Richard is Chief Executive of Instinctif Partners, the international business communications consultancy and Non‑Executive Chairman of the Digital Innovation Group. Prior to joining Instinctif Partners, Richard was Chief Executive of Huntsworth plc, following the merger with Incepta Group plc where he was the Chief Executive and formerly Group Finance Director. An economics graduate from Cambridge University, Richard subsequently qualified as a chartered accountant with Price Waterhouse (now PwC) in London. Committees Experience Julie has served in both executive and non‑executive capacities on the boards of leading companies in the FTSE100 and FTSE250 as well as a number of major public sector organizations. She has chaired the remuneration committee of several company boards and been chairman of Harvey Nash plc since June 2013. She is currently Senior Independent Director of Marshall of Cambridge and a director of Chrysalis VCT plc. Julie has broad experience of businesses in professional services like Ebiquity, and of those in the consumer industry sectors Ebiquity serves, including The Woolwich, Camelot and Greggs. She was Associate Fellow at Oxford University Said Business School from 2000 to 2010, having previously run a global team as a partner at Accenture. Committees Tom Alexander Non‑Executive Director Tom sits on Ebiquity’s Nomination Committee, Remuneration Committee, and Audit & Risk Committee. Experience Following senior sales positions with Telia and BT Cellnet, Tom founded Virgin Mobile in 1999 and subsequently built the business to revenues of £1 billion and 4.3 million customers in eight years. He led the company’s IPO in 2004 and eventual sale to NTL in 2006. From 2007 he was Chief Executive Officer of Orange, leading its turnaround and subsequent successful merger in 2010 with T‑Mobile to create Everything Everywhere. After running EE for a further year he left to pursue private equity opportunities and non‑executive roles. Tom brings a wealth of international business experience and consumer instinct to Ebiquity. Committees   Audit & Risk Committee   Nomination Committee   Remuneration Committee   Denotes Chairperson Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 29 Corporate governance CORPORATE GOVERNANCE REPORT We are committed to embedding corporate governance as a discipline across the Group to complement our aim to deliver long‑term success on behalf of our stakeholders. Michael Higgins Chairman Chairman’s governance overview I am pleased to present the corporate governance report for the year ended 31 December 2016. The corporate governance report describes the framework for corporate governance and internal control that the Directors have established. Ebiquity is committed to robust standards of corporate governance. Corporate governance code As a company listed on AIM, Ebiquity is not required to comply with the UK Corporate Governance Code. Ebiquity has adopted the Corporate Governance Code for Small and Mid‑Size Quoted Companies 2013 produced by the Quoted Companies Alliance (the ‘QCA Code’). The Quoted Companies Alliance is the membership organization which represents the interests of small and mid‑size quoted companies, of which Ebiquity is a member. The QCA Code contains minimum disclosure requirements for a company to meet in order for that company to state that it complies with the QCA Code. The Directors are of the opinion that the Company complies with these minimum disclosure obligations save to the extent referred to in the report. My role as Chairman It is my principal responsibility as Chairman to ensure that the Board is effective in interrogating, approving and monitoring the Company’s direction and strategy. As Chairman I am also responsible, in consultation with the Company Secretary, for ensuring proper information is supplied to the Board in a timely fashion, that Board meetings are conducted effectively and that proper debate is had at Board meetings. Board evaluation The Board carried out a review of its effectiveness for the first time. This review was performed by me as Chairman. I coordinated responses to a confidential questionnaire to gather feedback from all Directors. The Board will carry out further reviews of its effectiveness on an annual basis and will as part of such reviews consider whether the use of an external adviser would be advantageous. A summary of the issues and comments raised by the Directors in response to the questionnaire was circulated to all Directors. These issues and comments were also discussed in meetings of the Nomination Committee and the Board. No material issues were raised by the Directors regarding the Board’s effectiveness. A number of matters were identified which could make the Board’s activities and administration more effective and efficient, which the Board will be seeking to implement in the coming year. Michael Higgins Chairman 27 March 2017 30 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 CORPORATE GOVERNANCEAndrew Noble (Chief Financial Officer) is responsible for the Group’s worldwide functions in finance, treasury and taxation. He has responsibility for the Group’s finance systems, accounting policies and controls. Andrew also works closely with the practice principals, regional managing directors and finance leaders across Ebiquity. Nick Manning (Chief Strategy Officer) has responsibility for developing and implementing Ebiquity’s strategy across its three business segments, ensuring that Ebiquity provides the services advertisers need. He is also responsible for the Group’s marketing strategy. Morag Blazey (Managing Principal, Market Intelligence) leads the Market Intelligence capability globally. Her principal responsibilities are to raise Ebiquity’s profile, drive renewals and new business, and develop and execute service and product developments and growth strategies. Richard Nichols (independent Non‑Executive Director) is a qualified chartered accountant. His previous experience includes serving as Finance Director and Chief Executive Officer of a number of listed and private companies. Richard is currently Chief Executive Officer of Instinctif Partners, who provide Ebiquity with financial PR advice. Richard is not part of the Instinctif team which advises Ebiquity and in the event that the Board formally discusses Instinctif’s instruction by the Company, Richard would recuse himself from those discussions. Accordingly, the Board considers Richard to be independent. Julie Baddeley (independent Non‑Executive Director) has significant experience of serving on the boards of listed companies, both as an executive and as a non‑executive director, and of serving on and chairing board committees. Julie has experience across industry sectors, including in professional services organizations such as Accenture. She is currently chairman of Harvey Nash plc, which is listed on the Official List. Julie brings valuable governance experience to Ebiquity. Tom Alexander (independent Non‑Executive Director) has enjoyed a highly successful career in the telecoms industry. The commercialism and business instinct developed by Tom during his career is of great value to the Board. The Board also draws upon Tom’s experience of an industry undergoing rapid technological change in guiding Ebiquity’s management through similar changes in the sectors in which the Company operates. Further biographical details regarding the Directors are contained on pages 28 and 29. Each of the Non‑Executive Directors has a written letter of appointment with the Company. These are available for inspection on Ebiquity’s website. Each of the Executive Directors has a written service agreement with the Company. None of these service agreements entitles a director to receive more than six months’ notice terminating his/her employment. Board of Directors Role of the Board The Board is responsible to shareholders for the proper management of the affairs of the Group. The Directors are also collectively responsible for acting in the way which they consider, in good faith, is most likely to promote the success of the Company for the benefit of Ebiquity’s shareholders as a whole. In doing so, the Directors have regard (amongst other matters) to the interests of the Company’s employees and the need to foster the Company’s business relationships with suppliers, customers and other stakeholders. A statement of the Directors’ responsibilities with regards to the annual report and financial statements is set out on page 41. Composition of the Board and roles of the Directors During the year ended 31 December 2016, Michael Greenlees and Andrew Beach stood down as Directors of the Company, and Michael Karg and Andrew Noble were appointed as Directors of the Company. The Board of Directors now comprises an independent Non‑Executive Chairman, three further independent Non‑Executive Directors and four Executive Directors. Michael Higgins (independent Non‑Executive Chairman) is a qualified chartered accountant. He brings to the Board significant experience of advising smaller quoted companies and is a director of a number of such companies. Michael is a non‑executive director of the Quoted Companies Alliance. The Directors are of the view that Michael Higgins retains his independence notwithstanding that he chairs the Board. Michael Karg, PhD (Group Chief Executive Officer) is responsible for setting long‑term strategy, developing appropriate annual business plans, agreeing management KPIs and leading the Executive Directors and the senior Executive team in the day‑to‑day running of the Group’s business, including chairing the management committees and communicating their decisions/ recommendations to the Board. He is also responsible for shareholder communication and ongoing relationships with investors. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 31 Corporate governanceCORPORATE GOVERNANCE REPORT continued The Audit & Risk Committee is responsible for reviewing the performance of the external auditors on an annual basis, and for agreeing the scope of their work. The Audit & Risk Committee also monitors the level of non‑audit work conducted by the external auditors to ensure that independence and objectivity are safeguarded. Details of non‑audit fees paid to the external auditors are set out in note 4 to the consolidated financial statements. During the year, the Audit & Risk Committee expanded its scope of reference to include certain matters relating to risk and risk management, when its name was changed from the Audit Committee to the Audit & Risk Committee. The Audit & Risk Committee’s report can be found on pages 34 and 35. Remuneration Committee The Remuneration Committee, which meets at least twice a year, is chaired by Julie Baddeley. The Remuneration Committee comprises Julie Baddeley, Michael Higgins and Tom Alexander. The Remuneration Committee is responsible for the Executive Directors’ remuneration and other benefits and terms of employment, including performance related bonuses and share options. The Remuneration Committee Report can be found on pages 36 to 38. Nomination Committee The Nomination Committee is chaired by Michael Higgins. The Nomination Committee comprises Michael Higgins, Richard Nichols, Julie Baddeley, Tom Alexander and Michael Karg. The Nomination Committee meets as necessary and has responsibility for nominating candidates to the Board for appointment as Directors, bearing in mind the need for diversity and a broad representation of skills across the Board. Matters reserved for the Board As part of good governance there are certain matters which are not appropriate to be delegated to management or a committee of the Board and should be reserved for consideration by the Board as a whole. The Board has formally approved a written list of such matters (which is available on Ebiquity’s website) and which include: • approving the annual budget and quarterly reforecasts; • changes to the Group’s capital structure; • approving the Company’s dividend policy; • reviewing non‑routine regulatory news service announcements made by the Company; and • approving material contracts to be entered into by the Group. Board meetings During the year the Board met formally on 10 occasions. In addition, there were a small number of meetings convened on short notice to consider ad hoc matters. The Board receives monthly management accounts and other relevant information as appropriate in advance of each Board meeting. This information is made available electronically via an online platform. Directors are able to access this information at any time, including following Board meetings. There are a number of standing agenda items reviewed by the Board at each regular Board meeting, including current trading and outlook. Other items are considered by the Board as appropriate, including as a minimum, an annual review of the Company’s governance arrangements. Detailed minutes are taken of all Board meetings. Minutes are circulated to the Board and approved at the following Board meeting. Advisers to the Board and its committees The Board seeks advice from external advisers, including legal, tax and financial advisers, on various matters as and when appropriate. The Company Secretary attends all Board meetings and is available to advise on any corporate governance issues which may arise. The Company’s auditors, PricewaterhouseCoopers LLP, attend meetings of the Audit & Risk Committee. The Remuneration Committee relies from time‑to‑time on advice and benchmarking data from Hewitt New Bridge Street in setting certain specific matters of the Executive Directors’ remuneration. Risk management The Board retains ultimate control and direction over appropriate strategic, financial, organizational and compliance issues. The Board has put in place an organizational structure with defined lines of responsibility. The Company has adopted an authority matrix which sets out the delegation of authority to individual business units and members of staff. The internal control system put in place by the Company is designed to provide reasonable assurance against material misstatement or loss. Commercial risks are an inherent part of business and as such the internal control system cannot provide absolute assurance against these risks. Board committees The Board has constituted several committees to help it in the performance of its functions. The principal committees are the Audit & Risk Committee, the Remuneration Committee and the Nomination Committee. The roles of these committees are set out below. Audit & Risk Committee The Audit & Risk Committee, which meets at least three times a year, is chaired by Richard Nichols. The Audit & Risk Committee comprises Richard Nichols, Michael Higgins and Tom Alexander. The Board considers Richard Nichols to have recent and relevant financial experience. Richard is a qualified chartered accountant and has served as the Finance Director and Chief Executive Officer of listed and private companies. Richard currently serves as the Chief Executive Officer of a private‑equity backed company. The purpose of the Audit & Risk Committee is to ensure the preservation of good financial practices throughout the Group; to monitor that controls are in force to ensure the integrity of financial information; to review the interim and annual financial statements; to assess the adequacy and effectiveness of the Company’s risk management systems and to provide a line of communication between the Board and the external auditors. 32 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 CORPORATE GOVERNANCEAttendance at meetings Details of the Directors’ attendance at each regular Board and Committee meeting in the year is as set out below (number of meetings attended by each Director/the maximum number of meetings each Director was entitled to attend): Michael Higgins Michael Karg, PhD Andrew Noble Nick Manning Morag Blazey Richard Nichols Julie Baddeley Tom Alexander Michael Greenlees Andrew Beach Board Audit & Risk Remuneration Nomination 10/10 10/10 3/3 7/10 9/10 9/10 10/10 10/10 3/3 8/8 5/5 — — — — 4/5 — 5/5 — — 7/7 — — — — — 7/7 6/7 — — 1/1 1/1 — — — 1/1 1/1 1/1 — — Management committees Additionally, and not formal committees of the Board, the Company’s management has constituted a number of regional committees which comprise the principal vehicles for directing the Group’s business at an operational level. Shareholders The Executive Directors meet regularly with institutional shareholders to discuss the Company’s performance and future prospects. The views of institutional shareholders as presented at these meetings are reported by the Executive Directors to the Board. An important vehicle for communications with private shareholders is the Company’s Annual General Meeting. The information displayed on the Investor Relations pages of the Company’s website is regularly refreshed in order to provide accurate and up‑to‑date information to all shareholders. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 33 Corporate governance AUDIT & RISK COMMITTEE REPORT Introduction The Audit & Risk Committee is a key component of the Group’s governance framework. The Board has delegated to the Committee oversight of the Group’s financial reporting. During the year, and at the request of the Board, the Committee expanded its scope of reference to include oversight of the Group’s risk management and of the procedures in place to identify and mitigate significant risks. All of the members of the Committee are independent Non‑Executive Directors with a combination of accounting, financial and commercial experience. The Board considers Richard Nichols, who chairs the Committee, to have recent and relevant financial experience. Richard is a chartered accountant with significant financial and commercial experience in both listed and unquoted companies. Richard’s biography and appointments are set out on page 29. The Committee met on five occasions during the year. The attendance of its members is set out in the table on page 33. Meetings of the Committee are commonly comprised of three sections. The first section of meetings of the Committee are also normally attended by the Group Chief Executive Officer, the Chief Financial Officer, the Company Secretary and other members of the senior management together with representatives from the external auditors, PricewaterhouseCoopers LLP (‘PwC’) which ensures the Committee and the external auditors have access to all financial and operational knowledge. Subsequently, Committee members also meet with the external auditors without the Executive Directors and other senior management in attendance, which ensures that the Committee maintains an independent view. Finally, there is a section of the meeting attended solely by the members of the Committee. Role and responsibility of the Audit & Risk Committee The Committee’s terms of reference can be found on the Company’s website. The principal responsibilities of the Committee include: • monitoring the integrity of the Group’s financial statements, including a review of significant financial reporting issues and judgements; • reviewing the external auditors’ independence and objectivity, the effectiveness of the external audit process and the appointment, reappointment and removal of the external auditors; • reviewing the Group’s financial controls and other internal reporting systems; • reviewing progress on implementing control improvements; and • keeping under review the adequacy and effectiveness of the Company’s risk management systems. Activities during the year The key matters the Committee considered during the year are listed below. In respect of the Group’s financial statements and interim accounts: • the assessment of the carrying value of goodwill and intangible assets: the Committee assesses on a twice‑yearly basis whether there are any indicators of impairment to the carrying value of any cash‑generating unit. The Committee reviewed the key assumptions in the assessment of goodwill and the sensitivity of these assumptions and impact on the carrying value of goodwill and intangible assets. On this basis the Committee makes recommendations to the Board in this regard; • going concern: the Committee reviews, in particular, management’s forecasts of the Group’s performance including performance against the covenants contained in the credit agreement with Barclays and RBS; • presentation of highlighted items: the Committee reviews the nature and quantum of the items proposed by management to be classified as highlighted to ensure they are consistent with the Group’s accounting policies; • deferred contingent consideration: the Group has been acquisitive over recent years and the Committee reviews management’s forecasts regarding the Group’s future obligations to pay consideration for acquisitions; • capitalisation of intangibles: the Committee reviews the nature and quantum of the items proposed by management to be capitalized, together with the period over which the capitalized items will be amortized, to ensure they are consistent with the Group’s accounting policies; • revenue recognition: the Committee reviews the quantum of accrued/ deferred income and the judgement applied by management in calculating revenue recognition cut off. The Committee reviews the quality of evidence available to support revenue recognition; and • taxation: The Committee reviews the significant components of the tax charge and provision and the overall effective tax rate of the Group as a whole. In respect of risk management: • the Committee undertook significant work reviewing the output of management’s exercise preparing a register of the principal risks relevant to the Group and its business together with the mitigation steps taken to date by management and planned to be undertaken in the future; • the Committee reviewed and approved the risk management framework prepared by management which outlined how risk would be identified and managed across the business; and • the Committee included risk as a standing agenda item at each meeting for management to update the Committee on significant changes to the risk register and mitigating actions. 34 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 CORPORATE GOVERNANCEProvision of non‑audit services The Committee reviews with management the engagement of the external auditors for non‑audit services and the level of associated non‑audit fees. Details of fees paid to PwC during the year are outlined in note 4 to the financial statements. Non‑audit fees of approximately £19,000 were paid to PwC during the year in connection with Group restructuring activities. The Committee does not consider that auditor independence has been impacted by this matter. Richard Nichols Chair of the Audit & Risk Committee 27 March 2017 With regard to Ebiquity’s external auditors, the Committee’s principal activities were to: • approve the terms of engagement and fees to be paid to the external auditors; • approve the annual audit plan; • review the findings of the auditors and management’s response; and • evaluate the independence and objectivity of the external auditors. External auditors PwC have been the external auditors of the Group since 2012, when a full tender process was carried out. The original audit partner served from PwC’s appointment until completion of the audit for the year ended 31 December 2016 when he rotated off the audit. A new partner has been appointed regarding the audit of the Company’s financial statements for the year commenced 1 January 2017. A review of PwC’s independence is carried out each year before a recommendation is made to the Board to propose PwC for re‑election at the AGM. In assessing PwC’s independence, the Committee received confirmation that, in PwC’s professional judgement, PwC is independent within the meaning of relevant UK regulatory and professional requirements. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 35 Corporate governanceREMUNERATION COMMITTEE REPORT Remuneration policy The Board recognizes the role of appropriate remuneration in attracting and retaining people with the industry‑leading skills, knowledge and experience needed to develop and grow the business, and incentivizing them to perform. The Remuneration Committee has maintained the policy set out in the Annual Report for the year ended 31 December 2015, which is used to determine Executive Directors’ remuneration and as a guide for the Executive Committee in setting organization‑wide remuneration. In summary, the policy is as follows: Element Base salary Objective and link to strategy Provides an appropriate level of fixed income – commensurate with the role – to attract and retain the individual with the required capability. Militates against excessive risk‑taking and/or focus on short‑term metrics by establishing sufficient balance against variable remuneration elements. Operation Paid monthly. Used as basis for pension contributions and performance‑related pay eligibility. Reviewed annually, normally effective 1 April. Set at role commencement. Updated via review against market comparators as needed. Benefits (including pension) Provides the necessary current and future health and security (for the individual and their dependents) to enable the individual to focus maximum attention on their role. Private medical, life and critical illness insurances. Defined contributions to personal pension. Other benefits as considered appropriate by the Committee. Performance bonus Incentivizes achievement of short‑term financial and strategic performance goals. On‑target expectations expressed as a percentage of salary, relative to role. Long‑Term Incentives (equity) Incentivizes longer‑term growth and value creation through shareholder returns Group financial targets set annually in relation to management expectations. Personal goals are set annually for each Executive Director in relation to strategy. Standard LTIP, with nominal price options subject to a minimum three‑year vesting period with performance conditions. Opportunity The Committee has not set a maximum salary. The Committee ensures base salaries are equitable across all variables. The Committee aims to maintain alignment between increases for the Directors and the wider workforce. It retains discretion to deviate in order to address specific circumstances, for example, but not limited to: • an increase in the individual’s scope and responsibilities; and • the need to retain specialist expertise within a competitive talent market. The Committee has not set maximum levels for benefits. It aims to ensure that individual arrangements for Directors are in line with policies applicable to the wider workforce. Individual participation is set with respect to the role performed Individual on‑target expectation capped at 50% of base salary. Maximum award of 200% of on‑target amount in any one year i.e. a maximum of 100% of base salary for any one Director. Performance conditions and assessment Not applicable. Not applicable. Measured over a one‑year period. Minimum thresholds of the Group’s annual financial performance determine the extent to which individuals may attain on‑target expectation, which is also judged on individual performance against personal goals. Extent of individual awards determined with reference to role, performance and perceived future value. Uses appropriate targets for growth in earnings per share (and/or total shareholder return) over vesting period. Awards made in respect of each financial year typically do not exceed 100% of salary, subject to a maximum of 200% of salary inexceptional circumstances. This policy reflects the Company’s current stage of development and anticipated growth, and balances risk and reward. 36 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 CORPORATE GOVERNANCEThe Remuneration Committee has consulted with its largest institutional investors during 2016/17 regarding the introduction of a shareholding guideline and development of its Long‑Term Incentive (‘LTI’) to better align Directors’ (and other Executives’) interests with those of shareholders and the longer‑term strategy of the Group. The Company has not issued LTIs to executives during 2016/17; we expect to conclude the consultation shortly and to ensure that LTIs are in place for executive management in the first half of 2017. The Remuneration Committee relies from time‑to‑time on advice and benchmarking from third parties in setting specifics of the Executive Directors’ remuneration. Directors’ remuneration in the year ended 31 December 2016 Salary/fees £’000 Taxable benefits £’000 CY2015 FY2016 year ended FY2015 eight month year ended period ended 31 December 31 December 31 December 2015 Total £’000 2015 Total £’000 2016 Total £’000 Bonus £’000 Executive Michael Karg, PhD Andrew Noble2 Nick Manning Morag Blazey Andrew Beach2 Michael Greenlees3 Non‑Executive Michael Higgins Richard Nichols Julie Baddeley Tom Alexander 400 53 300 230 171 107 68 35 35 35 9 1 — 5 1 3 — — — — 1201 — — 8 — — — — — — 529 54 300 243 172 110 68 35 35 35 — — 300 47 219 326 68 45 47 40 — — 200 47 146 217 45 33 35 28 1,581 1,092 751 1. Michael Karg, CEO, received a one‑time cash sign‑on bonus of £120,000 in March 2016 in order to compensate him for the loss of certain retention incentives from his previous employer. No performance bonuses were attained for the year ended 31 December 2016. 2. Andrew Beach left the Company on 14 October 2016, handing over the role of Chief Financial Officer to Andrew Noble on 9 September 2016. 3. Michael Greenlees retired from the post of Chief Executive Officer with effect from 17 January 2016, and ceased to be a Director on 30 April 2016. The totals above are inclusive of annual performance bonuses (FY2015: £nil). Directors were eligible for cash bonuses as a percentage of base salary, dependent on individual and Company performance against established financial targets in excess of analyst expectations. No Director was a member of a company pension scheme (FY2015: nil). Contributions totalling £28,127 (FY2015: £6,721) were made to Directors’ private pension schemes (£14,000 to the highest paid Director, FY2015: £nil) during the year. No Directors exercised share options during the year (FY2015: 150,000). The highest paid Director exercised no share options, (FY2015: nil). Termination payments to Directors Two Directors left the Company in the year ended 31 December 2016. No termination payments were made to Directors (FY2015: £nil). Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 37 Corporate governance REMUNERATION COMMITTEE REPORT continued Long‑Term Incentives During the year, a total of 311,355 share options that were previously granted to Directors under the Company’s Executive Incentive Plan vested (FY2015: nil) as follows: Beneficiary Michael Greenlees Morag Blazey Nick Manning Andrew Beach Grant date 17 January 2014 17 January 2014 17 January 2014 17 January 2014 Volume 350,000 200,000 200,000 100,000 Exercise price £0.25 Performance conditions Growth in adjusted diluted EPS vs 2012/13 Achievement vs condition 10.8p/share vs 9p – 7.08% compound growth % vested 36.63% Number vested 128,205 73,260 73,260 36,630 During the fiscal period, no options were granted to any Directors under the Group’s Executive Incentive Plan (FY2015: 400,000). Thresholds below budgeted levels of revenue (minimum 97.5% of budget) and operating profit (minimum 90% of operating profit post‑bonus) have been set to allow for pro‑rata payment of bonuses at a level which protects operating profit margins and overall Group performance. Each Director has the potential to achieve up to a maximum of 200% of their theoretical target bonus as a result of exceptional individual and Company performance. No share options have been granted to Directors since 1 January 2017. Julie Baddeley Chair of the Remuneration Committee 27 March 2017 Share options totalling 500,000 were granted to the incoming Chief Executive Officer, Michael Karg, in order to compensate him for the loss of certain retention incentives. These were as follows: • 200,000 ordinary shares of 25p each, half vesting after six months’ service and the remaining half vesting after 12 months’ service, subject to continued employment; and • 300,000 ordinary shares of 25p each, which will vest conditional on the satisfaction of performance criteria relating to the growth of the Company’s diluted adjusted earnings per share (‘EPS’), as follows: • 200,000 (“tranche one”) will vest conditional on the EPS growth for the financial year ending 31 December 2016 over the previous 12 month period ended 31 December 2015; and • 100,000 (“tranche two”) will vest conditional on the EPS growth for the financial year ending 31 December 2017 over the prior financial year. Any options from tranche one which do not vest will be rolled over into tranche two and will be capable of vesting along with the options granted as part of tranche two. EPS growth, over the relevant performance period for each tranche, of 10% or more will result in all of the options in that tranche vesting. EPS growth of 4% over the relevant performance period will vest one‑fifth of the options in that tranche. None of the options in a tranche will vest if EPS growth over the relevant performance period is less than 4%. Three‑fifths of the options in a tranche will vest if EPS growth over the relevant performance period is 8%. The options in a tranche will vest on a straight‑line basis where EPS growth over the relevant performance period is between 4% and 8% or between 8% and 10%. Implementation of remuneration policy in 2017 The Executive Directors’ remuneration for the year that commenced on 1 January 2017 includes base salary and benefits and an annual cash bonus in line with the Company’s remuneration policy. The target bonus is 50% of base salary for the Group CEO and 30% for the other Executive Directors. Each individual must achieve the personal performance targets (‘KPIs’) set for them by the Board, and the Company must achieve its budgeted levels of pro‑forma (i.e. excluding that derived from in‑year acquisitions) revenue and operating profit – which have been agreed by the Board and which are in excess of analyst expectations – for full 100% achievement of the theoretical bonus. 38 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 CORPORATE GOVERNANCEPolitical donations and political expenditure No political donations were made and no political expenditure was incurred in the period (2015: nil). Modern Slavery Act 2015 Ebiquity’s statement regarding the Modern Slavery Act 2015 can be viewed on its website (ebiquity.com). Events after the reporting period There have been no events after the reporting period requiring disclosure. DIRECTORS’ REPORT The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2016. Ebiquity plc is incorporated in England and Wales under registered number 3967525. Its registered address and principal office is at CityPoint, One Ropemaker Street, London EC2Y 9AW. The Company is the ultimate parent of the Group. The Group has a branch in France. Its other overseas operations are subsidiaries or associates (see notes 12 and 13). Future developments The future developments of the Group are considered in the strategic report on pages 2 to 27. Dividends The Board is recommending the payment of a final dividend of 0.65p per share for the year ended 31 December 2016. If shareholders approve this payment at the AGM on 10 May 2017, the dividend will be paid on 26 May 2017 to all shareholders who were on the Register of Members at close of business on 5 May 2017. Research and development The Group continues to invest in the development of products. During the period a total of £1.1 million was capitalized in relation to development projects. This has resulted in the development of a number of new initiatives. Directors and Directors’ interests The Directors in office during the period and until the date of this report were as follows: Michael Higgins Michael Karg, PhD1 Executive Director Andrew Noble2 Executive Director Executive Director Nick Manning Morag Blazey Executive Director Richard Nichols Julie Baddeley Tom Alexander Non‑Executive Chairman Chief Executive Officer Chief Financial Officer Chief Strategy Officer Managing Principal, Market Intelligence Non‑Executive Director Non‑Executive Director Non‑Executive Director Michael Greenlees stood down as a Director on 30 April 2016. Andrew Beach stood down as a Director on 14 October 2016. Andrew Watkins, General Counsel, acts as the Company Secretary. 1. Appointed 27 January 2016. 2. Appointed 9 September 2016. The beneficial interests of Directors, who were Directors at the period end, in the ordinary shares of the Company and options to purchase such shares at the beginning and end of the financial period comprised: Michael Higgins Michael Karg Andrew Noble Nick Manning Morag Blazey Richard Nichols Julie Baddeley Tom Alexander 31 December 2016 31 December 2015 Ordinary shares 64,500 — — Options — 500,000 60,000 Ordinary shares 64,500 — — Options — — 60,000 230,000 2,543,490 230,000 2,670,230 — 601,429 — 728,169 100,000 — — — — — 100,000 — — No Director has any direct interest in the shares of any subsidiary company. There have been no changes in the above Directors’ shareholdings or holdings of options between 31 December 2016 and the date of this report. Further information about the Directors’ interests is provided in the Remuneration Committee report on pages 36 to 38. Directors’ third‑party and pension scheme indemnity provisions The Company purchased and maintained throughout the period and up to the date of this report, directors’ and officers’ liability insurance in respect of its Directors and officers and those of its subsidiaries. There were no pension scheme indemnity provisions in place during the period. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 — — — 39 Corporate governance DIRECTORS’ REPORT continued Employees Ebiquity is committed to the continuous development of its employees. The Group’s employees are integral to the success of the business and as a result the Group pursues employment practices which are designed to attract, retain and develop this talent to ensure the Group retains its market leading position with motivated and satisfied employees. The Group has continued this year with its employee engagement programme, initiated in 2011, measuring engagement levels and drivers through an annual survey and taking actions to further develop the leadership and organization on the back of these findings. The Group has continued its practice of using formal and informal communication channels to provide employees with the information they need to understand and achieve the objectives of the Group and to keep employees informed of matters affecting them as employees and the financial and economic factors affecting the performance of the Group. Applications for employment by disabled persons are given full and fair consideration for all vacancies in accordance with their particular aptitudes and abilities. Where existing employees become disabled it is the Group’s policy to provide continuing employment wherever practicable in the same or an alternative position and to provide appropriate training. It is the policy of the Group that training, career development and promotion opportunities should be available to all employees. Employees are encouraged to own shares in the Company, and many employees are shareholders and/or hold options under the Company’s share option schemes. Financial instruments The Group’s principal financial instruments comprise bank loans and cash. The main purpose of these financial instruments is to provide finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The operations of the Group generate Name Artemis Investment Management T Rowe Price Global Investments Kabouter Management JO Hambro Capital Management Invesco Perpetual Herald Investment Management Hargreave Hale Legal & General Fidelity International AGM notice The notice of the Company’s Annual General Meeting accompanies this document and is also available for inspection on the Company’s website. Going concern The Board is responsible for considering whether it is appropriate to prepare the financial statements on a going concern basis. After making appropriate enquiries the Board concluded that the Group has adequate resources to continue in operation for the foreseeable future and operate within banking facilities and the covenants therein. For this reason the Group continues to adopt the going concern basis in preparing the financial statements. Independent auditors and disclosure of information to auditors All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Group’s auditors for the purposes of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware. cash and the planned growth of activities is cash generative. Full details of financial instruments are included in note 25 to the financial statements. Substantial shareholdings At the date of this report the Company’s issued share capital consisted of 77,199,751 ordinary shares of 25p each and a total of 72,999,751 voting rights. The Ebiquity plc 2010 Employee Benefit Trust (the ‘EBT’) held 4,200,000 issued ordinary shares to satisfy awards for the Company’s senior management team. At the date of this report, these awards had not been exercised. The trustee has agreed not to vote the ordinary shares held by it. As such 4,200,000 ordinary shares are treated as not carrying voting rights for the purposes of the City Code on Takeovers and Mergers. At the date of this report, the following had notified the Company that they held more than 3% of the Company’s ordinary share capital, other than the shareholdings held by Directors and the EBT. No other person has reported an interest of more than 3% in the Company’s ordinary shares. Number of shares % of issued share capital % of total voting rights 12,052,282 8,337,921 8,142,430 7,111,150 6,452,446 5,491,125 4,330,000 3,945,200 2,439,234 15.61 10.80 10.55 9.21 8.36 7.11 5.61 5.11 3.16 16.51 11.42 11.15 9.74 8.84 6.29 5.93 5.40 3.34 The auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office, and a resolution that they be reappointed will be proposed at the Annual General Meeting. By order of the Board Andrew Watkins Company Secretary 27 March 2017 40 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 CORPORATE GOVERNANCE STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union, and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising Financial Reporting Standard 101 Reduced Disclosure Framework (‘FRS 101’), and applicable law). 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 the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards comprising FRS 101 have been followed, subject to any material departures disclosed and explained in the Group and parent company financial statements respectively; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 41 Financial statementsINDEPENDENT AUDITORS' REPORT to the members of Ebiquity plc Report on the Group financial statements Our opinion In our opinion, Ebiquity plc’s Group financial statements (the ‘financial statements’): • give a true and fair view of the state of the Group’s affairs as at 31 December 2016 and of its profit and cash flows for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006. What we have audited The financial statements, included within the annual report, comprise: • the consolidated statement of financial position as at 31 December 2016; • the consolidated income statement and consolidated statement of comprehensive income for the year then ended; • the consolidated cash flow statement for the year then ended; • the consolidated statement of changes in equity for the year then ended; and • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union, and applicable law. In applying the financial reporting framework, the Directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. In addition, in light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we are required to report if we have identified any material misstatements in the strategic report and the Directors’ report. We have nothing to report in this respect. Other matters on which we are required to report by exception Adequacy of information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility. Directors’ remuneration Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Responsibilities for the financial statements and the audit Our responsibilities and those of the Directors As explained more fully in the statement of Directors’ responsibilities set out on page 41, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 42 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTSIn addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. With respect to the strategic report and Directors’ report, we consider whether those reports include the disclosures required by applicable legal requirements. Other matter We have reported separately on the parent company financial statements of Ebiquity plc for the year ended 31 December 2016. Simon O’Brien (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 27 March 2017 What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: • whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; • the reasonableness of significant accounting estimates made by the Directors; and • the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 43 Financial statementsCONSOLIDATED INCOME STATEMENT for the year ended 31 December 2016 Year ended 31 December 2016 Eight month period ended 31 December 2015 Before highlighted items £’000 Highlighted items (note 3) £’000 Before highlighted items £’000 Highlighted items (note 3) £’000 Total £’000 Revenue Cost of sales Gross profit Administrative expenses Operating profit/(loss) Finance income Finance expenses Net finance costs Share of profit of associates Profit/(loss) before taxation Taxation (charge)/credit Profit/(loss) for the year/period Attributable to: Equity holders of the parent Non-controlling interests Earnings/(loss) per share Basic Diluted Note 2 4 6 6 13 7 8 8 83,569 (38,282) 45,287 (32,328) 12,959 18 (1,150) (1,132) — — — — (5,202) (5,202) — — — — 11,827 (5,202) (2,570) 9,257 340 (4,862) 8,987 270 9,257 (4,837) (25) (4,862) 83,569 43,310 (38,282) (22,514) 45,287 20,796 (37,530) (20,799) (3) 13 (813) (800) 13 (790) 576 (214) (336) 122 (214) 7,757 18 (1,150) (1,132) — 6,625 (2,230) 4,395 4,150 245 4,395 5.38p 5.20p Total £’000 43,310 (22,514) 20,796 (27,455) (6,659) 13 (813) (800) 13 (7,446) 1,332 (6,114) — — — (6,656) (6,656) — — — — (6,656) 756 (5,900) (5,885) (6,221) (15) 107 (5,900) (6,114) (8.08)p (8.08)p The notes on pages 48 to 79 are an integral part of these financial statements. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2016 Profit/(loss) for the year/period Other comprehensive income/(expense): Items that will not be reclassified subsequently to profit or loss Exchange differences on translation of overseas subsidiaries Total other comprehensive income/(expense) for the year/period Total comprehensive income/(expense) for the year/period Attributable to: Equity holders of the parent Non-controlling interests The notes on pages 48 to 79 are an integral part of these financial statements. Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 4,395 (6,114) 4,844 4,844 9,239 8,994 245 9,239 (116) (116) (6,230) (6,337) 107 (6,230) 44 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2016 31 December 31 December 2015 £’000 2016 £’000 Note Non‑current assets Goodwill Other intangible assets Property, plant and equipment Investment in associates Deferred tax asset Total non‑current assets Current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Accruals and deferred income Financial liabilities Current tax liabilities Provisions Total current liabilities Non‑current liabilities Financial liabilities Provisions Deferred tax liability Total non‑current liabilities Total liabilities Total net assets Equity Ordinary shares Share premium Other reserves Retained earnings Equity attributable to the owners of the parent Non‑controlling interests Total equity 9 10 11 13 20 14 15 16 17 18 7 19 18 19 20 22 23 23 23 58,045 14,034 2,438 — 1,338 75,855 28,416 6,662 35,078 54,827 13,527 2,928 45 2,267 73,594 24,318 8,755 33,073 110,933 106,667 (5,919) (6,566) (11,890) (12,340) (6,253) (1,841) (9) (8,227) (251) (89) (25,912) (27,473) (30,448) (34,055) (393) (2,125) (32,966) (58,878) 52,055 19,300 — 6,134 25,860 51,294 761 (486) (2,244) (36,785) (64,258) 42,409 19,290 11,764 656 9,891 41,601 808 52,055 42,409 The notes on pages 48 to 79 are an integral part of these financial statements. The financial statements on pages 44 to 78 were approved and authorized for issue by the Board of Directors on 27 March 2017 and were signed on its behalf by: Michael Karg, PhD Director Andrew Noble Director Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 45 Financial statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2016 1 May 2015 (Loss)/profit for the period Other comprehensive expense Total comprehensive (expense)/income for the period Shares issued for cash Acquisition of non-controlling interest Share options charge Deferred tax on share options Dividends paid to shareholders Dividends paid to non-controlling interests 31 December 2015 Profit for the year Other comprehensive income Total comprehensive income for the year Shares issued for cash Share premium reduction2 Convertible loan note Share options charge Deferred tax on share options Dividends paid to shareholders Dividends paid to non-controlling interests 31 December 2016 Note Ordinary shares £’000 19,193 Share premium £’000 11,657 — — — 97 — — — — — — — — 107 — — — — — 19,290 11,764 — — — 10 — — — — — — 19,300 — — — 16 (11,780) — — — — — — 22 3 20 26 22 3 20 26 Other reserves1 £’000 772 — (116) Retained earnings £’000 16,012 (6,221) — Equity attributable to owners of the parent £’000 47,634 (6,221) (116) Non- controlling interests £’000 1,024 107 — (116) (6,221) (6,337) — 204 Total equity £’000 48,658 (6,114) (116) (6,230) 204 (43) 228 186 (291) 107 — (20) — — — — — — — — — 26 — 634 652 (321) (292) (292) 761 (292) 52,055 — (303) (303) 41,601 4,150 4,844 808 245 — 42,409 4,395 4,844 8,994 245 9,239 — — — — — — 656 — 4,844 4,844 — — 634 — — — — (23) 228 186 (291) — 9,891 4,150 — 4,150 — 11,780 — 652 (321) (292) (23) 228 186 (291) 26 — 634 652 (321) (292) — — 6,134 25,860 51,294 1. Includes £3,667,000 (31 December 2015: £3,667,000) in the merger reserve; a debit balance of £1,478,000 (31 December 2015: £1,478,000) in the ESOP reserve; a convertible loan note reserve of £634,000 created during the year to 31 December 2016; and a gain of £3,311,000 (31 December 2015: £1,533,000 loss) recognized in the translation reserve. Refer to note 23 for further details. 2. On 8 June 2016, the Group announced the cancellation of the share premium account (the “Capital Reduction”) effective 9 June 2016 following registration of the Court order confirming the Capital Reduction by the Registrar of Companies. The notes on pages 48 to 79 are an integral part of these financial statements. 46 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2016 Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 Note Cash flows from operating activities Cash generated from operations Finance expenses paid Finance income received Income taxes paid Net cash generated from operating activities Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired Purchase of property, plant and equipment Purchase of intangible assets Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital (net of issue costs) Proceeds from bank borrowings Repayment of bank borrowings Acquisition of interest in a subsidiary from non-controlling interests Dividends paid to shareholders Dividends paid to non-controlling interests Capital repayment of finance leases Net cash flow used in financing activities Net decrease in cash, cash equivalents and bank overdrafts Cash, cash equivalents and bank overdraft at beginning of year/period Effects of exchange rate changes on cash and cash equivalents Cash, cash equivalents and bank overdraft at end of year/period The notes on pages 48 to 79 form part of these financial statements. 27 28 11 10 25 25 26 15 15 10,782 (1,092) 18 (166) 5,028 (601) 13 (892) 9,542 3,548 (4,431) (3,002) (479) (1,872) (6,782) 26 3,336 (6,411) — (292) (546) (4) (3,891) (1,131) 6,364 (633) 4,600 (502) (826) (4,330) 205 2,578 (1,982) (1,105) (291) (195) (4) (794) (1,576) 7,884 56 6,364 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 47 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2016 1. Accounting policies General information Ebiquity plc (the ‘Company’) and its subsidiaries (together, the ‘Group’) provide independent data-driven insights to the global media and marketing community. The Group has 21 offices across 14 countries. The Company is a public limited company, which is listed on the London Stock Exchange’s AIM Market and is incorporated and domiciled in the UK. The address of its registered office is CityPoint, One Ropemaker Street, London EC2Y 9AW. Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and IFRS IC Interpretations (collectively ‘IFRSs’) issued by the International Accounting Standards Board (‘IASB’) as adopted by European Union (‘Adopted IFRSs’) and with those parts of the Companies Act 2006 applicable to companies preparing their financial statements under Adopted IFRSs. The consolidated financial statements have been prepared on a going concern basis. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The consolidated financial statements are presented in pounds sterling and rounded to the nearest thousand. The principal accounting policies adopted in these consolidated financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The results of each subsidiary are included from the date that control is transferred to the Group until the date that control ceases. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Non-controlling interests represent the portion of the results and net assets in subsidiaries that is not held by the Group. Business combinations and goodwill The Group applies the acquisition method to account for business combinations. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities assumed, and equity instruments issued by the Group in exchange for control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities are recognized initially at their fair value at the acquisition date. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred over the fair value of net identifiable assets acquired and liabilities assumed. The determination of the fair values of acquired assets and liabilities is based on judgement and the Directors have 12 months from the date of the business combination to finalize the allocation of the purchase price. Goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment at least annually or whenever there is evidence that it may be required. Any impairment is recognized immediately in the income statement and is not subsequently reversed. Goodwill arising on the acquisition of the Group’s interest in an associate being the excess of the cost of acquisition over the Group’s share of the fair values of the identifiable net assets of the associate, is included within the carrying amount of the investment. The non-controlling shareholders interest in the acquiree is initially measured at the non-controlling interest’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognized. Where transactions with non-controlling parties do not result in a change in control, the difference between the fair value of the consideration paid or received and the amount by which the non-controlling interest is adjusted, is recognized in equity. Where the consideration for the acquisition includes a contingent deferred consideration arrangement, this is measured at fair value at the acquisition date. Any subsequent changes to the fair value of the contingent deferred consideration are adjusted against the cost of the acquisition if they occur within the measurement period and only if the changes relate to conditions existing at the acquisition date. Any subsequent changes to the fair value of the contingent deferred consideration after the measurement period are recognized in the income statement within administrative expenses as a highlighted item. The carrying value of contingent deferred consideration at the statement of financial position date represents management’s best estimate of the future payment at that date, based on historical results and future forecasts. All costs directly attributable to the business combination are expensed as incurred and recorded in the income statement within highlighted items. 48 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTSInvestments in associates An associate is an entity over which the Group is in a position to exercise significant influence and is neither a subsidiary nor joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting. Investments in associates are carried in the statement of financial position at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and other sales related taxes. Income is recognized evenly over the period of the contract for our Market Intelligence businesses, and in accordance with the stage of completion of the contract activity for our Media Value Measurement and Marketing Performance Optimization businesses. The stage of completion is determined relative to the total number of hours expected to complete the work or provision of services. Where recorded revenue exceeds amounts invoiced to clients, the excess is classified as accrued income and where recorded revenue is less than amounts invoiced to clients, the difference is classified as deferred income. Where services are performed by an indeterminate number of acts over a specific period, revenue is recognized on a straight-line basis over the specific period unless there is evidence that some other method better represents the stage of completion. If the outcome of a contract cannot be estimated reliably, the contract revenue is recognized to the extent of contract costs incurred that it is probable would be recoverable. Costs are recognized as an expense in the period in which they are incurred. Finance income and expenses Finance income and expense represents interest receivable and payable. Finance income and expense is recognized on an accruals basis, based on the interest rate applicable to each bank or loan account. Foreign currencies For the purposes of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of transactions. At each year end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the year end date. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the year end date. Income and expense items are translated at the average exchange rate for the period, which approximates to the rate applicable at the dates of the transactions. The exchange differences arising from the retranslation of the year end amounts of foreign subsidiaries and the difference on translation of the results of those subsidiaries into the presentational currency of the Group are recognized in the translation reserve. All other exchange differences are dealt with through the consolidated income statement. Highlighted items Highlighted items comprise non-cash charges and non-recurring items which are highlighted in the consolidated income statement as separate disclosure is considered by the Directors to be relevant in understanding the underlying performance of the business. The non-cash charges include share option charges and amortization of purchased intangibles. The non-recurring items include the costs associated with potential acquisitions (where formal discussion is undertaken), completed acquisitions and their subsequent integration into the Group, adjustments to the estimates of deferred consideration on acquired entities, asset impairment charges and other significant one-off items. Costs associated with ongoing market landscaping, acquisition identification and early stage discussions with acquisition targets are reported in underlying administrative expenses. Taxation The tax expense included in the consolidated income statement comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted by the year end date. The Group is subject to corporate taxes in a number of different jurisdictions and judgement is required in determining the appropriate provision for transactions where the ultimate tax determination is uncertain. In such circumstances, the Group recognizes liabilities for anticipated taxes based on the best information available and where the anticipated liability is both probable and estimable. Where the final outcome of such matters differs from the amount recorded, any differences may impact the income tax and deferred tax provisions in the period in which the final determination is made. Tax is recognized in the consolidated income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 49 Financial statementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 Internally generated intangible assets are amortized on a straight-line basis over their useful lives. Amortization commences when the asset is available for use and useful lives range from one to five years. The amortization expense is included within administrative expenses. Where an internally generated intangible asset cannot be recognized, development expenditure is recognized as an expense in the period in which it is incurred. Purchased intangible assets Externally acquired intangible assets are initially recognized at cost and subsequently amortized on a straight-line basis over their useful economic lives, which vary from three to ten years. The amortization expense is included as a highlighted item within the administrative expenses line in the income statement. Intangible assets recognized on business combinations are recorded at fair value at the acquisition date using appropriate valuation techniques where they are separable from the acquired entity or give rise to other contractual/legal rights. The significant intangibles recognized by the Group are customer relationships which are amortized on a straight-line basis over a typical useful life of ten years. Computer software Purchased computer software intangible assets are amortized on a straight-line basis over their useful lives which vary from two to five years. 1. Accounting policies continued Taxation continued Using the liability method, deferred tax is provided on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases, except for differences arising on: • the initial recognition of goodwill; • the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and • investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilized. The recognition of deferred tax assets is reviewed at each year end date. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the year end date and are expected to apply when the deferred tax liabilities/assets are settled/recovered. Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: • the same taxable group company; or • different group entities which intend either to settle current tax assets and liabilities on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any recognized impairment loss. Depreciation is charged so as to write off the cost of assets over their estimated useful economic lives. The rates applied are as follows: Motor vehicles Fixtures, fittings and equipment 25% per annum reducing balance 7% to 20% per annum straight-line; or 25% per annum reducing balance Computer equipment 25% to 40% straight-line Short leasehold Over the shorter land and buildings of the life or the improvements estimated useful life of the lease Other intangible assets Internally generated intangible assets – development expenditure Internally generated intangible assets relate to bespoke computer software and technology developed by the Group’s internal software development team. An internally generated intangible asset arising from the Group’s development expenditure is recognized only if all of the following conditions are met: • it is technically feasible to develop the asset so that it will be available for use or sale; • adequate resources are available to complete the development and to use or sell the asset; • there is an intention to complete the asset for use or sale; • the Group is able to use or sell the intangible asset; • it is probable that the asset created will generate future economic benefits; and • the development cost of the asset can be measured reliably. 50 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS Impairment Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. For the purpose of impairment testing, goodwill is grouped at the lowest levels for which there are separately identifiable cash flows, known as cash-generating units. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Assets that are subject to amortization or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such condition exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, estimates are made of the cash flows of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value, less costs to sell, and value in use. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate appropriate to the specific asset or cash-generating unit. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying value of the asset or cash-generating unit is reduced to its recoverable amount. Impairment losses are recognized immediately in highlighted items in the income statement. In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if the impairment loss had been recognized. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and short-term deposits. Cash and cash equivalents and bank overdrafts are offset when there is a legally enforceable right to offset. Financial instruments Financial assets and financial liabilities are recognized in the Group’s statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Financial assets The Group classifies its financial assets as ‘loans and receivables’. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade receivables), but also incorporate other types of contractual monetary assets. They are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortized cost using the effective interest rate method, less provision for impairment. Impairment provisions are recognized when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognized within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Financial liabilities Borrowings consisting of interest-bearing secured and unsecured loans and overdrafts are initially recognized at fair value net of directly attributable transaction costs incurred and subsequently measured at amortized cost using the effective interest method. The difference between the proceeds received net of transaction costs and the redemption amount is amortized over the period of the borrowings to which they relate. The revolving credit facility is considered to be a long term loan. Trade and other payables are initially recognized at their nominal value which is usually the original invoiced amount. Interest rate swaps are carried at fair value with changes in fair value being reflected in the statement of comprehensive income, and are classified within other financial liabilities. Leases Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a ‘finance lease’), the asset is treated as if it had been purchased outright. The amount initially recognized as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analyzed between capital and interest. The interest element is charged to the income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are retained by the lessor (an ‘operating lease’), the total rentals payable under the lease are charged to the income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognized as a reduction of the rental expense over the lease term on a straight-line basis. The land and buildings elements of property leases are considered separately for the purposes of lease classification. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 51 Financial statementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 1. Accounting policies continued Derivative financial instruments The Group uses derivative financial instruments to reduce its exposure to foreign exchange and interest rate movements. The Group does not hold or issue derivative financial instruments for financial trading purposes but derivatives that do not qualify for hedge accounting are accounted for at fair value through the income statement. Derivative financial instruments are initially recognized at fair value at the contract date and continue to be stated at fair value at the balance sheet date with gains and losses on revaluation being recognized immediately in the income statement. Cash flow hedging is used to hedge against fluctuations in future cash flows on the Group’s debt funding due to movements in interest rates. When a cash flow hedge is employed and hedge accounting applied, the effective portion of the change in the fair value of the hedging instrument is recognized directly in equity (hedging reserve) until the gain or loss on the hedged item is realized. Any ineffective portion is always recognized in the income statement. The fair value of derivatives is determined by reference to market values for similar instruments. Share capital Equity instruments issued by the Group are recorded at the amount of the proceeds received, net of direct issuance costs. Employee Share Ownership Plan (‘ESOP’) As the Company is deemed to have control of its ESOP trust, it is treated as a subsidiary and consolidated for the purposes of the Group financial statements. The ESOP’s assets (other than investments in the Company’s shares), liabilities, income and expenses are included on a line-by-line basis in the Group financial statements. The ESOP’s investment in the Company’s shares is deducted from shareholders’ equity in the Group statement of financial position as if they were treasury shares, except that profits on the sale of ESOP shares are not credited to the share premium account. Share‑based payments Where equity-settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the income statement over the vesting period with a corresponding increase recognized in retained earnings. Fair value is measured using an appropriate valuation model. Non-market vesting conditions are taken into account by adjusting the number of equity investments expected to vest at each year end date so that, ultimately, the cumulative amount recognized over the vesting period is based on the number of options that eventually vest. A charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where there are modifications to share-based payments that are beneficial to the employee then as well as continuing to recognize the original share-based payment charge, the incremental fair value of the modified share options as identified at the date of the modification is also charged to the income statement over the remaining vesting period. Where the Group cancels share options and identifies replacement options, this arrangement is also accounted for as a modification. The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognized over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity financial statements. Provisions Provisions, including provisions for onerous lease costs, are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle that obligation and the amount can be reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the year-end date. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate which reflects current market assessments of the time value of money and, where appropriate, the risks specific to the obligations. Retirement benefits For defined contribution pension schemes, the Group pays contributions to privately administered pension plans on a voluntary basis. The Group has no further payment obligations once the contributions have been paid. Contributions are charged to the income statement in the year to which they relate. Dividend distribution Dividend distribution to the Company’s shareholders is recognized as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. Critical accounting estimates and judgements In preparing the consolidated financial statements, the Directors have made certain estimates and judgements relating to the reporting of results of operations and the financial position of the Group. Actual results may significantly differ from those estimates often as a result of the need to make assumptions about matters which are uncertain. The estimates and judgements discussed below are considered by the Directors to be those that have a critical accounting impact to the Group’s financial statements. Revenue recognition The Group is required to make an estimate of the project completion levels in respect of contracts which straddle the year end for revenue recognition purposes. This involves a level of judgement and therefore differences may arise between the actual and estimated result. 52 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTSProvisions The Group provides for certain costs of reorganisation that has occurred due to the Group’s acquisition and disposal activity. When the final amount payable is uncertain, these are classified as provisions. These provisions are based on the best estimates of management. Adoption of new standards and interpretations On 1 January 2016, the Group adopted the following amendments to IFRS. The accounting pronouncements, none of which is considered by the Group as significant on adoption, are: • amendments to IAS 1 ‘Disclosure Initiative’. These amendments are as part of the IASB’s initiative to improve presentation and disclosure in financial reports; • amendments to IFRS 11 ‘Accounting for Acquisitions of Interests in Joint Operations’. This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business; • amendments to IAS 16 ‘Property, Plant and Equipment’ and IAS 38 ‘Intangible Assets’. This amendments provide clarification of acceptable methods of depreciation and amortization; and • improvements to IFRS: 2012–2014 cycle. On 1 January 2017, the Group will adopt the following amendments which are effective for accounting periods on or after 1 January 2017 and which have not yet been endorsed by the EU. Management is currently assessing the impact of these new pronouncements on the financial statements, which are not expected to be significant. • amendments to IAS 12 ‘Recognition of Deferred Tax Assets for Unrealized Losses’. This amends the recognition of deferred tax assets for unrealized losses; and • amendments to IAS 7 ‘Disclosure Initiative’. These amendments are as part of the IASB’s initiative to improve presentation and disclosure in financial reports. Carrying value of goodwill and other intangible assets Impairment testing requires management to estimate the value in use of the cash-generating units to which goodwill and other intangible assets have been allocated. The value in use calculation requires estimation of future cash flows expected to arise from the cash-generating unit and the application of a suitable discount rate in order to calculate present value. The sensitivity around the selection of particular assumptions including growth forecasts and the pre-tax discount rate used in management’s cash flow projections could significantly affect the Group’s impairment evaluation and therefore the Group’s reported assets and results. Further details, including a sensitivity analysis, are included in notes 9 and 10 to the consolidated financial statements. Contingent deferred consideration The Group has recorded liabilities for deferred consideration on acquisitions made in the current and prior periods. The calculation of the deferred consideration liability requires judgements to be made regarding the forecast future performance of these businesses for the earn-out period. Any changes to the fair value of the contingent deferred consideration after the measurement period are recognized in the income statement within administrative expenses as a highlighted item. Taxation The Group is subject to income taxes in all the territories in which it operates, and judgement and estimates of future profitability are required to determine the Group’s deferred tax position. If the final tax outcome is different to that assumed, resulting changes will be reflected in the income statement, unless the tax relates to an item charged to equity in which case the changes in the tax estimates will also be reflected in equity. The Group believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgements about future events. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made. Certain new standards, amendments to new standards and interpretations have been published that are mandatory to the Group’s future accounting periods but have not been adopted early in these financial statements. These are set out below: • IFRS 15 ‘Revenue from Contracts with Customers’ (effective on or after 1 January 2018). This standard establishes a single comprehensive framework for revenue recognition to determine when to recognize revenue and how much revenue to recognize. This standard replaces the previous revenue standards IAS 18 ‘Revenue’ and IAS 11 ‘Construction Contracts’. The Group will apply IFRS 15 from 1January 2018; • IFRS 9 ‘Financial Instruments’ (effective on or after 1 January 2018). This standard addresses the classification, measurement and derecognition of financial assets and financial liabilities and introduces new rules for hedge accounting. In July 2014, the IASB made further changes to the classification and measurement rules and also introduced a new impairment model. These latest amendments now complete the new financial instruments standard. The Group will apply IFRS 9 from 1 January 2018; and • IFRS 16 ‘Leases’ (effective on or after 1 January 2019). This standard replaces IAS 17 ‘Leases’ and sets out the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and the lessor. IFRS 16 eliminates the two lease classifications that IAS 17 has (operating and finance leases) for the lessee, and instead all leases will have the same classification. The Group will apply IFRS 9 from 1 January 2019. Management will assess the impact on the Group of these standards prior to the effective date of implementation. Although the detailed impact has not yet been quantified, management expects that the adoption of IFRS 15 may have an impact on revenue recognition and related disclosures and the adoption of IFRS 16 will impact the accounting for those leases currently classified as operating leases. The adoption of IFRS 9 is not expected to have a significant impact on the Group’s financial statements. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 53 Financial statementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 2. Segmental reporting In accordance with IFRS 8 the Group’s operating segments are based on the reports reviewed by the Executive Directors that are used to make strategic decisions. Certain operating segments have been aggregated to form three reportable segments, Media Value Measurement, Market Intelligence and Marketing Performance Optimization: • Media Value Measurement includes our media benchmarking, financial compliance and associated services; • Market Intelligence includes our advertising monitoring, reputation management and research/insight services; and • Marketing Performance Optimization consists of our marketing effectiveness and multi-channel analytics services. The Executive Directors are the Group’s chief operating decision-maker. They assess the performance of the operating segments based on operating profit before highlighted items. This measurement basis excludes the effects of non-recurring expenditure from the operating segments such as restructuring costs and purchased intangible amortization. The measure also excludes the effects of equity-settled share-based payments. Interest income and expenditure are not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the Group. The segment information provided to the Executive Directors for the reportable segments for the year ended 31 December 2016 is as follows: Year ended 31 December 2016 Revenue Operating profit/(loss) before highlighted items Total assets Other segment information Capital expenditure – property, plant and equipment Capital expenditure – intangible assets Capital expenditure – goodwill 47,161 12,124 56,948 46 586 464 Total 1,096 1,046 Eight month period ended 31 December 2015 Media Value Measurement £’000 Marketing Market Performance Intelligence Optimization £’000 £’000 Reportable segments Unallocated £’000 £’000 23,360 3,902 13,048 3,739 83,569 19,765 — (6,806) 32,469 11,868 101,285 9,648 110,933 Total £’000 83,569 12,959 455 591 — 4 155 — 159 505 1,332 464 2,301 35 765 — 800 540 2,097 464 3,101 Revenue Operating (loss)/profit before highlighted items Total assets Other segment information Media Value Measurement £’000 Marketing Market Performance Intelligence Optimization £’000 £’000 20,409 (81) 53,011 16,002 2,070 29,398 6,899 1,874 10,640 Reportable segments £’000 43,310 3,863 93,049 Unallocated £’000 Total £’000 — 43,310 (3,866) (3) 13,618 106,667 Capital expenditure – property, plant and equipment Capital expenditure – intangible assets Total 26 77 103 — — — 12 — 12 38 77 115 512 750 550 827 1,262 1,377 54 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS A reconciliation of segment operating profit before highlighted items to total profit before tax is provided below: Reportable segment operating profit before highlighted items Unallocated costs1: Staff costs Property costs Exchange rate movements Other administrative expenses Operating profit/(loss) before highlighted items Highlighted items (note 3) Operating profit/(loss) Net finance costs Share of profit of associates Profit/(loss) before tax 1. Unallocated costs comprise central costs that are not considered attributable to the segments. A reconciliation of segment total assets to total consolidated assets is provided below: Total assets for reportable segments Unallocated amounts: Property, plant and equipment Other intangible assets Other receivables Cash and cash equivalents Deferred tax asset Investments in associates Total assets The table below presents revenue and non-current assets by geographical location: Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 19,765 3,863 (5,219) (3,281) (786) (158) (643) 12,959 (5,202) 7,757 (1,132) — (260) 31 (356) (3) (6,656) (6,659) (800) 13 6,625 (7,446) 31 December 31 December 2015 £’000 2016 £’000 101,285 93,049 1,900 1,517 1,015 3,989 1,227 — 2,278 2,853 2,892 3,478 2,113 4 110,933 106,667 United Kingdom Rest of Europe North America Rest of world Deferred tax assets Total Year ended 31 December 2016 Eight month period ended 31 December 2015 Revenue by location of Non‑current assets customers £’000 £’000 Revenue by location of customers £’000 Non-current assets £’000 22,627 31,586 20,032 9,324 83,569 — 83,569 46,617 9,378 7,257 11,265 74,517 1,338 75,855 13,142 14,786 10,376 5,006 43,310 — 43,310 46,955 7,957 6,297 10,118 71,327 2,267 73,594 No single customer (or group of related customers) contributes 10% or more of revenue. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 55 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 3. Highlighted items Highlighted items comprise non-cash charges and non-recurring items which are highlighted in the income statement because separate disclosure is considered relevant in understanding the underlying performance of the business. Administrative expenses Recurring Share option (credit)/charge Amortization of purchased intangibles Non‑recurring Acquisition and integration costs Impairment charge Total highlighted items before tax Taxation credit Total highlighted items after tax Year ended 31 December 2016 Eight month period ended 31 December 2015 Cash £’000 Non‑cash £’000 Total £’000 Cash £’000 Non-cash £’000 Total £’000 (92) — (92) 2,777 — 2,777 2,685 (252) 2,433 652 1,865 2,517 — — — 2,517 (88) 2,429 560 1,865 2,425 2,777 — 2,777 5,202 (340) 4,862 203 — 203 533 — 533 736 (128) 608 228 1,327 1,555 — 4,365 4,365 5,920 (628) 5,292 431 1,327 1,758 533 4,365 4,898 6,656 (756) 5,900 Amortization of purchased intangibles relates to acquisitions made in the current financial year of £26,000 and to acquisitions made in prior years of £1,839,000. The share option cash credit of £92,000 arising during the year is in relation to national insurance contributions on share options not exercised. In addition, a non-cash IFRS 2 charge of £652,000 was also recorded. Total acquisition and integration costs of £2,777,000 were recognized during the year. Acquisition costs totalling £1,996,000 primarily consists of £841,000 in relation to an earn-out extension agreed in March 2016 and associated to the Stratigent acquisition in 2013; deferred consideration adjustments of £575,000 resulting from foreign exchange differences net of the impact of discounting to present value; £295,000 of professional fees were incurred in relation to acquisitions; and £285,000 was recognized following the transparency work performed for the US Association of National Advertisers. Integration costs totalling £781,000 primarily consists of severance costs of £568,000 arising from the restructure of senior management in Spain, Ireland and France; and fees of £251,000 in relation to the appointment of the new Group CEO. Other one-off charges recognized in highlighted items during the year include a credit of £66,000 following the write-off of certain dilapidation provisions and £28,000 of other integration costs. Current tax arising on the highlighted items is included as a cash item, while deferred tax on highlighted items is included as a non-cash item. Refer to note 7 for more detail. Deferred consideration adjustments, within acquisition and integration costs, are included as a cash item. As at 31 December 2016, £1,197,000 of the £2,685,000 cash highlighted items had been settled. 56 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS 4. Operating profit/(loss) Operating profit/(loss) is stated after charging/(crediting): Operating lease rentals – other – land and buildings Depreciation and amortization (notes 10 and 11) Impairment (notes 9 and 10) Loss on disposal of fixed assets Research costs – expensed Foreign exchange (gain)/loss Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 90 1,739 3,682 — 11 870 (79) 43 1,475 2,481 3,902 18 337 16 Auditors’ remuneration During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditors at costs as detailed below: Fees payable to the Company’s auditors for the audit of the parent company and consolidated financial statements Fees payable to the Company’s auditors and its associates for other services: – the audit of the Company’s subsidiaries, pursuant to legislation – other audit-related assurance services – other assurance services – tax compliance services Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 97 96 24 10 9 236 84 112 24 — — 220 5. Employee information The monthly average number of employees employed by the Group during the year, including Executive Directors, was as follows: Media Value Measurement Market Intelligence Marketing Performance Optimization IT development and support Administration Directors At 31 December 2016, the total number of employees of the Group was 919 (31 December 2015: 926). Eight month Year ended period ended 31 December 31 December 2015 Number 2016 Number 305 340 88 60 107 9 909 291 373 71 56 104 7 902 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 57 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 5. Employee information continued Staff costs for all employees, including Executive Directors, consist of: Wages and salaries Social security costs Other pension costs Share options charge (note 24) Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 41,571 3,502 925 652 23,968 2,839 493 228 46,650 27,528 Directors’ remuneration Total Directors’ remuneration was £1,474,000 including £426,000 to the highest paid Director (31 December 2015: £727,000 including £218,000 to the highest paid Director). Directors are eligible for cash bonuses as a percentage of base salary, dependent on individual and Company performance against established financial targets. No performance bonuses were paid during the year (31 December 2015: £nil). No Directors were a member of a Company pension scheme as at 31 December 2016 (31 December 2015: none). Contributions totalling £28,000 (31 December 2015: £7,000) were made to Directors’ private pension schemes during the year including £14,000 to the highest paid Director (31 December 2015: £nil). No Directors exercised share options during the year (31 December 2015: 150,000 share options were exercised with a gain of £92,000 made on exercise). In the period to 31 December 2015, the highest paid Director exercised no share options. During the year, 500,000 (31 December 2015: nil) share options were granted to Directors comprising 500,000 to the highest paid Director under the Group’s Executive Incentive Plan scheme. Vesting is subject to the satisfaction of certain performance criteria (see note 24 for further details). Further details on Directors’ remuneration can be found in the Remuneration Committee report on pages 36 to 38. 6. Finance income and expenses Finance income Bank interest Other interest Finance income Finance expenses Bank loans and overdraft interest Loan fee amortization Finance lease interest Finance expenses Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 18 — 18 (1,058) (90) (2) (1,150) 7 6 13 (752) (60) (1) (813) 58 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS 7. Taxation charge/(credit) UK tax Current year/period Adjustment in respect of prior year/period Foreign tax Current year/period Adjustment in respect of prior year/period Total current tax Deferred tax Origination and reversal of temporary differences (note 20) Adjustment in respect of prior year/period Total tax charge/(credit) Year ended 31 December 2016 Eight month period ended 31 December 2015 Before highlighted items £’000 Highlighted items £’000 912 (205) 707 1,409 (94) 1,315 2,022 160 388 2,570 (187) — (187) (65) — (65) (252) (88) — (340) Before highlighted items £’000 Highlighted items £’000 194 (236) (42) 248 (160) 88 46 (622) — (576) (128) — (128) — — — (128) (628) — (756) Total £’000 725 (205) 520 1,344 (94) 1,250 1,770 72 388 2,230 Total £’000 66 (236) (170) 248 (160) 88 (82) (1,250) — (1,332) The difference between tax as charged/(credited) in the financial statements and tax at the nominal rate is explained below: Profit/(loss) before tax Corporation tax at 20% (31 December 2015: 20%) Non-deductible taxable expenses Overseas tax rate differential Overseas losses not recognized Share options Losses utilized not previously recognized Adjustment in respect of prior years Effect of change in statutory tax rates Deferred tax movement Recognition of deferred tax not previously recognized Other Total tax charge/(credit) Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 6,625 1,325 (7,446) (1,489) 265 189 66 319 (7) 89 9 224 (249) — 943 24 832 — (80) (396) (265) (985) — 84 2,230 (1,332) Reductions in the UK corporation tax rate to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015. Further reductions to 17% (effective 1 April 2020) were substantively enacted on 6 September 2016. As these changes have been substantively enacted at the statement of financial position date, their effects are included in these financial statements. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 59 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 8. Earnings/(loss) per share The calculation of the basic and diluted earnings per share is based on the following data: Earnings for the purpose of basic earnings per share being net profit/(loss) attributable to equity holders of the parent Adjustments: Impact of highlighted items (net of tax)1 Earnings for the purpose of underlying earnings per share Number of shares: Weighted average number of shares during the period – basic – dilutive effect of share options – diluted Basic earnings/(loss) per share Diluted earnings/(loss) per share Underlying basic earnings/(loss) per share Underlying diluted earnings/(loss) per share 1. Highlighted items attributable to equity holders of the parent (see note 3), stated net of their total tax impact. 9. Goodwill Cost At 1 May 2015 Adjustments in respect of a pre-acquisition period Foreign exchange differences At 31 December 2015 Additions1 Foreign exchange differences At 31 December 2016 Accumulated impairment At 1 May 2015 At 31 December 2015 Impairment At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 4,150 (6,221) 4,837 8,987 5,885 (336) 77,186,127 76,976,240 2,598,806 1,993,033 79,784,933 78,969,273 5.38p 5.20p 11.64p 11.26p (8.08)p (8.08)p (0.44)p (0.43)p £’000 58,096 (177) 37 57,956 426 2,792 61,174 — (3,129) — (3,129) 58,045 54,827 1. £426,000 of goodwill was recognized following the acquisition of the remaining 50% interest in the Group’s Irish media consultancy associate, Fairbrother Marsh Company Limited. Refer to note 28 for further details. 60 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS Goodwill has been allocated to the following segments: Media Value Measurement Market Intelligence Marketing Performance Optimization Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 28,778 22,360 6,907 58,045 26,886 21,904 6,037 54,827 The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be potentially impaired. Goodwill is allocated to the Group’s cash-generating units (‘CGUs’) in order to carry out impairment tests. The Group’s remaining carrying value of goodwill by CGU at 31 December was as follows: Cash-generating unit Reporting segment Advertising UK/USA/International Market Intelligence Media UK and International1 Media Value Measurement Stratigent (MCA) China Media Germany Media Value Group FirmDecisions Media Australia Marketing Performance Optimization Media Value Measurement Media Value Measurement Media Value Measurement/Marketing Performance Optimization Media Value Measurement Media Value Measurement Advertising Germany Market Intelligence Effectiveness Marketing Performance Optimization Advertising Australia Market Intelligence Media America Media France Media Italy Russia Media Value Measurement Media Value Measurement Media Value Measurement Media Value Measurement Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 19,114 19,114 9,238 5,229 4,966 4,319 3,035 2,981 2,506 2,333 1,678 764 604 559 382 337 8,770 4,359 4,429 4,297 2,624 2,981 2,115 2,016 1,678 645 604 527 330 337 58,045 54,827 1. At 31 December 2016, the balance included £426,000 of acquired goodwill recognized following the acquisition of the remaining 50% interest in the Group’s Irish media consultancy associate, Fairbrother Marsh Company Limited. Refer to note 28 for further details. The impairment test involves comparing the carrying value of the CGU to which the goodwill has been allocated to the recoverable amount. The recoverable amount of all CGUs has been determined based on value in use calculations. Under IFRS, an impairment charge is required for goodwill when the carrying amount exceeds the recoverable amount, defined as the higher of fair value less costs to sell and value in use. No impairment of goodwill was recognized in the year ended 31 December 2016 (eight months ended 31 December 2015: £3,129,000). Value in use calculations The key assumptions used in management’s value in use calculations are budgeted operating profit, pre-tax discount rate and the long-term growth rate. The Directors prepare a three-year pre-tax cash flow forecast based on the following financial year’s budget as approved by the Board, with revenue and cost forecasts for the following two years adjusted by segment and geography. The forecast takes account of actual results from previous years combined with management expectations of market developments. The Directors estimate discount rates using rates that reflect current market assessments of the time value of money and risk specific to the CGUs. The three-year pre-tax cash flow forecasts have been discounted at between 7.2% and 8.7% (31 December 2015: between 8.2% and 9.7%). Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 61 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 9. Goodwill continued Cash flows beyond the three-year period are extrapolated at a rate of 2.25% (31 December 2015: 2.25%), which does not exceed the long-term average growth rate in any of the markets in which the Group operates. The excess of the value in use to the goodwill carrying values for each CGU gives the level of headroom in each CGU. The estimated recoverable amounts of the Group’s operations in all CGUs significantly exceed their carrying values with the exception of China, where the headroom exceeds its carrying value by £1.8 million. Sensitivity analysis The Group’s calculations of value in use for its respective CGUs are sensitive to a number of key assumptions. Other than disclosed below, management does not consider a reasonably possible change in isolation, of any of the key assumptions to cause the carrying value of any CGU to exceed its value in use. Budgeted operating profit Pre-tax discount rate Long-term growth rate 10. Other intangible assets Cost At 1 May 2015 Additions Disposals Foreign exchange differences At 31 December 2015 Additions Acquisitions2 Disposals Foreign exchange differences At 31 December 2016 Amortization and impairment At 1 May 2015 Charge for the period3 Disposals Impairment4 Foreign exchange differences At 31 December 2015 Charge for the year3 Disposals Foreign exchange differences At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 China % (21.7) 1.6 (1.9) Capitalized development costs £’000 Computer software £’000 Purchased intangible assets1 £’000 Total intangible assets £’000 2,997 2,194 23,259 28,450 652 — (11) 3,638 1,091 — (453) 68 175 (13) 27 — — 40 2,383 23,299 781 — (260) 147 — 225 — 1,414 24,938 827 (13) 56 29,320 1,872 225 (713) 1,629 32,333 4,344 3,051 (1,136) (1,120) (11,016) (13,272) (194) — (214) — (190) (1,327) (1,711) 12 — (22) — (559) (27) 12 (773) (49) (1,544) (1,320) (12,929) (15,793) (256) 425 (1) (330) 260 (127) (1,865) (2,451) — (612) 685 (740) (1,376) (1,517) (15,406) (18,299) 2,968 2,094 1,534 1,063 9,532 10,370 14,034 13,527 1. Purchased intangible assets consist principally of customer relationships with a typical useful life of 10 years. 2. Customer relationships of £142,000 and a brand valuation of £83,000 were recognized during the year as part of the acquisition of Fairbrother Marsh Company Limited. Refer to note 28 for further details. 3. Amortization is charged within administrative expenses so as to write off the cost of the intangible assets over their estimated useful lives. The amortization of purchased intangible assets is included as a highlighted administrative expense. 4. No impairment charge is required for the year to 31 December 2016 following management’s review of the carrying value of other intangible assets. In the prior period, an impairment charge of £773,000 was recorded to fully write off the purchased intangible assets and related capitalized development costs of the Reputation business. 62 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS 11. Property, plant and equipment Motor vehicles £’000 Fixtures, fittings and equipment1 £’000 Computer equipment £’000 Short leasehold land and building improvements £’000 Cost At 1 May 2015 Additions Disposals Foreign exchange differences At 31 December 2015 Reclassification2 Additions Acquisitions Disposals Foreign exchange differences At 31 December 2016 Accumulated depreciation At 1 May 2015 Charge for the period Disposals Foreign exchange differences At 31 December 2015 Reclassification2 Charge for the year Disposals Foreign exchange differences At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 37 — — 1 38 — — — — 6 44 (3) (3) — — (6) — (5) — (2) (13) 31 32 Total £’000 8,543 550 (1,510) 37 7,620 384 530 10 (698) 638 1,584 92 (201) 15 1,490 — 104 — (192) 102 5,873 355 (1,307) 21 4,942 — 398 10 (454) 403 1,049 103 (2) — 1,150 384 28 — (52) 127 1,504 5,299 1,637 8,484 (821) (83) 161 (10) (753) — (140) 192 (64) (765) 739 737 (4,120) (527) 1,307 (26) (3,366) — (826) 454 (311) (405) (157) 2 (7) (567) (384) (260) 52 (60) (5,349) (770) 1,470 (43) (4,692) (384) (1,231) 698 (437) (4,049) (1,219) (6,046) 1,250 1,576 418 583 2,438 2,928 1. The Group holds assets under finance leases within fixtures, fittings and equipment with cost of £21,000 (31 December 2015: £21,000) and accumulated depreciation of £13,000 (31 December 2015: £8,000). 2. During the year, an amount of short leasehold land and buildings improvements previously included within the net book value of short leasehold land and building improvements and netted against depreciation, has been reclassified to cost. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 63 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 12. Subsidiaries Details of the Company’s subsidiaries are set out below. Subsidiary undertaking Adtrack Limited AMMO Limited Axiology Limited Barsby Rowe Limited BCMG Acquisitions Limited BCMG Limited Billetts Consulting Limited Billetts International Limited Billetts Limited Billetts Marketing Investment Management Limited Billetts Marketing Sciences Limited Billetts Media Consulting Limited Brief Information Limited Checking Advertising Services Limited Proportion of nominal value of issued ordinary shares held Country of incorporation 100%3 100%3 100%3 100%3 100%3 100% 100%3 100%3 100%3 100%3 100%3 100%3 100%3 100% UK UK UK UK UK UK UK UK UK UK UK UK UK UK China Media (Shanghai) Management Consulting Company Limited2 100%3 China Nature of business Non-trading Non-trading Non-trading Non-trading Non-trading Holding company Non-trading Non-trading Non-trading Non-trading Non-trading Non-trading Non-trading Non-trading Media consultancy Holding company Non-trading Non-trading Holding company Media monitoring and consultancy 100%3 Hong Kong 100%3 100%3 100%3 100% UK UK UK UK 94.03%3 Germany Media monitoring and consultancy 100% 100%3 USA USA 51%3 Italy 100%3 Singapore Holding company Media monitoring and consultancy and reputation management Media consultancy Media consultancy 100%3 Australia Media monitoring and consultancy 50.1%3 UK 50.1%3 Russia 80%3 France 100% 100%3 100%3 100% 100%3 UK UK USA UK UK Media consultancy Media consultancy Media consultancy Non-trading Holding company Holding company Holding company Reputation management 100% Singapore Reputation management 100%3 Spain Marketing effectiveness China Media Consulting Group Limited Data Management Services Group Limited Digireels Limited UK Ebiquity Asia Pacific Limited Ebiquity Associates Limited2 Ebiquity Germany GmbH2 Ebiquity Holdings Inc. Ebiquity Inc.2 Ebiquity Italia S.r.l.2 Ebiquity Pte. Limited2 Ebiquity Pty Limited2 Ebiquity Russia Limited2 Ebiquity Russia OOO2 Ebiquity SAS2 Ebiquity US Financing Limited Ebiquity US Holdings Limited Ebiquity US Holdings LLC Echo Group Limited Echo Research Limited2 Echo Research Pte Limited Efficiency Elements SL2 64 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS Subsidiary undertaking Fairbrother Lenz Eley Limited Fairbrother Marsh Company Limited1 Faulkner Group Pty Limited Firm Decisions ASJP Germany GmbH Firm Decisions Group Limited FirmDecisions ASJP LLC2 FirmDecisions Pty Limited2 FirmDecisions Limited2 FLE Holdings Limited Fouberts Place Subsidiary No. 4 Limited Freshcorp Limited Media Value SL2 Mediaadvantage Consulting L.d.a2 Nova Vision Europe S.A. Prominent Pages Limited Shots Limited Stratigent LLC2 Telefoto Monitoring Services Limited The Billett Consultancy Limited The Communication Trading Company Limited The Press Advertising Register Limited The Register Group Limited Worldwide Media Management Limited Xtreme Information Limited Xtreme Information Services (Australia) Pty Limited Xtreme Information Services Limited Xtreme Information Services SPRL Xtreme Information (USA) Limited Proportion of nominal value of issued ordinary shares held 100%3 100%3 Country of incorporation UK Nature of business Non-trading Ireland Media monitoring and consultancy 100%3 Australia 100%3 Germany 100% 100%3 UK USA 100%3 Australia 100%3 100% 100%3 100%3 100%3 UK UK UK UK Spain 100%3 Portugal 100%3 Belgium 100%3 100%3 100%3 100%3 100%3 100%3 100%3 100%3 100%3 100%3 UK UK USA UK UK UK UK UK UK UK 100%3 Australia 100% UK 100%3 Belgium 100%3 UK Non-trading Media consultancy Holding company Media consultancy Media consultancy Media consultancy Holding company Non-trading Non-trading Media consultancy Media consultancy Non-trading Non-trading Non-trading Multi-channel analytics Non-trading Non-trading Non-trading Non-trading Non-trading Non-trading Non-trading Non-trading Holding company Non-trading Non-trading 1. On 11 March 2016, the Group acquired the outstanding 50% interest in its Irish media consultancy associate, Fairbrother Marsh Company Limited. Refer to note 28 for further details. 2. Principal trading entity. 3. Shares held by an intermediate holding company. 13. Investment in associates Aggregated amounts relating to associates Total assets Total liabilities Revenues Profit Opening balance Acquisitions (note 28) Group’s share of profit Net investment in associates 31 December 31 December 2015 £’000 2016 £’000 — — — — 45 (45) — — 362 (275) 365 27 32 — 13 45 During the year, the Group acquired the outstanding 50% ordinary shares of its associate, Fairbrother Marsh Company Limited (incorporated in Ireland). Refer to note 28 for further details. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 65 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 14. Trade and other receivables Trade and other receivables due within one year Net trade receivables (note 25) Other receivables Prepayments Accrued income 31 December 31 December 2015 £’000 2016 £’000 19,291 16,283 845 1,207 7,073 1,104 1,678 5,253 28,416 24,318 The Directors consider that the carrying amount of trade and other receivables are reasonable approximations of their fair value. 15. Cash and cash equivalents Cash and cash equivalents 31 December 31 December 2015 £’000 2016 £’000 6,662 8,755 The Group has certain legally enforceable rights of offset for cash and cash equivalents and bank overdrafts. Cash and cash equivalents earn interest at between 0% and 1.5%. Cash and cash equivalents include the following for the purposes of the cash flow statement: Cash and cash equivalents Bank overdrafts (note 18) Cash, cash equivalents and bank overdrafts 16. Trade and other payables Trade payables Other taxation and social security Other payables 31 December 31 December 2015 £’000 2016 £’000 6,662 (2,062) 4,600 8,755 (2,391) 6,364 31 December 31 December 2015 £’000 2016 £’000 3,071 2,281 567 5,919 3,538 2,302 726 6,566 The Directors consider that the carrying amount of trade and other payables are reasonable approximations of their fair value. 17. Accruals and deferred income Accruals Deferred income 31 December 31 December 2015 £’000 2016 £’000 4,827 7,063 4,663 7,677 11,890 12,340 66 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS 18. Financial liabilities Current Bank overdraft Bank borrowings Finance lease liabilities Contingent deferred consideration Non‑current Bank borrowings Finance lease liabilities Contingent deferred consideration Total financial liabilities Bank overdrafts £’000 31 December 31 December 2015 £’000 2016 £’000 2,062 2,410 4 1,777 6,253 2,391 2,410 4 3,422 8,227 30,205 32,615 5 238 30,448 36,701 Bank Finance lease Contingent deferred liabilities consideration £’000 £’000 borrowings £’000 9 1,431 34,055 42,282 Total £’000 At 1 May 2015 Additions Paid Charged to the income statement Discounting charged to the income statement Discounting charged to the statement of financial position Borrowings Repayments Foreign exchange released to the income statement Foreign exchange released to reserves At 31 December 2015 Recognized on acquisition Additions Paid Charged to the income statement Discounting charged to the income statement Discounting charged to the statement of financial position Borrowings Repayments Foreign exchange released to the income statement Foreign exchange released to reserves At 31 December 2016 1,411 34,291 980 — — — — — — — — — — 60 — — 2,578 (1,982) 78 — 2,391 35,025 — (329) — — — — — — — — — — — 90 — — 3,336 (6,410) 574 — 2,062 32,615 17 — (4) — — — — — — — 13 — — (4) — — — — — — — 9 8,999 44,718 — 980 (4,063) (4,067) (82) (148) (49) — — 198 (2) (22) (148) (49) 2,578 (1,982) 276 (2) 4,853 42,282 557 — 557 (329) (5,110) (5,114) 638 155 (39) — — 808 153 728 155 (39) 3,336 (6,410) 1,382 153 2,015 36,701 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 67 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 18. Financial liabilities continued A currency analysis for the bank borrowings is shown below: Pounds sterling Euros Total bank borrowings 31 December 31 December 2015 £’000 2016 £’000 32,615 — 32,615 32,096 2,929 35,025 All bank borrowings are held jointly with Barclays and Royal Bank of Scotland (‘RBS’). The committed facility, totalling £40,000,000, comprises a term loan of £10,000,000 (of which £3,750,000 remains outstanding at 31 December 2016 (31 December 2015: £6,250,000)), and a revolving credit facility (‘RCF’) of £30,000,000 (of which £29,000,000 was drawn down at 31 December 2016 (31 December 2015: £29,000,000)). Both the term loan and the RCF have a maturity date of 2 July 2018. The £10,000,000 term loan is being repaid on a quarterly basis to maturity, and the drawn RCF and any further drawings under the RCF are repayable on maturity of the facility. The facility may be used for deferred consideration payments on past acquisitions, to fund future potential acquisitions, and for general working capital requirements. Loan arrangement fees of £135,000 (31 December 2015: £225,000) are offset against the term loan, and are being amortized over the period of the loan. The facility bears variable interest of LIBOR plus a margin of 2.50%. The margin rate is able to be lowered each quarter end depending on the Group’s net debt to EBITDA ratio. The undrawn amount of the revolving credit facility is liable to a fee of 40% of the prevailing margin. The Group may elect to prepay all or part of the outstanding loan subject to a break fee, by giving five business days’ notice. All amounts owing to the bank are guaranteed by way of fixed and floating charges over the current and future assets of the Group. As such, a composite guarantee has been given by all significant subsidiary companies in the UK, USA and Germany. Contingent deferred consideration represents additional amounts that are expected to be payable for acquisitions made by the Group and is held at fair value at the statement of financial position date. All amounts are expected to be fully paid by August 2017. All finance lease liabilities fall due within five years. The minimum lease payments and present value of the finance leases are as follows: Amounts due: Within one year Between one and five years Less: finance charges allocated to future periods Present value of lease obligations The minimum lease payments approximate the present value of minimum lease payments. Minimum lease payments 31 December 31 December 2015 £’000 2016 £’000 6 6 12 (3) 9 6 12 18 (5) 13 68 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS 19. Provisions At 1 May 2015 Utilisation of provision Unused amounts released to income statement Increase in provision At 31 December 2015 Utilisation of provision Unused amounts released to income statement Arising on acquisition Increase in provision Foreign exchange At 31 December 2016 Current Non-current Onerous property leases1 Dilapidations2 £’000 £’000 55 (47) (1) — 7 (7) — — — — — — — 551 — — 17 568 — (175) 8 — 1 402 9 393 Total £’000 606 (47) (1) 17 575 (7) (175) 8 — 1 402 9 393 1. The onerous property lease obligations in the prior period related to properties that the Group has vacated where there is a shortfall between the head lease costs and sub lease income, properties with excess vacant space and certain property leases, held in acquired companies upon acquisition, where lease payments are payable above a fair market rate. The provision was fully utilized by January 2016. 2. The dilapidations provision relates to the expected costs of vacating various properties. The provision is expected to be fully utilized by December 2020. 20. Deferred tax At 1 April 2015 Credit/(charge) to income Credit to equity At 31 December 2015 Credit/(charge) to income Credit to equity Acquisitions At 31 December 2016 Tangible assets £’000 Intangible Share-based payments £’000 assets £’000 Tax Other timing differences £’000 losses £’000 — — — — 225 — — 225 (2,821) 1,337 577 — 46 186 (2,244) 1,569 146 — (28) (188) (321) — (2,126) 1,060 — 631 — 631 (631) — — — 71 (4) — 67 (13) — — 54 Total £’000 (1,413) 1,250 186 23 (461) (321) (28) (787) Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balance (after offset) for financial reporting purposes: Deferred tax assets – non-current Deferred tax liabilities – non-current 31 December 31 December 2015 £’000 2016 £’000 1,338 (2,125) (787) 2,267 (2,244) 23 At the period end, the Group had tax losses of £nil (31 December 2015: £3,154,000) available for offset against future profits. A deferred tax asset of £nil (31 December 2015: £631,000) has been recognized in respect of such losses. The Group has unrecognized tax losses of £548,000 (31 December 2015: £1,060,000) and unrecognized deferred tax assets of £110,000 (31 December 2015: £212,000) in relation to tax losses. Deferred tax on unremitted earnings has not been recognized as management do not intend to pay dividends from jurisdictions where a tax charge would be incurred and dividends received are not taxed in the UK. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 69 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 21. Operating leases Lessee The Group leases various offices under non-cancellable operating leases with the majority of these expiring within one to five years. The leases have varying terms, break clauses and renewal rights. The Group has future aggregate minimum lease payments under non-cancellable operating leases which fall due as follows: Within one year Between one and five years After five years 31 December 2016 31 December 2015 Land and buildings £’000 1,410 3,055 7 4,472 Other £’000 76 202 — 278 Land and buildings £’000 1,883 5,763 — 7,646 Other £’000 80 220 — 300 Lessor There is no minimum aggregate future rent receivable under non-cancellable operating leases as at 31 December 2016 (2015: £nil). 22. Ordinary shares At 1 May 2015 – ordinary shares of 25p Share options exercised At 31 December 2015 – ordinary shares of 25p Share options exercised At 31 December 2016 – ordinary shares of 25p Number of shares 76,771,654 390,034 Nominal value £’000 19,193 97 77,161,688 19,290 38,063 10 77,199,751 19,300 Ordinary shares carry voting rights and are entitled to share in the profits of the Company (dividends). At the year end, 4,201,504 shares were held by the ESOP (31 December 2015: 4,201,504). The Company does not have a limited amount of authorized capital. 23. Reserves Share premium The share premium reserve shows the amount subscribed for share capital in excess of the nominal value. On 8 June 2016, the Group announced the cancellation of the share premium account (the “Capital Reduction”) effective 9 June 2016 following registration of the Court order confirming the Capital Reduction by the Registrar of Companies. Other reserves Other reserves consists of the merger reserve, ESOP reserve, hedging reserve and translation reserve. Merger reserve The merger reserve arose on the issuance of shares at a premium on a group restructure, where the premium on issue qualified for merger relief. There has been no movement in the period. Convertible loan note reserve On 29 March 2016, the Group agreed to increase the total cap on consideration payable on the Stratigent LLC (‘Stratigent’) acquisition. The Group acquired Stratigent on 19 August 2013. Stratigent’s management held a 7% economic interest in Stratigent which was acquired by the Group for a total consideration to be determined by the financial performance of Stratigent over the three financial years ending 30 April 2016 and capped at $1.5 million. Stratigent’s financial performance over the first two financial years resulted in consideration of $1.1 million being paid to Stratigent’s management. In order to ensure that management remains incentivized to continue to drive and generate the financial performance achieved over the first two financial years, the Group agreed to increase the total cap on consideration payable to management. Accordingly, in March 2016, the cap on consideration was increased by an amount of $1.5 million, with any excess over and above the existing cap on consideration payable 25% in cash and 75% in new ordinary shares in Ebiquity plc (capped at 600,000 new shares). A convertible loan note reserve amounting to £634,000 was created in equity in respect of the convertible loan note representing 600,000 new shares in the Company. ESOP reserve The ESOP reserve represents the cost of own shares acquired in the Company by the Employee Benefit Trust (‘EBT’). The purpose of the EBT is to facilitate and encourage the ownership of shares by employees, by acquiring shares in the Company and distributing them in accordance with employee share schemes. The EBT may operate in conjunction with the Company’s existing share option schemes and other schemes that may apply from time to time. 70 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS Hedging reserve The hedging reserve is used to record the effective portion of the movements in fair value of the Group’s financial instruments that qualify for hedge accounting and are deemed to be effective hedges. Translation reserve The translation reserve arises on the translation into sterling of the net assets of the Group’s foreign operations, offset by any changes in fair value of financial instruments used to hedge this exposure. At this time there are no hedges in place. Retained earnings The retained earnings reserve shows the cumulative net gains and losses recognized in the consolidated income statement. For detailed movements on each of the above reserves, refer to the consolidated statement of changes in equity. 24. Share‑based payments The Group operates a number of equity-settled share incentive schemes used to award employees of the Group. A charge based on the fair value of the award on the grant date is taken to the consolidated income statement over the vesting period to recognize the cost of these. Options outstanding at 31 December 2016: Life of option Exercise period Exercise price (pence) Weighted average exercise price (pence) Number 10 years January 2016 – January 2026 25.0 25.0 500,000 10 years May 2011 – May 2020 35.0 35.0 4,200,000 10 years May 2018 – October 2025 25.0 25.0 1,349,111 10 years May 2017– April 2024 25.0 25.0 1,892,500 10 years May 2016 – January 2024 25.0 25.0 375,459 10 years May 2016 – May 2023 25.0 25.0 148,353 Name of share option scheme Executive Incentive Plan – 27 January 2016 Executive Incentive Plan – 12 May 2010 Executive Share Option Plan – 01 October 2015 Executive Share Option Plan – 15 May 2014 Executive Share Option Plan – 17 January 2014 Executive Share Option Plan – 23 May 2013 Executive Share Option Plan – 27 September 2012 EMI and UCSOP Scheme 10 years May 2004 – August 2021 nil – 72.0 10 years September 2012 – September 2022 25.0 – 98.0 97.5 38.3 195,167 903,196 9,563,786 Executive Incentive Plan (‘EIP’) This is a discretionary scheme for the Directors of the Company. Vesting of the options was subject to the satisfaction of performance criteria designed to achieve growth of the business while at the same time maintaining and enhancing underlying earnings per share over the period to 30 April 2013. On 27 January 2016, 200,000 options with an exercise price of 25p each were awarded under the EIP to an Executive Director. 100,000 of these options will vest after six months’ service and the remaining 100,000 options will vest after 12 months’ service, in each case subject to the Executive Director remaining in the employment of the Company. Also on 27 January 2016, an additional 300,000 options with an exercise price of 25p each were granted under the EIP to an Executive Director. These options will vest conditionally on the satisfaction of performance criteria relating to the growth of the Company’s diluted adjusted earnings per share (‘EPS’) as described below. 200,000 options (“tranche one”) will vest conditionally on the satisfaction of EPS growth for the financial year ending 31 December 2016 over the previous 12 month period ended 31 December 2015. 100,000 options (“tranche two”) will vest conditionally on the satisfaction of EPS growth for the financial year ending 31 December 2017 over the prior financial year. Any options from tranche one which do not vest will be rolled over into tranche two and will be capable of vesting along with the options granted as part of tranche two. EPS growth, over the relevant performance period for each tranche, of 10% or more will result in all of the options in that tranche vesting. EPS growth of 4% over the relevant performance period will vest one-fifth of the options in that tranche. None of the options in a tranche will vest if EPS growth over the relevant performance period is less than 4%. Three-fifths of the options in a tranche will vest if EPS growth over the relevant performance period is 8%. The options in a tranche will vest on a straight-line basis where EPS growth over the relevant performance period is between 4% and 8% or between 8% and 10%. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 71 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 24. Share‑based payments continued Executive share option plan (‘ESOP’) This is a discretionary scheme, comprised of an HMRC approved schedule and an unapproved schedule. The ESOP provides a lock-in incentive to Executive Directors and key management. Vesting of these options is subject to the satisfaction of certain performance criteria and typically around the rate of growth of diluted adjusted earnings per share over a three-year period. Rights to ESOP options lapse if the employee leaves the Company. Options awarded in the 2015 and May 2014 grants vest based on a sliding scale of compound growth rates of between 4% and 10% whilst options awarded in the January 2014 and 2013 grants vest based on a sliding scale of compound growth rates of between 5% and 15%. In May 2014, a one-off award was made to an Executive Director in recognition of his continued service through to retirement. These options vest according to the rate of annual growth, in the range between 4% and 12%, in the total shareholder returns (‘TSR’) over a three-year period. The remaining options issued in the 2012 grant have no performance conditions attached. No share options have been granted to any employees under the ESOP in the year ended 31 December 2016. Enterprise management incentive scheme (‘EMI scheme’) The EMI scheme is a discretionary share option scheme which provides that options with a value at the date of grant of up to £120,000, may be granted to employees. The EMI scheme provides a lock-in incentive to key management and is also utilized to attract key staff. Rights to EMI share options lapse if the employee leaves the Company. There are no further performance conditions. No share options have been granted under this scheme since 13 April 2010 as the Group was, from that date, too large to qualify under the HMRC EMI scheme rules. Unapproved company share option plan (‘UCSOP’) This is a discretionary scheme, which provides that options may be granted where employees were not eligible to join the EMI scheme. The UCSOP provides a lock-in incentive to key management. Rights to UCSOP options lapse if the employee leaves the Company. No share options have been granted to any employees under the UCSOP in the year ended 31 December 2016. Movements in outstanding ordinary share options: 31 December 2016 31 December 2015 Weighted average Number of share exercise price (pence) options Weighted Number average of share exercise price (pence) options Outstanding at beginning of year/period 10,280,037 Granted during the year/period Exercised during the year/period Forfeited during the year/period Performance criteria not expected to be met Outstanding at the end of the year/period Exercisable at the end of the year/period 500,000 (38,063) (297,000) (881,188) 31.9 25.0 69.6 29.1 25.0 9,463,919 1,519,111 (390,034) (312,959) — 9,563,786 32.1 10,280,037 6,236,286 35.9 5,367,537 33.7 25.0 46.4 35.3 — 31.9 38.2 During the year, share options were granted with a weighted average fair value of 119.1p (31 December 2015: 121.8p). These fair values were calculated using the Black-Scholes model with the following inputs: Weighted average share price Exercise price Expected volatility1 Vesting period Risk-free interest rates 31 December 31 December 2016 2015 143.4p 146.5p 25p 25p 17.4% 18.9% 0.5 to 2 years 0 to 3 years 0.18% to 0.35% 0% to 0.52% 1. Expected volatility is based on historical volatility of the Company over the period commensurate with the expected life of the options. Options exercised in the period resulted in 38,063 shares (31 December 2015: 390,034 shares) being issued at a weighted average price of 69.6p each (31 December 2015: 46.4p). The weighted average share price on the dates of exercise for options exercised during the year was 126.5p (31 December 2015: 129.7p). The options outstanding at the end of the year have a weighted average remaining contractual life of 5.4 years (31 December 2015: 6.4 years), with a range of exercise prices being between 25.0p and 97.5p. The total credit in respect of share option schemes recognized in the consolidated income statement during the period amounted to £92,000 (31 December 2015: £203,000 charge). 72 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS 25. Capital and financial risk management General objectives, policies and processes The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. The Board has overall responsibility for the determination of the Group’s risk management policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating the processes that ensure the effective implementation of the financial risk management objectives and policies, to the Group’s finance function. The Board receives monthly reports from the Group’s finance function through which it monitors the effectiveness of the processes put in place and the appropriateness of the policies it sets. Further details regarding these policies are set out below. Capital and other reserves The Group considers its capital to comprise of its cash and cash equivalents, borrowings, ordinary share capital, share premium, convertible loan notes, non-controlling interests, reserves and accumulated retained earnings. The Group’s objective when maintaining capital is to safeguard the entity’s ability to continue as a going concern so that it can continue to invest in the growth of the business and ultimately to provide an adequate return to its shareholders. The Directors believe the Group has sufficient capital to continue trading in the foreseeable future. The following table summarizes the capital of the Group: Financial assets: Cash and cash equivalents Financial liabilities held at amortized cost: Bank overdraft Bank borrowings Net debt Equity Capital 31 December 31 December 2015 £’000 2016 £’000 6,662 8,755 (2,062) (32,615) (28,015) (52,055) (80,070) (2,391) (35,025) (28,661) (42,409) (71,070) Financial risk management The Group is exposed to risks that arise from its use of financial instruments. The Group’s objectives, policies and processes for managing those risks and the methods used to measure them are described below. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. The Group is exposed through its operations to a variety of financial risks: credit risk; market risk (including interest rate and currency risk); and liquidity risk. Credit risk Credit risk is the risk of financial loss to the Group if a customer or a counterparty to a financial instrument fails to meet its contractual obligations. Trade receivables The Group operates in an industry where most of its customers are reputable and well-established multinational or large national businesses. When the credit worthiness of a new customer is in doubt, credit limits and payment terms are established and authorized by the Territory Finance Director. The Group will suspend the services provided to customers who fail to meet the terms and conditions specified in their contract where it is deemed necessary. There is no concentration of credit risk within the Group. The maximum credit risk exposure relating to financial assets is represented by the carrying values as at the year end. The credit control function of the Group monitors outstanding debts of the Group. Debtor reports are reviewed and analyzed on a regular basis. Trade receivables are analyzed by the ageing and value of the debts. Customers with any overdue debts are contacted for payment and progress is tracked on a credit control report. Based on these procedures, management assessed the credit quality of those receivables that are neither past due nor impaired as low risk. There have been no significant changes to the composition of receivables counterparties within the Group that indicate this would change in the future. The Directors consider that the carrying amount of trade and other receivables are reasonable approximations of their fair value. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 73 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 25. Capital and financial risk management continued Credit risk continued Financial assets past due but not impaired The following is an analysis of the Group’s trade receivables identifying the totals of trade receivables which are past due but not impaired: At 31 December 2016 At 31 December 2015 The following is an analysis of the Group’s provision against trade receivables: Total £’000 5,855 4,865 Past due + 30 days £’000 Past due + 60 days £’000 2,130 1,825 3,725 3,040 Trade receivables 19,491 (200) 19,291 16,472 (189) 31 December 2016 31 December 2015 Gross value £’000 Provision £’000 Carrying value £’000 Gross value £’000 Provision £’000 Carrying value £’000 16,283 The Group records impairment losses on its trade receivables separately from the gross amounts receivable. Impaired receivables are provided against based on expected recoverability. The movements on this allowance during the year are summarized below: Opening balance Increase in provision Written off against provision Recovered amount reversed Foreign exchange Closing balance 31 December 31 December 2015 £’000 2016 £’000 189 138 (15) (119) 7 200 118 132 (62) — 1 189 Market risk Market risk arises from the Group’s use of interest bearing, tradable and foreign currency financial instruments. There is a risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk). Interest rate risk The Group is exposed to interest rate risk from bank loans and a revolving credit facility. To illustrate the Group’s exposure to interest rate risk, a 0.5% increase/decrease in the rate applied to the Group’s borrowings would have resulted in a post-tax movement of £139,000 (31 December 2015: £95,000). Currency risk The Group is exposed to currency risk on foreign currency trading and intercompany balances, and also on the foreign currency bank accounts which it holds. These risks are offset by the holding of certain foreign currency bank borrowings. The translation of the assets and liabilities of the Group’s overseas subsidiaries represents a risk to the Group’s equity balances. The Group’s exposure to currency risk at the year end can be illustrated by the following: 10% strengthening of US dollar 10% strengthening of euro 10% strengthening of Australian dollar 1. An equal weakening of any currency would broadly have the opposite effect. 31 December 2016 31 December 2015 Increase in profit before tax1 £’000 Increase in equity1 £’000 Increase in profit before tax1 £’000 59 465 (51) 4,342 1,530 964 123 104 (10) Increase in equity1 £’000 4,119 1,257 469 74 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS The currency profile of the financial assets at 31 December 2016 is as follows: Cash and cash equivalents Gross trade receivables 31 December 31 December 31 December 31 December 2015 £’000 2015 £’000 2016 £’000 2016 £’000 Pounds sterling US dollar Euro Australian dollar Russian rouble Singapore dollar Chinese renminbi New Zealand dollar 1,937 1,626 1,667 438 272 75 647 — 3,267 2,014 2,218 444 201 — 611 — 5,091 6,005 7,064 749 259 10 291 22 5,229 4,605 5,663 642 83 73 134 43 6,662 8,755 19,491 16,472 Other price risks The Group does not have any material exposure to other price risks. Liquidity risk Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments, the risk being that the Group may not meet its financial obligations as they fall due. The liquidity risk of each group company is managed centrally by the Group. All surplus cash in the UK is held centrally to maximize the returns on deposits through economies of scale. The type of cash instrument used and its maturity date will depend on the Group’s forecast cash requirements. Throughout the year, the Group maintained a draw down facility with Barclays and Royal Bank of Scotland (‘RBS’) (see note 18) to manage any short-term cash requirements. At 31 December 2016: £nil (31 December 2015: £nil) was undrawn. The facility expires in July 2018 at which point drawn down amounts will be repayable. It is a condition of the borrowings that the Group pass various covenant tests on a quarterly basis and the Group finance team regularly monitors the Group forecasts to ensure they are not breached. Categories of financial assets and liabilities The following tables set out the categories of financial instruments held by the Group. All of the Group’s financial assets and liabilities are measured at amortized cost, except forward currency contracts and interest rate swaps, which are held as hedging derivatives. Financial assets Current financial assets Loans and receivables: Trade and other receivables1 (note 14) Cash and cash equivalents (note 15) Total financial assets 31 December 31 December 2015 £’000 2016 £’000 20,136 6,662 26,798 17,387 8,755 26,142 1. Trade and other receivables includes net trade receivables and other receivables and excludes prepayments and accrued income. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 75 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 25. Capital and financial risk management continued Financial liabilities Current financial liabilities Other financial liabilities at amortized cost: Trade and other payables1 Accruals Bank overdrafts Finance lease liabilities Loans and borrowings Liabilities at fair value through profit and loss: Contingent deferred consideration Non‑current financial liabilities Other financial liabilities at amortized cost: Loans and borrowings Finance lease liabilities Liabilities at fair value through profit and loss: Contingent deferred consideration Total financial liabilities 31 December 31 December 2015 £’000 2016 £’000 3,638 4,827 2,062 4 4,264 4,663 2,391 4 2,410 2,410 1,777 14,718 3,422 17,154 30,205 32,615 5 9 238 30,448 45,166 1,431 34,055 51,209 1. Trade and other payables includes trade payables and other payables and excludes other taxation and social security and deferred income. The following table illustrates the contractual maturity analysis of the Group’s financial liabilities: At 31 December 2016 Trade and other payables Accruals Finance lease liabilities Bank loans and overdrafts Contingent deferred consideration Total financial liabilities Less: finance charges allocated to future periods Present value At 31 December 2015 Trade and other payables Accruals Finance lease liabilities Bank loans and overdrafts Contingent deferred consideration Total financial liabilities Less: finance charges allocated to future periods Present value Within one year £’000 One to five years £’000 3,638 4,827 6 5,484 1,777 — — 6 33,285 238 15,732 33,529 (1,014) (3,081) 14,718 30,448 4,264 4,663 6 6,011 3,422 18,366 (1,212) 17,154 — — 12 34,382 1,431 35,825 (1,770) 34,055 Total £’000 3,638 4,827 12 38,769 2,015 49,261 (4,095) 45,166 4,264 4,663 18 40,393 4,853 54,191 (2,982) 51,209 76 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS Fair value measurement The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: • Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities; • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data. At 31 December 2016 Financial liabilities Contingent deferred consideration At 31 December 2015 Financial liabilities Contingent deferred consideration Refer to note 18 for a reconciliation of movements during the year. 26. Dividends Dividend in respect of the prior year Total dividend paid Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 — — — — — — — — 2,015 2,015 2,015 2,015 4,853 4,853 4,853 4,853 31 December 31 December 2015 £’000 2016 £’000 292 292 291 291 A dividend of £292,000 (0.4p per share) was paid during the current financial year (31 December 2015: £291,000). Dividends were paid to non-controlling interests as shown in the consolidated statement of changes in equity. 27. Cash generated from operations Profit/(loss) before taxation Adjustments for: Depreciation (note 11) Amortization (note 10) Impairment of goodwill Impairment of intangible assets Loss on disposal Unrealized foreign exchange loss Share option charges (note 3) Finance income (note 6) Finance expenses (note 6) Share of profit of associates (note 13) Contingent deferred consideration revaluations (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Movement in provisions Cash generated from operations 31 December 31 December 2015 £’000 2016 £’000 6,625 (7,446) 1,231 2,451 — — 33 (107) 652 (18) 1,150 — 1,599 13,616 (3,968) 1,313 (179) 770 1,711 3,129 773 18 (95) 228 (13) 813 (13) (32) (157) 5,549 (333) (31) 10,782 5,028 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 77 Financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued for the year ended 31 December 2016 28. Acquisitions Fairbrother Marsh Company Limited On 11 March 2016, the Group acquired the outstanding 50% interest in its Irish media consultancy associate, Fairbrother Marsh Company Limited (‘FMC’). The 50% interest in FMC was acquired for an initial cash consideration of €150,000 (£118,000). €643,000 (£500,000) in deferred consideration was recognized at acquisition however, the maximum total purchase consideration is up to €2,000,000 (£1,559,000), payable in cash, depending on the performance of the FMC business during the period ending 31 December 2020. The fair value of the purchase consideration for the acquisition of FMC is as follows: Cash Net present value of contingent deferred consideration1 Total purchase consideration £’000 118 500 618 1. The fair value of contingent deferred consideration payable is based on EBIT for the years ending 31 December 2019 and 31 December 2020 with stage payments each year from 2017 onwards based on two year averages. The potential range of future payments that Ebiquity plc could be required to make under the contingent consideration arrangement is between £nil and £1,441,000 and will be paid in cash. All contingent deferred consideration payments are expected to be paid by June 2021. The carrying value and the provisional fair value of the net assets recognized at the date of acquisition are as follows: Customer relationships Brands Property, plant and equipment Trade and other receivables Cash and cash equivalents Trade and other payables Deferred tax liabilities Net assets acquired Fair value of 50% previously held equity interest2 Goodwill arising on acquisition3 Total purchase consideration Carrying Fair value value adjustments1 £’000 £’000 — — 10 140 162 (250) — 62 142 83 — — — (27) (28) 170 Fair value £’000 142 83 10 140 162 (277) (28) 232 (40) 426 618 1. The fair value adjustments relate to the finalisation of the allocation of the purchase consideration accounting for intangible assets (customer relationships and brands), trade and other payables and deferred tax liabilities. The fair value of trade and other receivables includes trade receivables with a fair value and gross contractual value of £94,000. 2. A loss of £5,000 was recognized and charged to the income statement on the disposal of the original 50% previously held equity interest in FMC. 3. The goodwill recognized of £426,000 is attributable to the assembled workforce, expected synergies and other intangible assets, which do not qualify for separate recognition. None of the goodwill arising from the acquisition is expected to be tax deductible. FMC contributed £519,000 to revenue and £62,000 to profit before tax for the period between the date of acquisition and the year ended 31 December 2016. If the above transaction had been completed on 1 January 2016, management estimates Group revenue would have been £83,640,000 and Group operating profit before highlighted items would have been £12,922,000 during the financial year to 31 December 2016. Acquisition-related costs of £20,000 were charged to the Group’s financial statements as administrative expenses during the year ended 31 December 2016. Refer to note 3 “highlighted items” for further details. Fairbrother Iberica and Partners SL On 15 December 2015, the Group acquired the remaining 35% in its subsidiary undertaking, Fairbrother Iberica and Partners SL, from the minority shareholder for cash consideration of €60,000 (£43,000). Subsequently, Fairbrother Iberica and Partners SL was liquidated and its business and assets were transferred to Media Value SL. 78 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS 29. Contingent liabilities The Group is subject to claims and litigation arising in the ordinary course of business and provision is made where liabilities are considered likely to arise on the basis of current information and legal advice. 30. Related party transactions The Group has a related party relationship with its subsidiaries (refer to note 12), its associates (refer to note 13), and key management personnel including Directors and Executive Committee members. Transactions between the Company and its subsidiaries, or between subsidiaries, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. Compensation of key management personnel The remuneration of the Directors, who are considered to be the key management personnel of the Group, is set out in note 5. There were no post-employment or other long-term benefits other than contributions to private pension schemes. Transactions with companies related to key management personnel Revenue of £14,000 (31 December 2015: £nil) was recognized by the Group from Travelzoo Inc., who has a common director with the Company. Costs of £1,500 (31 December 2015: £1,000) for a membership subscription were charged to the Company by the Quoted Companies Alliance, who has a common director with the Company. Costs of £79,000 (31 December 2015: £35,000) for public relations consultancy were charged to the Company by Instinctif Partners Limited, who has a common director with the Company. As at the year end, £16,000 (31 December 2015: £9,000) was owed to Instinctif Partners Limited and £nil (31 December 2015: £nil) was owed to the Quoted Companies Alliance. Transactions with associates On 11 March 2016, the Group acquired the outstanding 50% interest in its Irish media audit associate, Fairbrother Marsh Company Limited (‘FMC’). The 50% interest in FMC was acquired for an initial cash consideration of €150,000. The maximum total consideration is up to €2 million, payable in cash, depending on the performance of the FMC business during the period ending 31 December 2020. No revenue or costs from FMC have been treated as transactions with associates during the year as FMC is now accounted for as a 100% subsidiary undertaking. Revenue of £nil (31 December 2015: £21,000) was earned by Ebiquity Associates Limited from FMC during the period. Costs of £nil (31 December 2015: £24,000) were charged to Ebiquity Associates Limited by FMC during the period. As at the year end £nil (31 December 2015: £nil) was owed to or by any associate companies. 31. Events after the reporting period There have been no events after the reporting period requiring disclosure. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 79 Financial statementsINDEPENDENT AUDITORS’ REPORT to the members of Ebiquity plc Report on the parent company financial statements Our opinion In our opinion, Ebiquity plc’s parent company financial statements (the ‘financial statements’): • give a true and fair view of the state of the parent company’s affairs as at 31 December 2016; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. What we have audited The financial statements, included within the annual report, comprise: • the Company statement of financial position as at 31 December 2016; • the Company statement of changes in equity for the year then ended; and • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. Certain required disclosures have been presented elsewhere in the annual report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited. The financial reporting framework that has been applied in the preparation of the financial statements is United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law (United Kingdom Generally Accepted Accounting Practice). In applying the financial reporting framework, the Directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. In addition, in light of the knowledge and understanding of the parent company and its environment obtained in the course of the audit, we are required to report if we have identified any material misstatements in the strategic report and the Directors’ report. We have nothing to report in this respect. Other matters on which we are required to report by exception Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Directors’ remuneration Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Responsibilities for the financial statements and the audit Our responsibilities and those of the Directors As explained more fully in the statement of Directors’ responsibilities, set out on page 41, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 80 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTSWhat an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: • whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; • the reasonableness of significant accounting estimates made by the Directors; and • the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. With respect to the strategic report and Directors’ report, we consider whether those reports include the disclosures required by applicable legal requirements. Other matter We have reported separately on the Group financial statements of Ebiquity plc for the year ended 31 December 2016. Simon O’Brien (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 27 March 2017 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 81 Financial statementsCOMPANY STATEMENT OF FINANCIAL POSITION as at 31 December 2016 Company number: 03967525 Fixed assets Intangible assets Property, plant and equipment Investments in subsidiaries Current assets Trade and other receivables Cash at bank and in hand Creditors: amounts falling due within one year 10 Net current liabilities Total assets less current liabilities Creditors: amounts falling due after more than one year Net assets Equity Ordinary shares Share premium Other reserves Retained earnings Total shareholders’ funds Restated1 31 December 31 December 2015 £’000 2016 £’000 Note 6 7 8 990 21 74,890 75,901 358 32 74,288 74,678 9 15,290 12,352 — 15,290 (35,599) (20,309) 55,592 — 12,352 (28,670) (16,318) 58,360 11 (30,205) (32,615) 25,387 25,745 12 13 13 13 19,300 — (99) 6,186 25,387 19,290 11,764 (733) (4,576) 25,745 1. As at 31 December 2015, the balance of amounts owed to Group undertakings amounting to £22,352,000 has been reclassified to ‘falling due within one year’ from ‘falling due after more than one year’ to reflect that they were repayable on demand. The notes on pages 84 to 90 are an integral part of the financial statements of the Company. The financial statements on pages 82 to 90 were approved and authorized for issue by the Board of Directors on 27 March 2017 and were signed on its behalf by: Michael Karg, PhD Director Andrew Noble Director 82 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2016 At 1 May 2015 Loss for the period Other comprehensive (loss)/income for the period Total comprehensive loss for the period Proceeds from shares issued Share-based payments charge Capital contribution relating to share-based payments Dividends to shareholders At 31 December 2015 Loss for the year Other comprehensive (loss)/income for the year Total comprehensive loss for the year Proceeds from shares issued Share premium reduction1 Convertible loan note2 Share-based payments credit Capital contribution relating to share-based payments Dividends to shareholders At 31 December 2016 Note Share capital £’000 Share premium £’000 19,193 11,657 Other reserves £’000 (733) — — — 97 — — — — — — 107 — — — — — — — — — — 19,290 11,764 (733) — — — 10 — — — — — 19,300 — — — 16 (11,780) — — — — — — — — — — 634 — — — (99) 12 14 12 14 8 Retained earnings £’000 2,071 (6,584) — Total £’000 32,188 (6,584) — (6,584) (6,584) — (45) 273 (291) (4,576) (1,380) — 204 (45) 273 (291) 25,745 (1,380) — (1,380) (1,380) — 11,780 — 474 180 26 — 634 474 180 (292) 6,186 (292) 25,387 1. On 8 June 2016, the Group announced the cancellation of the share premium account (the “Capital Reduction”) effective 9 June 2016 following registration of the Court order confirming the Capital Reduction by the Registrar of Companies. 2. A convertible loan note reserve of £634,000 was created during the year to 31 December 2016. Refer to note 13 for further details. The notes on pages 84 to 90 are an integral part of the financial statements of the Company. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 83 Financial statements NOTES TO THE COMPANY FINANCIAL STATEMENTS for the year ended 31 December 2016 1. General information Ebiquity plc (the ‘Company’) acts as a holding company and is incorporated and domiciled in the UK. The address of its registered office is CityPoint, One Ropemaker Street, London EC2Y 9AW. The financial statements of the Company represent the results for the year ended 31 December 2016 whilst the comparatives represent the results for the eight months ended 31 December 2015. The change of year end was made to enable greater certainty of year end out-turn earlier in the Company’s financial year. The financial statements present information about the Company as an individual undertaking and not about its group. 2. Basis of preparation The financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (‘FRS 101’). The financial statements have been prepared on a going concern basis under the historical cost convention and in accordance with the Companies Act 2006. The Company has taken advantage of the following disclosure exemptions under FRS 101: a. the requirements of paragraphs 45(b) and 46-52 of IFRS 2 ‘Share-based Payment’ (details of the number of weighted-average exercise prices of share options, and how the fair value of goods and services received was determined); b. the requirements of IFRS 7 ‘Financial Instruments: Disclosures’; c. the requirements of paragraphs 91 to 99 of IFRS 13 ‘Fair Value Measurement’ (disclosure of valuation techniques and inputs used for ‘Fair Value Measurement’ of assets and liabilities); d. the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information in respect of: i. paragraph 79(a)(iv) of IAS 1; ii. paragraph 73(e) of IAS 16 ‘Property, Plant and Equipment’; iii. paragraph 118(E) of IAS 38 ‘Intangible Assets’ (reconciliations between the carrying amount at the beginning and end of the period); The following paragraphs of IAS 1 ‘Presentation of Financial Statements’: i. 10D (statement of cash flows); ii. 16 (statement of compliance with all IFRS); iii. 38A (requirement for minimum of two primary statements, including cash flow statements); iv. 38B-D (additional comparative information); v. 111 (cash flow statement information); and vi. 134–136 (capital management disclosures). e. IAS 7 ‘Statement of Cash Flows’; f. paragraphs 30 and 31 of IAS 8 ‘Accounting Policies’, changes in accounting estimates and errors (requirement for the disclosure of information when an entity has not applied a new IFRS that has been issued but is not yet effective); g. paragraph 17 of IAS 24 ‘Related Party Disclosures’ (key management compensation); and h. the requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two or more members of a group. Summary of significant accounting policies The principal accounting policies adopted are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated. Finance income and expenses Finance income and expenses represents interest receivable and payable. Finance income and expense is recognized on an accruals basis, based on the interest rate applicable to each bank or loan account. Foreign currency transactions The results and financial position of the Company are expressed in pounds sterling, which is the functional currency of the Company and the presentation currency for the Company financial statements. Trading transactions denominated in foreign currencies are translated into sterling at the exchange rate ruling when the transaction was entered into. Assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the end of the financial period. All transactions involving foreign exchange gains and losses are dealt with through the income statement as and when they arise. Share‑based payments The Company issues equity-settled share-based payments to its employees and employees of subsidiaries using the Company’s equity instruments. These are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant and expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions. A corresponding credit is recorded in equity. For share options without performance conditions, fair value is measured by use of the Black–Scholes Model. The expected life used in the model has been adjusted, based on management’s best estimates, for the effects of non-transferability, exercise restrictions, and behavioural considerations. 84 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTSInvestments in subsidiaries Investments in subsidiaries are held at cost less accumulated impairment losses. Where the purchase consideration for the acquisition of an interest in a subsidiary is contingent on one or more future events, the cost of investment includes a reasonable estimate of the fair value of the amounts of consideration that are expected to be payable in the future. The cost of investment and the contingent consideration liability is adjusted until the ultimate payable is known. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and short-term deposits. In the statement of financial position, bank overdrafts are shown within borrowings in current liabilities. Share capital Equity instruments issued by the Company are recorded at the amount of the proceeds received, net of direct issuance costs. Deferred taxation Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilized. The recognition of deferred tax assets is reviewed at each year end date. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the year end date and are expected to apply when the deferred tax liabilities/assets are settled/recovered. Financial instruments Financial assets and financial liabilities are recognized in the Company’s statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Financial assets The Company classifies its financial assets as ‘loans and receivables’. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortized cost using the effective interest rate method, less provision for impairment. Financial liabilities Borrowings consisting of interest-bearing secured and unsecured loans and overdrafts are initially recognized at fair value net of directly attributable transaction costs incurred and subsequently measured at amortized cost using the effective interest method. The difference between the proceeds received net of transaction costs and the redemption amount is amortized over the period of the borrowings to which they relate. The revolving credit facility is considered to be a long-term loan. Trade and other payables are initially recognized at their nominal value which is usually the original invoiced amount. Interest rate swaps are carried at fair value with changes in fair value being reflected in the statement of comprehensive income, and are classified within other financial liabilities. The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognized over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity financial statements. Retirement benefits For defined contribution pension schemes, the Company pays contributions to privately administered pension plans on a voluntary basis. The Company has no further payment obligations once the contributions have been paid. Contributions are charged to the income statement in the period to which they relate. Dividend income Dividend income is recognized when the right to receive payment is established. Dividend distribution Dividend distribution to the Company’s shareholders is recognized as a liability in the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders. Intangible assets Computer software Purchased computer software intangible assets are amortized on a straight-line basis over their useful lives which vary from four to five years. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any recognized impairment loss. Depreciation is charged so as to write off the cost of assets over their estimated useful lives and is recognized in the income statement within administrative expenses. The rates applied are as follows: Fixtures, fittings and equipment 20% per annum straight-line Computer equipment 25% straight-line Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 85 Financial statements NOTES TO THE COMPANY FINANCIAL STATEMENTS continued for the year ended 31 December 2016 3. Company results for the year The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 not to present its own income statement in these financial statements. The movement in reserves of the Company includes a loss for the year of £1,380,000 (31 December 2015: loss for the period of £6,584,000). 4. Operating loss Auditors’ remuneration Fees for the audit of the Company are £3,000 (31 December 2015: £3,000). Fees paid to the Company’s auditors for services other than the statutory audit of the Company are disclosed in note 4 to the consolidated financial statements. Directors’ remuneration Fees paid to the Company’s Directors are disclosed in note 5 to the consolidated financial statements. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the year end date. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate which reflects current market assessments of the time value of money and, where appropriate, the risks specific to the obligations. Employee Share Ownership Plan (‘ESOP’) The ESOP’s investment in the Company’s shares is deducted from shareholders’ equity in the statement of financial position as if they were treasury shares, except that profits on the sale of ESOP shares are not credited to the share premium account. Critical accounting estimates and judgements In preparing the Company financial statements in conformity with FRS 101, the Directors are required to make certain estimates and judgements relating to the reported results of revenue and expenses during the period and the financial position of the Company at the reporting date. Actual results may differ from those estimates. Due to the nature of operations, the key area of judgement that has the most significant effect on the amounts recognized in the Company financial statements, is the review for impairment of the carrying value of investments in subsidiaries. 2. Basis of preparation continued Derivative financial instruments The Company uses derivative financial instruments to reduce its exposure to foreign exchange and interest rate movements. The Company does not hold or issue derivative financial instruments for financial trading purposes but derivatives that do not qualify for hedge accounting are accounted for at fair value through the income statement. Derivative financial instruments are initially recognized at fair value at the contract date and continue to be stated at fair value at the statement of financial position date with gains and losses on revaluation being recognized immediately in the income statement. Cash flow hedging is used to hedge against fluctuations in future cash flows on the Company’s debt funding due to movements in interest rates. When a cash flow hedge is employed and hedge accounting applied, the effective portion of the change in the fair value of the hedging instrument is recognized directly in equity (hedging reserve) until the gain or loss on the hedged item is realized. Any ineffective portion is always recognized in the income statement. The fair value of derivatives is determined by reference to market values for similar instruments. Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle that obligation and the amount can be reliably estimated. Provisions are not recognized for future operating losses. 86 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS5. Tax on loss on ordinary activities The tax charge is made up as follows: Current tax Deferred tax Origination and reversal of timing differences Taxation on ordinary activities Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 — — — — — — — — The tax assessment for the year differs to the standard rate of corporation tax in the UK of 20% (31 December 2015: 20%). The differences are explained below: Loss on ordinary activities before taxation Loss on ordinary activities at the standard rate of corporation tax in the UK of 20% (31 December 2015: 20%) Effects of: Expenses not deductible for tax purposes Capital allowances for year in excess of depreciation Additions to intangibles Relieved to other group companies Losses carried forward Current tax charge for the year Eight month Year ended period ended 31 December 31 December 2015 £’000 2016 £’000 (1,380) (6,584) (276) (1,317) 31 (1) 41 205 — — 868 (11) — 308 152 — Deferred tax on unremitted earnings has not been recognized as management do not intend to pay dividends from jurisdictions where a tax charge would be incurred and dividends received are not taxed in the UK. 6. Intangible assets Cost At 1 January 2016 Additions At 31 December 2016 Amortization At 1 January 2016 Charge for the year At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 Computer software £’000 454 743 Total £’000 454 743 1,197 1,197 (96) (111) (207) 990 358 (96) (111) (207) 990 358 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 87 Financial statements NOTES TO THE COMPANY FINANCIAL STATEMENTS continued for the year ended 31 December 2016 7. Property, plant and equipment Cost At 1 January 2016 At 31 December 2016 Depreciation At 1 January 2016 Charge for the year At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 8. Investments in subsidiaries Cost and net book value At 31 December 2015 Additions1 Capital contributions relating to share-based payments At 31 December 2016 1. Additions of £422,000 comprises an additional capital contribution in Ebiquity Holdings Inc. Fixtures, fittings and equipment £’000 Computer equipment £’000 1 1 — — — 1 1 46 46 (15) (11) (26) 20 31 Total £’000 47 47 (15) (11) (26) 21 32 £’000 74,288 422 180 74,890 The Company’s principal trading subsidiaries and associated undertakings are listed in note 12 to the consolidated financial statements. The Directors believe that the carrying value of the remaining investments is supported by their underlying net assets. 9. Trade and other receivables Amounts owed by Group undertakings Other receivables Prepayments 31 December 31 December 2015 £’000 2016 £’000 14,989 12,034 6 295 8 310 15,290 12,352 Included within the amounts owed by Group undertakings above is an amount which is unsecured, earns interest at 3% above EURIBOR, has no fixed date of repayment and is repayable on demand. Also included within the amounts owed by Group undertakings above is an amount which is unsecured, earns interest at 2.65% above LIBOR, has no fixed date of repayment and is repayable on demand. The residual amounts owed by Group undertakings are unsecured, non-interest bearing, have no fixed date of repayment and are repayable on demand. 88 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS 10. Creditors: amounts falling due within one year Bank loans and overdrafts Trade creditors Other taxation and social security Other creditors Accruals Amounts owed to Group undertakings2 Restated1 31 December 31 December 2015 £’000 2016 £’000 4,472 844 34 20 669 29,560 35,599 4,800 641 12 1 864 22,352 28,670 1. The balance of amounts owed to Group undertakings as at 31 December 2015 has been reclassified from amounts falling due after more than one year to reflect that they were repayable on demand. 2. Included within amounts owed to Group undertakings is an amount which is unsecured, incurs interest at 5.5% plus Bank of England base rate, has no fixed date of repayment and is repayable on demand. The residual amounts owed to Group undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand. 11. Creditors: amounts falling due after more than one year Bank loans – between two and five years 31 December 31 December 2015 £’000 2016 £’000 30,205 30,205 32,615 32,615 All bank borrowings are held jointly with Barclays and Royal Bank of Scotland (‘RBS’). The committed facility, totalling £40,000,000, comprises a term loan of £10,000,000 (of which £3,750,000 remains outstanding at 31 December 2016 (31 December 2015: £6,250,000)), and a revolving credit facility (‘RCF’) of £30,000,000, (of which £29,000,000 was drawn down at 31 December 2016 (31 December 2015: £29,000,000)). Both the term loan and the RCF have a maturity date of 2 July 2018. The £10,000,000 term loan is being repaid on a quarterly basis to maturity, and the drawn RCF and any further drawings under the RCF are repayable on maturity of the facility. The facility may be used for deferred consideration payments on past acquisitions, to fund future potential acquisitions, and for general working capital requirements. Loan arrangement fees of £135,000 (31 December 2015: £225,000) are offset against the term loan, and are being amortized over the period of the loan. The facility bears variable interest of LIBOR plus a margin of 2.50%. The margin rate is able to be lowered each quarter end depending on the Group’s net debt to EBITDA ratio. The undrawn amount of the revolving credit facility is liable to a fee of 40% of the prevailing margin. The Group may elect to prepay all or part of the outstanding loan subject to a break fee, by giving five business days’ notice. All amounts owing to the bank are guaranteed by way of fixed and floating charges over the current and future assets of the Group. As such, a composite guarantee has been given by all significant subsidiary companies in the UK, USA and Germany. 12. Ordinary shares Allotted, called up and fully paid At 30 April 2015 – ordinary shares of 25p Share options exercised At 31 December 2015 – ordinary shares of 25p Share options exercised At 31 December 2016 – ordinary shares of 25p Number of shares Nominal value £’000 76,771,654 19,193 390,034 97 77,161,688 19,290 38,063 10 77,199,751 19,300 Ordinary shares carry voting rights which are entitled to share in the profits of the Company. During the period, the Company paid a dividend of 0.4p per share, a total of £292,000 (31 December 2015: 0.4p with a total of £291,000) to shareholders. Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 89 Financial statements NOTES TO THE COMPANY FINANCIAL STATEMENTS continued for the year ended 31 December 2016 13. Reserves Share premium The share premium reserve shows the amount subscribed for share capital in excess of the nominal value. On 8 June 2016, the Company announced the cancellation of the Company’s share premium account (the “Capital Reduction”) effective 9 June 2016 following registration of the Court order confirming the Capital Reduction by the Registrar of Companies. Other reserves Other reserves consists of the merger reserve and ESOP reserve. Merger reserve The merger reserve arose on the issuance of shares at a premium on a group restructure, where the premium on issue qualified for merger relief. There has been no movement in the year. Convertible loan note reserve On 29 March 2016, the Group agreed to increase the total cap on consideration payable on the Stratigent LLC (‘Stratigent’) acquisition. The Group acquired Stratigent on 19 August 2013. Stratigent’s management held a 7% economic interest in Stratigent which was acquired by the Group for a total consideration to be determined by the financial performance of Stratigent over the three financial years ending 30 April 2016 and capped at $1.5 million. Stratigent’s financial performance over the first two financial years resulted in consideration of $1.1 million being paid to Stratigent’s management. In order to ensure that management remains incentivized to continue to drive and generate the financial performance achieved over the first two financial years, the Group agreed to increase the total cap on consideration payable to management. Accordingly, in March 2016, the cap on consideration was increased by an amount of $1.5 million, with any excess over and above the existing cap on consideration payable 25% in cash and 75% in new ordinary shares in Ebiquity plc (capped at 600,000 new shares). A convertible loan note reserve amounting to £634,000 was created in equity in respect of the convertible loan note representing 600,000 new shares in the Company. ESOP reserve The ESOP reserve represents the cost of own shares acquired in the Company by the Employee Benefit Trust (‘EBT’). The purpose of the EBT is to facilitate and encourage the ownership of shares by employees, by acquiring shares in the Company and distributing them in accordance with employee share schemes. The EBT may operate in conjunction with the Company’s existing share option schemes and other schemes that may apply from time to time. The ESOP trusts were created to award shares to certain employees at less than market value. The trusts in aggregate hold unallocated shares costing £1,471,000 (31 December 2015: £1,471,000) funded by the Company. The sponsoring company is responsible for the administration and maintenance of the trust. The number of shares held by the trust is 4,201,504 (31 December 2015: 4,201,504), all of which are under option to the employees of the Group. As at the statement of financial position date, all of the shares in the ESOP had vested (31 December 2015: all had vested). Retained earnings The retained earnings reserve shows the cumulative net gains and losses recognized in the income statement. For detailed movements on each of the above reserves, refer to the statement of changes in equity. 14. Share‑based payments Full disclosure of share-based payments is included in the consolidated financial statements (see note 24 to the consolidated financial statements). 15. Commitments Capital commitments contracted but not provided for by the Company amount to £nil (31 December 2015: £nil). The Company has no operating lease commitments (31 December 2015: none). 16. Contingent liabilities The Company is subject to claims and litigation arising in the ordinary course of business and provision is made where liabilities are considered likely to arise on the basis of current information and legal advice. 17. Related party transactions Under FRS 101.8(k), the Company is exempt from the requirement to disclose transactions with entities that are part of the Ebiquity plc Group, or investees of the Group qualifying as related parties, as all of the Company’s voting rights are controlled within the Group. The Company has no other material related parties. Related party transactions are detailed in note 30 to the consolidated financial statements. Transactions with key management personnel FRS 101.8(j) exempts entities from the disclosures in respect of the compensation of key management personnel. 90 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTSADVISERS Independent auditors PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors 1 Embankment Place London WC2N 6RH Nominated adviser and broker Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Registrars Computershare Investor Services PLC PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH SHAREHOLDER INFORMATION Country of incorporation Ebiquity plc is registered and incorporated in England and Wales. Number of securities in issue As of 27 March 2017, the Company’s issued share capital consists of 77,199,751 ordinary shares of 25p each. The Company has no treasury shares. Details of any restrictions on the transfer of securities There are no restrictions on any of the Company’s AIM securities. Securities not in public hands As of 27 March 2017, the percentage of the Company’s issued share capital that is not in public hands is 23.26%. Company registration Registered office CityPoint One Ropemaker Street London EC2Y 9AW Company number 03967525 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 91 Financial statementsthe Group's Advertising Intelligence business IFRS International Financial Reporting Standards GLOSSARY AI ANA APAC CAGR Association of National Advertisers Asia Pacific compound annual growth rate Capital Reduction the cancellation of the share premium account CGUs cash-generating units the Company Ebiquity plc Constant currency (‘CC’) DLG DMP DSP EBITDA EBT EIP calculated by taking current year denominated results restated at last year’s foreign exchange rates Direct Line Group data measurement platform demand-side platform earnings before interest, tax, depreciation and amortization Employee Benefit Trust Executive Incentive Plan IPA ISAs ISBA KPIs Institute of Practitioners in Advertising International Standards on Auditing Incorporated Society of British Advertisers key performance indicators LIBOR London Interbank Offered Rate Like‑for‑like (‘LFL’) LTI MCA MGM MI MPO MVM prior year results are adjusted to include the results of recent acquisitions as if they had been owned for the same period in the prior year Long-Term Incentive the Group’s Multi-Channel Analytics business Manning Gottlieb Media Market Intelligence Marketing Performance Optimisation Media Value Measurement Net debt long-term borrowings, short-term borrowings less cash and cash equivalents EMI scheme enterprise management incentive scheme PwC PricewaterhouseCoopers LLP earnings per share QCA Code EPS ESOP FMC FRS 101 Executive Share Option Plan Fairbrother Marsh Company Limited Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ RBS RCF Royal Bank of Scotland revolving credit facility Stratigent Stratigent LLC Quoted Companies Alliance – Corporate Governance Code for Small and Mid-Size Quoted Companies 2013 the Group Ebiquity plc and its subsidiaries Highlighted items highlighted items comprise non-cash charges and non-recurring items which are highlighted in the income statement because separate disclosure is considered relevant in understanding the underlying performance of the business TSR UCSOP total shareholder returns unapproved company share option plan Underlying performance underlying performance refers to the results of operations before highlighted items WFA World Federation of Advertisers IAB IASB Internet Advertising Bureau International Accounting Standards Board 92 Ebiquity plc | Annual report and financial statements for the year ended 31 December 2016 FINANCIAL STATEMENTS Designed and produced by www.lyonsbennett.com E b i q u i t y p l c | A n n u a l r e p o r t a n d fi n a n c i a l s t a t e m e n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 6 Ebiquity plc CityPoint One Ropemaker Street London EC2Y 9AW www.ebiquity.com 

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