Vianet Group plc Consolidated Annual Report & Accounts Year ended 31 March 2014 One Surtees Way, Surtees Business Park, Stockton on Tees, TS18 3HR One Surtees Way, Surtees Business Park, Stockton on Tees, TS18 3HR www.vianetplc.com www.vianetplc.com The market leading provider of real time monitoring systems and data management services for the UK leisure and forecourt sectors FINANCIAL HIGHLIGHTS • • • • • • • • Revenue for the year of £18.34 million (2013: £21.09 million) Recurring revenues at 78% (2013: 71%) Gross margin increased to 59% (2013: 51%) Operating profit before amortisation of goodwill, share option and exceptional costs of £3.05 million (2013: £3.30 million) Profit before tax of £1.6 million (2013: £1.8 million) Final dividend of 4.00 pence per share giving a full year total of 5.70 pence per share (2013: 5.70 pence per share) Vending profit of £0.35 million (2013: £0.05 million loss) Fuel Solutions reduced losses by c£0.2 million to £0.2 million, and was profitable from August 2013 (excluding seasonality impact of December) OPERATIONAL HIGHLIGHTS • • • • • 2,067 new vending units (2013: 475) with Q1 2015 pipeline for 1,200 new units 416 new beer monitoring installations (2013: 864), of which 296 were higher value iDraught (2013: 828) Leisure margins improved by 15% as a result of product mix and efficiencies Several major customer contract extensions including Enterprise Inns, Heineken, Charles Wells and Daniel Thwaites Balanced outcome for beer flow monitoring in the Government’s planned Statutory Code for Pub Companies announced last week Vianet Group plc i CONTENTS Section Company information Chairman’s statement Chief Executive Officer’s Statement Financial Review Strategic Report Report of the Directors Corporate Governance Statement Report of the Independent Auditor Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cashflow Statement Notes to the Consolidated Financial Statements Report of the Independent Auditor (Parent Company) Company Balance Sheet Notes to the Company Balance Sheet Page 1 2 4 7 10 12 18 21 22 23 24 25 26-51 52 54 55-61 ii Vianet Group plc COMPANY INFORMATION Directors S W Darling (Chief Executive Officer) J W Dickson (Executive Chairman) M H Foster (Chief Financial Officer) S C Gilliland (Non-Executive Director) C Williams (Non-Executive Director) M McGoun (Non-Executive Director - appointed 1 February 2014) Secretary M H Foster Registered office One Surtees Way Surtees Business Park Stockton on Tees TS18 3HR Registered number 5345684 Auditors Bankers Nominated Adviser Stockbroker Solicitors Registrars Grant Thornton UK LLP No 1 Whitehall Riverside West Yorkshire LS1 4BN Bank of Scotland 1st Floor Black Horse House 91 Sandyford Road Newcastle NE99 1JW Cenkos Securities plc 6. 7. 8. Tokenhouse Yard London EC2R 7AS Cenkos Securities plc 6. 7. 8. Tokenhouse Yard London EC2R 7AS Gordons LLP Riverside West Whitehall Road Leeds LS1 4AW Capita IRG The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Vianet Group plc 1 CHAIRMAN’S STATEMENT I am pleased to report that during the period, Vianet has focussed resources on the growth opportunities that we have been developing over the last few years. In particular, whilst modest at this stage, the opportunity for high growth and good profitability exists in our Vending division, as shown by the progress during the year where the vending telemetry business produced operating profit of £0.35 million (2013: £0.05 million loss). We have reduced, or cut substantially, those parts of our business which are considered low growth or low margin whilst re-calibrating our beer flow monitoring operations to mitigate against external market pressures and we continue to develop more innovative solutions for our core pub industry clients. During the period, these changes have held back turnover and operating profit but Vianet is a stronger company as a result. Last week the Government published a long-awaited response to the consultation on its proposed Statutory Code for Pub Companies. In essence, the Government plans to legislate to put the existing voluntary code onto a statutory footing which, for beer flow monitoring, is a continuance of our existing operating procedures. The Board is pleased that the uncertainty of the past several years is now being lifted and considers this a satisfactory outcome although we suspect that the legislative implementation of the wider Statutory Code may remain a distraction for our customers for a period of time yet. Although this uncertainty and further pub closures remained a detrimental factor on financial performance during FY 2014, the Board is confident that the ongoing focus on developing the Vending division, together with change programs in our beer flow monitoring and fuel businesses, are now proving beneficial and provide an encouraging outlook for 2015. Against this improving backdrop and the strength of recurring income, the Board is proposing to maintain the final dividend at 4.00 pence which would give a total dividend for the year of 5.70 pence. Subject to approval from shareholders at the Annual General Meeting, to be held on 15 July 2014, the final dividend will be paid on 1 August 2014 to shareholders on the register as at 20 June 2014. Results Full year pre-exceptional operating profit, before amortisation and share based payments, of £3.05 million (2013: £3.3 million) was in line with the revised market expectations following Vianet’s trading update on 9 October 2013. Revenue for the year was £18.34 million (2013: £21.09 million) with the decline primarily due to the full year impact of withdrawing from lower margin work in the Leisure and Fuel Solutions divisions and a reduced number of new installations in the UK pub market. Several successful contract extensions, both in the Group’s beer monitoring and vending sectors, ensured that the level of contractual and recurring revenues remained at over 70% of Group revenue. The Group’s overall operating gross margins of 59% (2013: 51%) benefitted from an improved product mix and reductions in the cost base across the business. Group profit before taxation amounted to £1.56 million (2013: £1.82 million) and was impacted by £0.71 million of exceptional costs incurred in responding 2 Vianet Group plc to the Government’s proposed statutory code for pub companies, the cost base reduction programme, and further rationalisation of the Group structure. Basic earnings per share post-exceptional costs (pre- deferred tax asset recognition) decreased to 5.79 pence from 7.12 pence in 2013. successfully addressed Corporate Governance significant Vianet has challenges and opportunities in its marketplaces over the past year or so. The Group’s culture, values and frameworks, whereby everyone at Vianet collectively and individually always ‘seeks to do the right thing’ has been fundamental in gaining support and strengthening our position, whether dealing with customers, politicians, suppliers or other stakeholders. Living and breathing ‘doing the right thing’ not only underpins Vianet’s ethos and corporate governance but also the reputation for integrity and transparency which is a key component of the Group’s solutions for customers. Board The Board has been transformed over the period and is functioning well. The transfer of Chief Executive Officer’s responsibilities to Stewart Darling has gone to plan with Stewart now fully focussed on Vianet’s key growth opportunity in the Vending Solutions division, together with iDraught USA, and the management and development of the Group’s substantial UK beer flow monitoring business. To enable this focus to be effective, the Board felt it important that, in addition to the Chairman’s role, I should retain executive responsibility for Fuel Solutions, as well as dealing with the Government’s Proposed Statutory Code. During the period there has also been increased time invested in improving institutional and private communication with investors. Chris Williams, independent Non-Executive Director, was appointed Chairman of the Audit Committee. Chris was formerly Strategic Development Director with the Whitbread Beer Company, and joined the Board in May 2013. In February 2014, Mike McGoun was appointed to the Board as its third independent Non-Executive Director. Having developed and sold listed technology businesses, Mike brings a wealth of experience whilst also improving the balance of the Board. Stewart Gilliland, who joined the Board prior to independent Non- flotation, became our senior Executive Director in April 2013 and is Chairman of the Remuneration Committee. Stewart’s other board memberships include Mitchells & Butler, C&C and Nature’s Way. All three of our Non-Executive Directors are members of the Audit, Remuneration and Nominations board sub-committees. I would like to thank all of my Board colleagues, senior management and staff for their continued efforts and commitment on behalf of the Group over the past year. Outlook Whilst trading in the pub sector will remain challenging despite a satisfactory introduction of a Statutory Code, Vianet has made good progress and prospects are encouraging, particularly for telemetry solutions for the coffee vending market. The benefits of the actions taken to reduce costs are being realised and further efficiency initiatives are being implemented. • • • The UK beer flow monitoring business has been recalibrated to sustain its strong earnings from long term contracts and to ensure it continues to deliver relevant solutions. Vending Solutions has delivered strong profits growth and has made excellent progress in developing significant new sales opportunities with major global customers. The prospects are good and there is real focus on developing our capability to ensure we take advantage of our leading position in coffee vending, and of our contactless payment solutions for vending. The Fuel Solutions division is now totally self- contained and I am confident that the efficiency program, together with a stronger forecourt services pipeline and new opportunities for recurring income contracts in fuel management solutions, will ensure a profitable outcome for this division in 2014/15. The Group’s markets, products, customers and people are now in place to deliver earnings growth from all of these areas, which should finally demonstrate the benefits from our diversification and in doing so also expand the future strategic options for Vianet. James W Dickson Chairman Vianet Group plc 3 CHIEF EXECUTIVE OFFICER’S STATEMENT (INCLUDING CHAIRMAN’S REVIEW OF FUEL SOLUTIONS) Vianet’s aim is to build a business that is durable for the long term through providing customers with solutions which unlock value in their business and ultimately lead to increased profitability. Leisure Solutions The Leisure Solutions division (excluding US) achieved an operating profit pre-amortisation and exceptional costs of £4.7 million. Vianet brings disruptive technologies which compel customers to think differently about their markets, customers and operations. Achieving sustainable success in our chosen markets is fundamentally about having an appetite for change and a commitment to constant renewal in all that we do. Philosophy and approach The Group’s success is rooted in three core strengths: providing customer solutions which create a platform to make better business decisions; working collaboratively with customers to identify innovations which will drive a material shift in business performance; and developing and retaining great talent in an organisation that is focused on those things that add value. The Group has also established long-term relationships with major blue-chip customers across the UK and Continental Europe and is using these strong relationship development skills to build alliances with partners and customers in the USA. These relationships give us a deep understanding of what our customers want, and enable us to stay focused on identifying and providing solutions that best meet their needs. We also recognise that many of our solutions are ‘disruptive’ in the sense that they compel customers to change the way they do things in order to improve business performance. Because we understand our customers, we know that the main reason they choose our solutions is to make better decisions that will result in enhanced business performance. Our task is to ensure that we identify and develop the very best solutions at a level of cost that drives a compelling return on investment and short to medium term payback for the customer and value for our shareholders. In a fast-changing and complex environment we believe it is the combination of these three strengths that gives us the edge over competitors, and our continued focus and investment in them provides us with a durable source of value and competitive advantage. Core beer monitoring / Machine Insite the Government’s the uncertainty over Whilst Proposed Statutory Code had an adverse impact on pub industry confidence and expenditure, modest progress was still made in the adoption of the higher value iDraughtTM product and service with 296 additional sites gained during the year. However, this was more than offset by an acceleration and increase in the number of in pub disposals which exceeded approximately 1,500 in the year. Whilst there has been increased iDraughtTM penetration and good progress in gaining new contracts to monitor gaming machines in the pub sector, these were not enough to offset the revenue loss arising from pub disposals and closures. Following extensive contract negotiations, the Board was delighted that Enterprise Inns agreed a four year contract extension for the provision of beer monitoring services and the opportunity to pilot our second generation gaming machine solution to determine its potential. The Group commenced commercial trials of our iDraughtTM solutions for four managed pub retailers to determine how best to unlock the value being lost through not optimising draught beer dispense. Initial results have been positive and, whilst this is a new capability and toolset for the managed sector, the Board is optimistic about the potential for progress this year. Overall, the Board remains confident that the outlook for further growth in the higher value iDraughtTM product and service remains promising with many pub retailers now conducting extensive evaluations, however timing of adoption is difficult to predict. Vianet Americas Inc. Vianet Americas has made progress in securing pilot trials with national multiple retailers across the USA and continues to operate an effective strategic alliance with Micro Matic USA for nationwide iDraughtTM installation, service and sales support. 4 Vianet Group plc The total loss for the year was £0.35 million and, as announced at the time of the Group’s final results in June 2013, a review of the business was undertaken in February 2014. This resulted in a decision to focus on a few significant pilots and create a cost structure to support this initiative. Vianet Fuel Solutions (“VFS”) The Group’s Fuel Solutions Division (“VFS”) made progress during the period as it benefitted from a reduced cost base and higher margin activity, achieving reduced losses compared with the prior period and is now trading profitably into 2014/15. By the end of the summer 2014, the Board should have a good understanding of the scale of opportunity for iDraughtTM and be in a position to confirm our strategy for Vianet Americas. Vending Solutions The Vending Telemetry business made good progress in H2 resulting in a full year profit of £0.35 million. This progress can be attributed to the alignment of our vending proposition with key strategic drivers in the marketplace and securing contracts with key blue chip customers, whom we identified as thought leaders and winners in the vending market, with particular emphasis on quality coffee and cashless payment systems. Consumer demand for quality coffee is driving growth in the market with key retailers aiming to create a consumer experience in vending that is now commonly found in High Streets throughout the UK and Continental Europe. Delivering this level of experience requires that quality and machine availability are maintained to the highest possible standard, both of which require real time data and alerts. Combined with the platform to create and implement shared business models, the market is now opening up to new participants and exciting growth opportunities. Cash only payment has long been an inhibitor of consumption and the consumer experience in the vending industry. The evolution and growth of cashless payment solutions provides a material opportunity to change this dynamic and attract more consumers to the vending space. For retailers adopting and deploying cashless payment solutions, the benefits are immediate in terms of sales growth and reduced operating cost which in turn drive increased adoption. The Board expects that our cashless payment solutions portfolio and significant experience developed in this new and dynamic space could offer material growth opportunities for the Group in years to come. Turnover of £4.2 million was down £0.6 million as a direct result of the full year effect of the decision taken to exit lower margin Liquefied Petroleum Gas (“LPG”) work in 2013. The cost base rationalisation and focus on higher margin activity resulted in margins improving to 24% (2013: 21%). VFS losses for the full year were £0.19 million (2013: £0.35 million loss). However, it is encouraging that, with the exception of seasonal losses in December, the division has traded profitably for the past nine months. As the market’s only end-to-end provider of fuel asset management solutions and services, VFS has been gaining incremental new business with existing customers. Additionally, the VFS Clearview wet stock analysis, margin management solutions, together with specialised Facilities and Compliance Management solutions has created a leading suite of web-based tools. The market response to this capability has been very positive with new business being gained with partners such as Midlands Co-op, Lincolnshire Co- op, Intake, Brobot, Penny Petroleum, ML Richardson, and post year end, Henderson Group with sixty sites in Northern Ireland, and opportunities being created with major supermarket groups. Whilst the Group’s long term strategic partnership with BigOil, the Petrol Retailer Association’s vehicle, is in its early days, there has been good groundwork completed in establishing the foundations for future growth. This should provide VFS with direct access to members who control approximately 3,500 independent forecourts. is well placed to expand long term VFS relationships with national operators whilst building a robust and exclusive distribution of its products to the independent sector. its Vianet Group plc 5 Chief Executive Officer’s Statement (Including Chairman’s Review of Fuel Solutions) (continued) Strategy for Growth The Group’s strategic intent remains to extend its solution development and support services in selected sectors where there is considerable technical and operational overlap, and to respond to new opportunities as they arise. There is absolute focus on working in partnership with key customers to introduce solutions which drive compelling and sustainable returns on investment and, in turn, cement a profitable long term trading relationship with Vianet. Value innovation and solutions that drive value to the customer are key drivers for our people together with delivery being executed with focus and discipline. Utilising the solid financial platform provided by the core beer monitoring business, the Group has invested in acquiring and developing its product set in the following areas: Whilst Vianet’s traditional beer monitoring business may remain under pressure during the general market decline, iDraughtTM in the UK, and vending telemetry and cashless payment, and gaming machine telemetry are poised to drive the growth of the Group. The Group believes that by focusing on growth areas and rigorous cost management of our legacy business, Vianet will deliver the desired benefits and performance for customers and good returns for shareholders. In what has continued to be a challenging business environment, the Group has continued to make good underlying progress and build a solid foundation which positions Vianet for future profitable growth. • • Next generation beer monitoring technology for the wider licensed trade; Machine to machine transmission technology and cutting edge data capture that are both battle for application across multiple sectors of which vending telemetry is an outstanding example. tested and have the potential Stewart Darling Chief Executive Officer Outlook The Board believes that the right team is in place with the competencies, skills and behaviours aligned to delivering success in the various industries in which we operate. Responding to the increasing demands of dealing with international blue chip customers, the Group to attract and develop high calibre continues individuals to take the business forward, particularly in sales and delivery execution. 6 Vianet Group plc FINANCIAL REVIEW in Vending, reduced losses moving Group trading result The Group now reports its results in the distinct segments of Leisure (including US), Vending, Technology and Fuel. The current year saw positive growth into ongoing profit in Fuel, solid performance in Machine Insite within Leisure, and the expected losses in the US. However positive momentum has been more than offset by the continued challenges in the core beer market coming from the uncertainty of the proposed Statutory Code together with pub company disposal plans being accelerated beyond market expectation. In addition, the Group has continued with an ongoing cost rationalisation program, maintained margins, invested for growth, and added key people where needed. This backdrop has led to the results achieved for 2013/14, with some good underlying progress that gives us confidence as the Group enters the new financial year. Total revenue for the year was £18.34 million (2013: £21.09 million). Operating profit (before amortisation of intangible assets, share based payments, and exceptional items) amounted to £3.05 million (2013: £3.3 million) in line with the Trading Update announced in October 2013. The results are after absorbing the reduced losses in the Fuel Division which has traded profitably since August 2013 (bar the seasonality of December 2013), and Vianet America’s £0.4 million of losses, the combined impact of which is c£0.6 million. Blended recurring revenues for the Group are slightly ahead of last year at 78% (2013: 71%), core beer remaining robust at 82% and Fuel Solutions maintaining a level of around 40%. Exceptional costs of £0.7 million (2013: net £0.7 million) principally relate to significant staff changes and reductions during the year as we position Vianet for growth with the right management in place. That transition incurred the bulk of these exceptional costs, together with Statutory Code and lobbying costs, resulting in Group operating profit (pre intangible asset amortisation and share based payments) of £2.3 million (2013: £2.5 million). Divisional performance The Leisure division, consisting of the core beer monitoring business (including US), and gaming machine monitoring achieved revenue of £12.45 million (2013: £14.5 million) and achieved gross margins pre the cost of data management of 69% (2013: 60%), impacted by cost rationalisation programme. The core beer monitoring business delivered 416 (2013: 864) new installations of which 296 (2013: 828) were the higher priced iDraughtTM systems (although the previous period had the benefit of a major roll out with Spirit Group), as well as 120 traditional Brulines beer monitoring systems. The active installation base after pub company disposals, change of use and uplifted systems is approximately 16,400 (2013: 17,600) systems. The pub market has faced well documented challenges with the proposed delay in the announcement of the Statutory Code implementation for the tenanted sector. This significantly impacted both growth of new core beer monitoring sales which can be seen from the iDraughtTM sales numbers as well as impacting pub company disposal plans which saw a net c1,200 reduction in the estate to 16,400. Despite this background the core beer monitoring business remains resilient with several major customers such as Enterprise Inns, Heineken, Charles Wells and Daniel Thwaites extending their contracts, and Vianet Group plc 7 Financial Review (continued) iDraughtTM, which is currently 16.6% (2013: 14%) of the installation base, extending its footprint. The final part of the Leisure division is Machine Insite brand which contributed a robust c£0.2 million (2012: £0.2 million) this year. Vending made significant progress in the year with unit sales of 2,067 (2013: 475). This helped improve turnover to £1.5 million (2013: £0.9 million) and a pre-exceptional and amortisation profit of £0.35 million (2013: loss £0.05 million). Vending is now well positioned for growth as outlined in the Chief Executive Officer’s statement. The configured units in the field increased to c12,000 (2013: c10,000) resulting in a revenue mix this year of c70% recurring (2013: c85%). The Fuel Solutions division made some significant steps forward this year having removed distracting product segments such as LPG which accounted for £0.6 million of the turnover difference, turnover being £4.2 million (2013: £4.8 million). While not at the pace desired, the division delivered reduced losses before exceptional items and amortisation of £0.2 million (£2013: 0.3 million) with enhanced margins of c24% (2013: c21%). Since August 2013 (barring the seasonal month of December 2013), the division was in profit of £0.03 million pre-exceptional and amortisation with improving margins and increasing recurring income. The developments referred to in the Chairman’s report for the forthcoming financial year inject a belief that the division will be in profit for 2015. Overall Group results Group results overall, before amortisation of intangible assets, share based payments, option costs, and exceptional costs, were a profit of £3.05 million as compared to £3.3 million at March 2013. The table below shows the performance of the Group (under IFRS), pre and post exceptional costs, as follows: Revenue Gross Profit FY 2014 FY 2013 £’000 £’000 18,335 21,085 10,778 10,810 (51%) (59%) Operating Profit pre amortisation, share based payments and exceptional costs PBT post exceptional costs PBT pre exceptional costs 3,048 1,563 2,272 3,265 1,820 2,558 Divisional Performance FY 2014 Revenue Gross Profit Operating profit/(loss) pre amortisation, share based payments and exceptional costs £’000 Leisure 12,451 8,678 (70%) £’000 Vending £’000 Technology £’000 Fuel Solutions £’000 Corporate 1,509 1,004 (67%) 187 101 (54%) 4,188 995 (24%) - - - £’000 Total 18,335 10,778 (59%) 4,264 353 (139) (190) (1,240) 3,048 8 Vianet Group plc In addition to the above, the funds generated in the year were utilised to invest in the Group’s technology through research & development, service borrowings and fund dividends. At the year-end, the Group had borrowings of £2.4 million (2013: borrowings of £3.0 million), however net debt is marginally higher than last year. The balance sheet and cash generating capacity of the Leisure division remains robust with Vending and Fuel now starting to contribute, giving the Board confidence to pursue the growth opportunities that exist. Mark H Foster Chief Financial Officer Taxation The Group has continued to utilise available tax losses during the year resulting in no tax being paid and a refund of £0.11 million being received. The Group continues to utilise the tax losses available. This year the tax line includes a deferred tax asset provision of £1.6 million (2013: £nil) based on the losses available. Earnings per share Earnings per share has been impacted by the recognition of a deferred tax assets provision realising the losses carried by the Group. This has increased the overall basic earnings per share for the year ended 31 March 2014 before exceptional costs which amounted to 14.23 pence as compared to 9.84 pence at March 2013. The underlying earnings per share pre the deferred tax asset provision and exceptional items is 8.42 pence compared to 9.84 pence at March 2013. Fully diluted earnings per share (before exceptional costs), which takes account of all outstanding share options, amounted to 8.40 pence which compares to 9.79 pence last year. Balance sheet and cash flow The Group carries a consistently strong balance sheet. The Group generated operating cash flow at £1.6 million (2013: £4.6 million) impacted by the level of advance customer payments of 2013 not being repeated in 2014. The challenging core beer market has led to the weaker cash generation than would have otherwise been enjoyed given the uncertainty of the proposed Statutory Code and more aggressive pub company disposal programmes coupled with a full year of US costs. Overall the Leisure business continued to be a healthy generator of cash at c£4.0 million continuing to help fund the Corporate and Technology segments, US operations and the reduced losses of the Fuel division. Vianet Group plc 9 STRATEGIC REPORT Principal activities The company is the holding company of a group, the principal activities of which are those of design, product development, sale and rental of fluid monitoring and machine monitoring equipment, together with the provision of data management and related services, both to the leisure and petrol forecourt trade. Strategy for Growth The Group’s strategic intent remains to extend its solution development and support services in selected sectors where there is considerable technical and operational overlap, and to respond to new opportunities as they arise. There is absolute focus on working in partnership with key customers to introduce solutions which drive compelling and sustainable returns on investment and, in turn, cement a profitable long term trading relationship with Vianet. Value innovation and solutions that drive value to the customer are key drivers for our people together with delivery being executed with focus and discipline. Utilising the solid financial platform provided by the core beer monitoring business, the Group has invested in acquiring and developing its product set in the following areas: • Next generation beer monitoring technology for the wider licensed trade; • Machine to machine transmission technology and cutting edge data capture that are both battle tested and have the potential for application across multiple sectors of which vending telemetry is an outstanding example. Outlook The Board believes that the right team is in place with the competencies, skills and behaviours aligned to delivering success in the various industries in which we operate. Responding to the increasing demands of dealing with international blue chip customers, the Group continues to attract and develop high calibre individuals to take the business forward, particularly in sales and delivery execution. Whilst Vianet’s traditional beer monitoring business may remain under pressure during the general market decline, iDraughtTM in the UK, and vending telemetry and cashless payment, and gaming machine telemetry are poised to drive the growth of the Group. The Group believes that by focusing on growth areas and rigorous cost management of our legacy business, Vianet will deliver the desired benefits and performance for customers and good returns for shareholders. In what has continued to be a challenging business environment, the Group has continued to make good underlying progress and build a solid foundation in which positions Vianet for future profitable growth. Business Review Review of business and future developments The directors accept the results for the year ended 31 March 2014 which show a profit before tax and exceptional items of £2.27m (2013 £2.56m). The results for the year reflect the continued challenging economic circumstances compounded by the proposed Government Statutory Code linked to more aggressive Pub Co site disposal programmes that might otherwise have been the case. The fuel division, while still loss making, has again stepped forward significantly with a £0.2m reduction in its losses and profitable trading since August 2013 (barring the seasonality of December 2013). Recurring revenues, however, remain robust and margins remain healthy helped by an ongoing cost rationale programme. The Directors continue to have confidence with the market opportunities that exist coupled with the ongoing cost rationalisation programme that the growth in results will come in to the new financial year and beyond. 10 Vianet Group plc The Chairman’s and Chief Executive Officer’s Statement together with the Financial Review provide further detail on the performance of the Group together with an indication of future prospects. Business risk The directors have considered areas of potential risk to the business to assess its future. On the basis of their review they consider the results and business projections taking into account market conditions that the business is of sound financial footing and has a sustainable operating future. In particular they note that the business has achieved an acceptable result in the year despite the difficult trading conditions, reduced losses in the Fuel division, impact of cost rationalisation and overall market confidence in liquidity and credit. The directors do not consider there to be any other material business risks other than the potential impact of the proposed Statutory Code but the impact of which will be planned and managed when some certainty appears. Non financial risks are summarised in the Chairman’s Statement on pages 2 to 3. Key performance indicators Percentage of revenue from recurring income streams1 Gross Margin2 Employee Turnover3 Notes to KPIs Target 70% 50% 2% Actual 2014 78% 59% 2.4% Actual 2013 71% 51% 3% 1 Percentage of revenue from recurring income streams = recurring income streams as a percentage of all income streams. Group trading companies aim to increase shareholder value through growth in revenue, linked to profitability (see Gross Margin below). Source data is taken from management information. The recurring contractual nature of the company’s income stream has led to continued improvement in performance versus target. 2 Gross Margin = Gross profit as a percentage of revenue. Group trading companies aim to generate sufficient profit for both distribution to shareholders and re-investment in the company, as measured by Gross Margin. Source data is taken from the audited financial statements. 3 Employee Turnover = Group trading companies aim to be seen as a good, attractive employers with positive values and career prospects. Approval The strategic report was approved by the Board on 9 June 2014 and signed on its behalf by: Mark H Foster Director Vianet Group plc 11 REPORT OF THE DIRECTORS The directors present their report and the audited financial statements for the year ended 31 March 2014. Financial risk management The Group’s operations expose it to a variety of financial risks including the effects of changes in interest rates on debt, credit risk, exchange rate movement and liquidity risk. While the Group does have a debt exposure, the positive cash generation from operations of the Group means we do not have material exposures in any of the areas identified above and consequently do not use derivative instruments to manage these exposures. The Group’s main financial instruments comprise principally of sterling cash and bank deposits, bank loans and overdrafts together with trade receivables and trade payables that arise directly from its operations. The Group’s exposure to foreign exchange risk is minimal due to the low balances held which are disclosed in note 18. The main risks arising from the Group’s financial instruments can be analysed as follows: Price risk The Group held listed equity investments as follows: Universe Group plc – ordinary shares of 5p 2014 Number 2013 Number - 13,209,754 The Group has no significant exposure to securities price risk. The Group sold its investment in Universe Group plc on 16 April 2013 at a price of 4.75p per share, realising a profit on disposal of £90,049. Credit risk The Group’s principal financial assets are bank balances, cash, inventory, and trade receivables which represent the Group’s maximum exposure to credit risk in relation to financial assets. The Group’s credit risk is primarily attributable to its trade receivables. Credit risk is managed by monitoring the aggregate amount and duration of exposure to any one customer depending upon their credit rating. The amounts presented in the balance sheet are net of allowances for doubtful debts, estimated by the Group’s management based on prior experience and their assessment of the current economic environment. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. Liquidity risk The Group’s policy has been to ensure continuity of funding through arranging facilities for operations via medium- term loans and additional revolving credit facilities to aid short-term flexibility. Cash flow interest rate risk Interest bearing assets comprise cash and bank deposits, all of which earn interest at a rate of Bank of England base rate or above. The interest rate on the bank loan and overdraft are at market rates. The Group’s policy is to maintain other borrowings at fixed rates to fix the amount of future interest cash flows. The directors monitor the overall level of borrowings and interest costs to limit any adverse effects on financial performance of the Group. 12 Vianet Group plc Dividends The directors recommend the payment of a final dividend of 4.00p per share (2013: final 4.00p), taking the full year dividend to 5.70p. (2013: 5.70p) Directors and their interests The current directors of the company are shown below. Those directors serving at the end of the period had interests in the share capital of the company at 31 March as follows: S W Darling J W Dickson M H Foster S C Gilliland C Williams M McGoun Directors’ emoluments Details of Directors’ emoluments for the year are as follows: Ordinary shares of 10p each 2014 - 4,390,284 75,000 26,000 4,250 - Ordinary shares of 10p each 2013 - 4,287,219 75,000 26,000 - - Executive J W Dickson M H Foster S W Darling D J Noble Non-executive J H Newman S C Gilliland C Williams M McGoun Total Salary and fees 2014 £’000 Other emoluments 2014 £’000 Total emoluments 2014 £’000 161 157 161 - - 37 25 5 44 32 33 - - - - - 205 189 194 - - 37 25 5 Salary and fees 2013 £’000 167 142 129 59 44 32 - - Other emoluments 2013 £’000 Total emoluments 2013 £’000 43 30 29 6 - - - - 210 172 158 65 44 32 - - 546 109 655 573 108 681 Vianet Group plc 13 Report of the Directors (continued) 1. Executive remuneration is determined by the remuneration committee consisting of non-executive Directors C Williams, M McGoun and S C Gilliland attended by the Executive Chairman J W Dickson. 2. No payments were made to any Director in respect of compensation for loss of office in 2014 or 2013 3. Other emoluments received consist of the provision for private medical care, motor car allowances and pension contributions. 4. J H Newman’s fees were paid to Westwood on Derwent Limited, a company of which he is a Director 5. S Gilliland’s fees are paid to SMDH Consulting Limited, a company of which he is a Director 6. C William’s fees are paid to MCHD Investments Limited, a company of which he is a Director 7. M McGoun’s fees are paid to Noble Adamson Limited, a company of which he is a Director 8. Pension contributions represent payments made to defined contribution schemes. Payments made are disclosed within other emoluments. Non-executive Directors are not entitled to retirement benefits. 9. JH Newman resigned on 31 March 2013 10. M McGoun was appointed on 1 February 2014 Directors’ share options Details of the share options held by Directors are as follows: J W Dickson M H Foster S W Darling S C Gilliland At 1 April 2013 75,000 31,000 150,000 65,000 31,000 100,000 31,000 24,000 30,000 At 31 March 2014 75,000 18,600 150,000 65,000 18,600 100,000 18,600 24,000 30,000 Option price Date granted October 2006 123.0p January 2011 96.5p March 2006 67.2p October 2006 123.0p January 2011 96.5p April 2009 125.0p January 2011 96.5p 123.0p October 2006 102.5p September 2009 Share options are exercisable between nil and ten years from the date of the grant. The movement of J W Dickson, M H Foster and S W Darling January 2011 share options pertained to performance conditions over 40% of those options which were not met and have therefore lapsed. The market price of the Company’s shares at the end of the financial year was 80.5p and the range of market prices during the year was between 66p and 92.5p. 14 Vianet Group plc Joint Ownership Plan The following awards over shares in the Company were made to the following Executive Directors of the Company on 25 September 2009 by a Joint Ownership Plan. Director J W Dickson M H Foster S W Darling Number of Plan shares in which the Director has an interest 100,000 100,000 100,000 Awards were made by the Company’s Remuneration Committee through the Company’s employee benefit trust operated by Halifax EES Trustees International Limited. The awards are subject to EPS performance targets and dependant on performance vest on 31 March 2014. No value has been paid on grant of the Plan shares and participants are entitled to growth over the Plan term. Substantial Shareholdings The Company has been informed that on 30 May 2014 the following shareholders (excluding Directors) held substantial holdings of the issued ordinary shares of the company: AXA Framlington ISIS Equity Partners IS Partners AG Octopus Investments Limited Lazard Asset Management Downing LLP Hargreaves Lansdown Asset Management TD Direct Investing Amati Global Investors Artemis Fund Managers Holding of Ordinary shares Number Issued Share capital % 3,625,000 2,693,982 1,775,000 1,294,533 1,289,493 1,017,650 916,151 833,022 735,000 735,000 13.04 9.70 6.38 4.65 4.64 3.70 3.29 3.00 2.65 2.65 Going Concern The Directors, after having made appropriate enquiries, including (but not limited to) a review of the Group’s budget for 2014/2015, and cash generating capacity at least 12 months from the date of signing (underpinned by long term contracts in place and historical results), have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. Employees This year, the Group invested in a full time People and Development Director. The Group places great importance on the involvement of its employees, the majority of whom are able to work closely with their managers on a daily basis. Employees are encouraged to be involved in the Group’s performance through the use of share options. Employees have frequent opportunities to meet and have discussions with management. The Group aims to keep employees regularly informed of the financial and economic factors affecting the performance of the Group and its objectives in part through the Group intranet and website and in part through regular communication. Vianet Group plc 15 Report of the Directors (continued) The quality and commitment of our people overall has continued to play a major role in our business performance, despite several changes in personnel in the previous 12 months. This has been demonstrated in many ways, including improvements in customer satisfaction, contract gains and continued profitability, the development of customer offering and the flexibility they have shown in adapting to changing business requirements and new ways of working. Employees’ performance is aligned to company goals through an annual performance review process that is carried out with all employees. Employee turnover was 2.4%, in line with the threshold we have set. The Group’s policy is that, where it is reasonable and practicable within existing legislation, all employees, including disabled persons are treated in the same way in matters relating to employment, training and career development. Research and Development The Group has a continuing commitment to levels of research and cost of ensuring systems are at the forefront of technological advance which reflect the need to be at the forefront of technological advance to ensure future growth. During the year expenditure on research and development was £622,000 (2013: £753,000) all of which has been recognised as an asset on the balance sheet (2013: £753,000) Annual General Meeting The Annual General Meeting will be held on 15 July 2014 at 11.30am, at the offices of Grant Thornton UK LLP, No 1 Whitehall Riverside, Leeds, LS1 4BN. Directors’ Indemnity Qualifying third party indemnity provisions are in force for the benefit of the directors Statement of directors’ responsibilities for the financial statements 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 to prepare group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and the parent company has elected to prepare company statements in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). 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 parent company and of the profit or loss of the company and 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 applicable UK Accounting Standards or IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business 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 hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 16 Vianet Group plc In so far as each of the directors is aware • there is no relevant audit information of which the company’s auditor is unaware; and • the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Auditor Grant Thornton UK LLP has indicated its willingness to continue in office. A resolution for its re-appointment as independent auditor will be proposed at the AGM. Approval The report of the directors was approved by the Board on 9 June 2014 and signed on its behalf by: Mark H Foster Director Vianet Group plc 17 CORPORATE GOVERNANCE STATEMENT General Principle The Group is committed to high standards of corporate governance in all its activities. Whilst the company is not required and does not seek to comply with the 2010 UK Corporate Governance Code, the Board recognises the value of the Code and has regard to its principles as far as practicable and appropriate for a public company of its size and nature. The Board The Board consists of three Executive and three Non-Executive Directors as follows: Executive Directors Stewart W Darling (Chief Executive Officer) James W Dickson (Executive Chairman) Mark H Foster (Chief Financial Officer and Company Secretary) Non-Executive Directors Stewart C Gilliland Mike McGoun (appointed 1 February 2014) Chris Williams All directors have access to the advice and services of the Company Secretary. There is a clear division of responsibilities between the Executive Chairman, who is responsible for the running of the Board, and the Chief Executive Officer, who, together with the other Executive Directors, are responsible for running the business. The Board meets regularly, with no less than ten meetings planned in any one calendar year. Each director is provided with sufficient information to enable them to consider matters in good time for meetings and enable them to discharge their duties properly. There is a formal schedule of matters reserved for Board approval. In principle the Board agrees the Group business plan, determines overall Group Strategy, acquisition, investment, people and development and health and safety policies, as well as approval for major items of capital expenditure. All directors have access to independent professional advice at the Group’s expense. The directors continually ensure they are trained in association with duties and responsibilities of being a director of a listed company. The independent non-executive directors bring an independent judgement to the management of the Group. They are free from any business or other relationships which could interfere with the exercise of their judgement. The non-executive directors fulfil a key role in corporate accountability. Board Committees The Group has established a number of committees, details of which are set out below and all of which operate with defined Terms of Reference: Audit Committee This consists of: Chris Williams (Chairman) Stewart C Gilliland Mike McGoun It meets at least three times in any year, and is usually attended as a minimum by the Executive Chairman, the Chief Executive Officer and the Chief Financial Officer, as well as the Group’s External Auditor. 18 Vianet Group plc The Audit Committee has terms of reference (which are available for inspection) to report on matters such as the Group’s annual accounts, interim reports, major accounting issues and developments, the appointment of external auditor and their fee, the objectivity of the auditor, the Group’s statement on internal control systems and the scope and findings of external audit. Remuneration Committee This consists of: Stewart C Gilliland (Chairman) Chris Williams Mike McGoun The Remuneration Committee is attended by the Executive Chairman J W Dickson. The Remuneration Committee has terms of reference (which are available for inspection) and meets at least twice per year, reviewing and advising upon the remuneration and benefit packages of the Executive Directors and other senior management. The remuneration of the Executive Chairman and non-executive Directors is decided upon by the full Board. The Remuneration policy is to attract, retain and motivate high quality executives capable of achieving the Group’s objectives and thereby enhancing shareholder value. The remuneration of the Executive Directors consists of a basic salary and benefits, performance related bonuses and share options. The non-Executive Directors are eligible for performance related share options. Nominations Committee This consists of: James W Dickson (Chairman) Stewart C Gilliland Chris Williams Mike McGoun The Committee met as required during the course of the year. The Committee has terms of reference which are available for inspection. Internal Control and Risk Management The Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness, and recognises these systems are designed to manage rather than eliminate the risk of material loss. The Board monitors risk through ongoing processes and provides assurance that the significant risks faced by the Group are being identified, evaluated and appropriately managed. The main elements of the internal control systems are: • management structure with clearly identified responsibilities • budget setting process including longer term forecast review • comprehensive monthly financial reporting system, with comparison to budget, supported by written report from the Chief Executive Officer and Chief Financial Officer Vianet Group plc 19 Corporate Governance statement (continued) • • • report to the Audit Committee from the external auditor stating the material findings arising from the audit. This report is also considered by the main Board and action taken where appropriate a framework for capital expenditure and controls including authorisation procedures and rules relating to delegation of authority risk management policies to manage issues relating to health and safety, environment, legal compliance, insurance and security • day to day hands on involvement of the Executive Directors As a result of the above systems and controls, and due to its current size, the Group does not operate an internal audit function, but is keeping its position under review. Shareholder Communication The Group places a high level of importance on communicating with its shareholders and welcomes and encourages such dialogue within the regulations governed by the London Stock Exchange. The Board are keen to encourage the participation of a broad base of both institutional and private investors in the Group. Communication with shareholders will be maintained through the Annual General Meeting, annual and interim reports, press releases and periodic presentations. Share Options The share option plans in existence at 31 March 2014 were the EMI plan, the Executive plan, the Employee Plan, the Employee Company Share Option Plan and an Executive Joint Ownership Plan. Share options will be issued at appropriate intervals in order to motivate and retain Executive Directors, senior management and other key staff whilst aligning their interests with those of the Group’s shareholders. Such grants are approved by the Remuneration Committee. 20 Vianet Group plc INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VIANET GROUP PLC We have audited the group financial statements of Vianet Group plc for the year ended 31 March 2014 which comprise the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 16 the directors are responsible for the preparation of the group 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 group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/ apb/scope/private.cfm Opinion on financial statements In our opinion the group financial statements: • • • give a true and fair view of the state of the group’s affairs as at 31 March 2014 and of its profit for the year then ended; have been properly prepared in accordance with IFRS as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the group financial statements are prepared is consistent with the group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the parent company financial statements of Vianet Group plc for the year ended 31 March 2014. Paul Houghton Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Leeds 9 June 2014 Vianet Group plc 21 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2014 Continuing operations Revenue Cost of sales Gross profit Note 3 Before Exceptional 2014 £000 Exceptional 2014 £000 18,335 (7,557) 10,778 - - - Total 2014 £000 18,335 (7,557) 10,778 Total 2013 £000 21,085 (10,275) 10,810 Administration and other operating expenses (7,730) (709) (8,439) (8,283) Operating profit pre amortisation and share based payments Intangible asset amortisation Share based payments Operating profit post amortisation and share based payments Finance costs Profit before taxation Income tax expense Profit after tax and total comprehensive income for the year attributable to the owners of the parent Earnings per share – Basic – Diluted 3,048 (709) 2,339 2,527 (734) 10 - - (734) 10 (591) (52) 2,324 (709) 1,615 1,884 (52) 2,272 1,570 - (709) (52) 1,563 (64) 1,820 - 1,570 110 3,842 (709) 3,133 1,930 14.23p 14.21p (2.63)p (2.62)p 11.60p 11.59p 7.12p 7.08p 6 5 7 8 8 The accompanying accounting policies and notes form an integral part of these financial statements. Details of the exceptional items are included in note 4. 22 Vianet Group plc CONSOLIDATED BALANCE SHEET at 31 March 2014 Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments Total non-current assets Current assets Inventories Trade and other receivables Tax asset Cash and cash equivalents Total assets Equity and liabilities Liabilities Current liabilities Trade and other payables Borrowings Non-current liabilities Borrowings Deferred tax Equity attributable to owners of the parent Share capital Share premium account Share based payment reserve Own shares Merger reserve Retained profit Total equity Note 2014 £000 2013 £000 10 11 12 13 14 15 19 16 17 17 19 20 17,723 2,486 3,700 - 23,909 1,851 3,835 1,443 183 7,312 17,723 2,179 3,812 533 24,247 1,875 3,661 140 1,196 6,872 31,221 31,119 3,841 1,183 5,024 1,245 - 1,245 2,827 11,182 293 (1,381) 310 11,721 24,952 4,548 899 5,447 2,146 157 2,303 2,827 11,182 345 (1,381) 310 10,086 23,369 Total equity and liabilities 31,221 31,119 The Group financial statements were approved by the Board of Directors on 9 June 2014 and were signed on its behalf by: J Dickson Director The accompanying accounting policies and notes form an integral part of these financial statements. Vianet Group plc 23 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2014 At 1 April 2012 Dividends Issue of shares Exercised options re own shares Purchase of own shares Share based payments Share option forfeitures Transactions with owners Profit and total comprehensive income for the year Total comprehensive income less owners transactions At 31 March 2013 At 1 April 2013 Dividends Share based payments Share option forfeitures Transactions with owners Profit and total comprehensive income for the year Total comprehensive income less owners transactions Own shares £000 (1,154) - - 134 (361) - - (227) Share based payment reserve £000 333 - - (3) - 52 (37) 12 - - Share capital £000 2,825 - 2 - - - - 2 - 2 Share premium account £000 11,174 - 8 - - - - 8 - 8 (227) 2,827 11,182 (1,381) 2,827 - - - 11,182 - - - (1,381) - - - - - - - - - - - - 12 345 345 - (10) (42) (52) - (52) 293 Merger reserve £’000 Retained profit £000 Total £000 23,218 (1,547) 10 67 (361) 52 - 9,730 (1,547) - (64) - - 37 (1,574) (1,779) 1,930 1,930 356 151 10,086 23,369 10,086 (1,540) - 42 23,369 (1,540) (10) - (1,498) (1,550) 3,133 3,133 1,635 1,583 310 - - - - - - - - - 310 310 - - - - - - At 31 March 2014 2,827 11,182 (1,381) 310 11,721 24,952 24 Vianet Group plc CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 March 2014 Cash flows from operating activities Profit for the year Adjustments for Interest payable Income tax expense Amortisation of intangible assets Depreciation Profit on disposal of investment Payment of deferred consideration Loss on sale of property, plant and equipment Share based payments Operating cash flows before changes in working capital and provisions Change in inventories Change in receivables Change in payables Cash generated from operations Income taxes refunded Net cash generated from operating activities Cash flows from investing activities Proceeds on disposal of property, plant and equipment Proceeds on disposal of investment Purchases of property, plant and equipment Purchases of intangible assets Disposal of intangible assets Net cash used in investing activities Cash flows from financing activities Interest payable Issue of share capital Purchase of own shares Proceeds from disposal of own shares Repayments of borrowings New borrowings Dividends paid Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Vianet Group plc 2014 £000 2013 £000 3,133 1,930 52 (1,570) 734 522 (90) (20) 26 (10) 2,777 24 (174) (1,020) (1,170) 1,607 110 1,717 19 623 (455) (708) - (521) (52) - - - (900) - (1,540) (2,492) (1,296) 1,196 (100) 64 (110) 591 410 - (18) 19 52 2,938 28 496 1,166 1,690 4,628 183 4,811 18 - (597) (856) 76 (1,359) (64) 10 (361) 67 (435) 1,500 (1,547) (830) 2,622 (1,426) 1,196 25 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2014 Significant accounting policies 1. 1.1 Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRS). IFRS includes Interpretations issued by the International Financial Reporting Interpretations Committee. The financial statements have been prepared on the historical cost convention with the exception of certain items which are measured at fair value as disclosed in the principle accounting policies set out below. The measurement bases and principal accounting policies of the Group are set out below. These policies have been consistently applied to all years presented unless otherwise stated. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from these estimates. The Directors, after having made appropriate enquiries, including (but not limited to) a review of the Group’s budget for 2014/2015, and cash generating capacity at least 12 months from the date of signing (underpinned by long term contracts in place and historical results), have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. 1.2 Subsidiaries The consolidated financial statements incorporate the results, assets, liabilities and cash flows of the company and each of its subsidiaries for the financial year ended 31 March 2014. Subsidiaries are entities controlled by the Group. Control is deemed to exist when the Group has the power, directly or indirectly to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results, assets, liabilities and cash flows of subsidiaries are included in the consolidated financial statements from the date control commences until the date that control ceases. Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. 1.3 Business combinations For business combinations occurring since 1 January 2010, the requirements of IFRS 3R have been applied. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at the acquisition date fair values. 1.4 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods provided in the normal course of business, net of all related discounts and sales tax. 26 Vianet Group plc Significant accounting policies (continued) 1. Leisure including Vending Sale of dispense monitoring equipment The revenue from the sale is recognised at the point of installation when the transfer of risk and reward is made to the customer. Sale of support service packs The revenue is recognised over the length of the service contract in accordance with the respective customer’s agreements. Machine & vending monitoring sale of equipment The revenue from the sale is recognised at the point of installation when the transfer of risk and reward is made to the customer. Machine monitoring licence and support, vending service revenue The revenue is recognised over the length of the service contract in accordance with the respective customer’s agreements. Machine monitoring data management services The revenue is recognised over the length of the service contract in accordance with the respective customer’s agreements. Interest income Interest income is accrued on a time basis using the effective interest method. Rental income Income from equipment leased to customers is accounted for on a straight-line basis over the period to which it relates. These arrangements are operating leases, where the risk and reward of the unit, which is capitalised, remains with the Group. Deferred income Deferred income is released over the term of the service contract to which it relates. Fuel Solutions Fuel loss management and prevention (wetstock analysis) The revenue is recognised over the length of the service contract in accordance with the respective customer’s agreements. Pump dispense calibration and verification services The revenue from the sale is recognised at the point of calibration and verification when the transfer of risk and reward is made to the customer. Facilities management, engineering and project management solutions The revenue is recognised over the support term of the length of the service contract in accordance with the respective customer’s agreements. Vianet Group plc 27 Notes to the Financial Statements for the year ended 31 March 2014 (continued) 1. Significant accounting policies (continued) Fuel management systems, tank gauging and lining solutions and liquefied petroleum gas and forecourt services The revenue from the sale is recognised at the point of work being completed when the transfer of risk and reward is made to the customer. Interest income Interest income is accrued on a time basis using the effective interest method. Rental income Income from equipment leased to customers is accounted for on a straight-line basis over the period to which it relates. These arrangements are operating leases, where the risk and reward of the unit, which is capitalised, remains with the Group. 1.5 Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Non-monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the profit or loss in the period in which they arise. 1.6 Goodwill Goodwill on acquisition of subsidiaries represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary. Goodwill is not amortised, but tested at least annually for impairment, and carried at cost less accumulated impairment losses. Impairment losses are immediately recognised in profit or loss and are not subsequently reversed. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Tests have been undertaken using commercial judgements and a number of assumptions and estimates have been made to support the carrying amount, assessed against discounted cash flows. The details of these assumptions are set out in note 10. 1.7 Intangible assets: business combinations Acquisition as part of a business combination Identifiable intangible assets acquired as part of a business combination are initially recognised separately from goodwill at their fair value, irrespective of whether the asset had been recognised by the acquiree before the business combination. An intangible asset is considered identifiable only if it is separable or if it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. Intangible assets acquired as part of a business combination and recognised by the Group include customer contracts, patents and order book. After initial recognition, intangible assets acquired as part of a business combination are carried at cost less accumulated amortisation and any impairment losses recognised in administrative expenses in the statement of comprehensive income. 28 Vianet Group plc 1. Significant accounting policies (continued) Amortisation Intangible assets are amortised on a straight-line basis, to reduce their carrying value to their residual value, over their estimated useful lives. The following useful lives were applied during the year: Customer contracts and relationships Patents Order book expected length of relationship expected length of patent expected length of contract Methods of amortisation, residual values and useful lives are reviewed, and if necessary adjusted, at each balance sheet date. Intangible assets: Research and development 1.8 Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred. Development costs incurred on specific projects are capitalised when all the following conditions are satisfied: • • • • • completion of the intangible asset is technically feasible so that it will be available for use or sale the Group intends to complete the intangible asset and use or sell it the Group has the ability to use or sell the intangible asset the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and • the expenditure attributable to the intangible asset during its development can be measured reliably Development costs not meeting the criteria for capitalisation are expensed as incurred. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Directly attributable costs include employee (other than directors) costs incurred on development and directly attributable overheads. The costs of internally generated software developments are recognised as intangible assets. However, until completion of the development project, the assets are subject to impairment testing only. Capitalised development costs are amortised over the life of the product within cost of sales, which is usually no more than five years. 1.9 Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any impairment losses. Cost comprises the purchase price of property, plant and equipment together with any directly attributable costs. Vianet Group plc 29 Notes to the Financial Statements for the year ended 31 March 2014 (continued) Significant accounting policies (continued) 1. Subsequent costs are included in an asset’s carrying value or recognised as a separate asset, when it is probable that future economic benefits associated with the additional expenditure will flow to the Group and the cost of the item can be measured reliably. All other costs are charged to the profit or loss when incurred. Depreciation commences when an asset is available for use. Depreciation is charged so as to write off the depreciable amount of assets to their residual values over their estimated useful lives using a method that reflects the pattern in which the assets’ future economic benefits are expected to be consumed by the Group. Depreciation is charged in equal annual instalments over the following periods: Freehold land and buildings Plant, vehicles and equipment Fixtures and fittings 50 years 4 years 4 years Methods of depreciation, residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. The gain or loss arising from the disposal or retirement of an item of property, plant and equipment is determined as the difference between the net disposal proceeds and the carrying amount of the item, and is included in the profit or loss. 1.10 Impairment At each balance sheet date, the Group assesses whether there is any indication that its assets have been impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. The value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. This present value is discounted using a pre-tax rate that reflects current market assessments of the time value of money and of the risks specific to the asset for which future cash flow estimates have not been adjusted. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is recognised as an impairment loss. An impairment loss relating to assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in the profit or loss. Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the combination. Goodwill is tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. An impairment loss is recognised for cash-generating units if the recoverable amount of the unit is less than the carrying amount of the unit. The impairment loss is allocated to reduce the carrying amount of the assets of the unit by first reducing the carrying amount of any goodwill allocated to the cash-generating unit, and then reducing the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. If an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount but limited to the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss. Impairment losses on goodwill are not subsequently reversed. 30 Vianet Group plc Significant accounting policies (continued) 1. 1.11 Operating leases The costs of all operating leases are charged to the profit or loss on a straight-line basis. Incentives to sign operating leases are recognised in the profit or loss in equal instalments over the term of the lease. 1.12 Own shares The costs of purchasing own shares are shown as a deduction against equity. The proceeds from the sale of own shares held increase equity. Such amounts are shown in a separate reserve. Neither the purchase nor sale of own shares leads to a gain or loss being recognised. 1.13 Inventories Inventories are stated at the lower of cost and net realisable value on a first in first out (FIFO) basis. Cost of finished goods and work in progress includes materials and direct labour. Net realisable value is the estimated selling price, which would be realised after deducting all estimated costs of completion, and costs incurred in marketing, selling and distributing such inventory. 1.14 Taxation The tax expense represents the sum of current tax and deferred tax. Current tax Current tax is based on taxable profit for the year and is calculated using tax rates enacted or substantively enacted at the balance sheet date. Taxable profit differs from accounting profit either because items are taxable or deductible in periods different to those in which they are recognised in the financial statements or because they are never taxable or deductible. Deferred tax Deferred tax on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes is accounted for using the balance sheet liability method. Using the balance sheet liability method, deferred tax liabilities are recognised in full for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. However, if the deferred tax asset or liability arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit, it is not recognised. Deferred taxation is measured at the tax rates that are expected to apply when the asset is realised or the liability settled based on tax rates and laws enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities, calculated on an undiscounted basis, are offset only when there is a legally enforceable right to set off current tax amounts and when they relate to the same tax authority and the Group intends to settle its current tax amounts on a net basis. Current and deferred tax are recognised in the profit or loss except when they relate to items recognised directly in equity, when they are similarly taken to equity. Pension Costs The Group operates a defined contribution pension scheme. The assets of these schemes are held separately from those of the Group in an independently administered fund. The pension cost charge represents contributions payable by the Group to the scheme for the year. Vianet Group plc 31 Notes to the Financial Statements for the year ended 31 March 2014 (continued) Significant accounting policies (continued) 1. 1.15 Financial instruments The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes party to the contractual provisions of the instrument. The particular recognition and measurement methods adopted for the Group’s financial instruments are disclosed below: Investments Investments are carried at fair value and are reviewed for impairment by reference to traded share prices. Trade receivables and Cash and cash equivalents Trade receivables and cash and cash equivalents are categorised as loans and receivables, which are recognised initially at fair value and are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Cash and cash equivalents comprise cash on hand and demand deposits, short term overdrafts, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Trade payables and borrowings Trade payables and borrowings are recorded initially at fair value, net of direct issue costs, and subsequently are recorded at amortised cost using the effective interest method. 1.16 Dividends Final dividends are recognised as a liability in the period in which they are approved by the company’s shareholders. Interim dividends are recognised when they are paid. 1.17 Employee share option schemes All share-based payment arrangements are recognised in the financial statements in accordance with IFRS 2. All goods and services received in exchange for the grant of any share-based payment, including awards made under the Joint Ownership Plan (an equity settled scheme) are measured at their fair values. Where employees are rewarded using share-based payments the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets). All equity-settled share-based payments are ultimately recognised as an expense in the profit or loss with a corresponding credit to “Share based payment reserve”. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. 32 Vianet Group plc 1.18 Equity Equity comprises the following: • • • • • “Share capital” represents the nominal value of equity shares. “Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. “Share based payment reserve” represents equity-settled share-based employee remuneration until such share options are exercised. “Own shares reserve” represents the costs/ proceeds of purchasing/ selling own shares. “Merger reserve” represents the excess over nominal value of fair value of consideration attributed to equity shares issued in part settlement for subsidiary company shares acquired. • “Retained earnings reserve” represents retained profits. 1.19 New IFRS standards and interpretations not applied New standards and interpretations currently in issue but not effective that will have an impact on the financial statements are listed below. These will affect presentation only: • • • • • • • • • • IFRS 10 Consolidated Financial Statements (effective date 1 January 2014) IFRS 11 Joint Arrangements (EU effective date 1 January 2014) IFRS 12 Disclosure of Interests in Other Entities (effective date 1 January 2014) IAS 27 (Revised), Separate Financial Statements (effective date 1 January 2014) IAS 28 (Revised), Investments in Associates and Joint Ventures (effective date 1 January 2014) Transition Guidance - Amendments to IFRS 10, IFRS 11 and IFRS 12 (effective date 1 January 2014) Investment Entities - Amendments to IFRS 10, IFRS 12 and IAS 27 (effective 1 January 2014) Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (effective 1 January 2014) Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36) (effective 1 January 2014) Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39) (effective 1 January 2014) The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group except for additional disclosure and presentational requirements. Vianet Group plc 33 Notes to the Financial Statements for the year ended 31 March 2014 (continued) Significant accounting policies (continued) 1. 1.20 Exceptional Items The Group seeks to highlight certain items as exceptional operating income or costs. These are considered to be exceptional in size, frequency and/or nature rather than indicative of the underlying day to day trading of the Group. These may include items such as acquisition costs, restructuring costs, employee exit and transition costs, material profits or losses on disposal of property, plant and equipment, profits or losses on the disposal of subsidiaries. All of these items are charged or credited before calculating operating profit or loss. Material profits or losses on disposal of property, plant and equipment are shown as separate items in arriving at operating profit or loss whereas other exceptional items are charged or credited within operating costs and highlighted by analysis. The Directors apply judgement in assessing the particular items, which by virtue of their size and nature are disclosed separately in the Statement of Comprehensive Income and the notes to the financial statements as exceptional items. The Directors believe that the separate disclosure of these items is relevant to understanding the Group’s financial performance. 2. Critical accounting judgements and key sources of estimation uncertainty 2.1 Significant judgements and key sources of estimation uncertainty The preparation of the financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income, expenses and related disclosures. The estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. This forms the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may however differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based, or as a result of new information or further information. Such changes are recognised in the period in which the estimate is revised. Certain accounting policies are particularly important to the preparation and explanation of the Group’s financial information. Key assumptions about the future and key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities over the next twelve months are set out below. Impairment of intangible assets and property, plant and equipment The Group tests goodwill at least annually for impairment, and whenever there is an indication that the asset may be impaired. All other intangible assets and property, plant and equipment are tested for impairment when indicators of impairment exist. Impairment is determined with reference to the higher of fair value less costs to sell and value in use. Value in use is estimated using adjusted future cash flows. Significant assumptions are made in estimating future cash flows about future events including future market conditions and future growth rates. Changes in these assumptions could affect the outcome of impairment reviews. See notes 10 to 12. Intangible assets acquired in a business combination Intangible assets acquired in a business combination including customer contracts and customer lists are recognised when they are identifiable or arise from contractual or other legal rights and their fair value can be reliably measured. Fair value is estimated using risk adjusted future cash flows. Significant assumptions are made in estimating future cash flows about future events including future market conditions and future growth rates. Changes in these assumptions could affect fair values. Income taxes The determination of the Group’s tax liabilities requires the interpretation of tax law. The Group obtains appropriate professional advice from its tax advisors in relation to all significant tax matters. The directors believe that the judgements made in determining the Group’s tax liabilities are reasonable and appropriate, however, actual experience may differ and materially affect future tax charges. 34 Vianet Group plc 2. Critical accounting judgements and key sources of estimation uncertainty (continued) Development costs Careful judgement by the directors is applied when deciding whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems at the time of recognition. Recognition is based on judgements at the time expenditure is incurred. In addition, all internal activities related to the research and development of new software products are continuously monitored by the directors. Segment reporting 3. Business segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses. The segment operating results are regularly reviewed by the Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance. For management purposes the Group is currently organised into three main operating companies, being Vianet Limited for leisure services, Vianet Americas Inc for USA leisure services and Vianet Fuel Solutions for fuel services with Corporate costs separate. Leisure services is further analysed in to three segments – Leisure, Vending and Technology highlighting the three key divisions within leisure. Vending and Technology do not meet the quantitative thresholds required for segmental reporting. However, these have been split out this year as management believes this information is useful to the users of the financial statements. The products/services offered by each operating segment are: Leisure: design, product development, sale and rental of fluid monitoring and machine monitoring equipment together with the provision of data management and related services. Fuel Solutions: wetstock analysis and related services The inter-segment sales are immaterial. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated assets and liabilities comprise items such as cash and cash equivalents, taxation, and borrowings. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one period. Vianet Group plc 35 Notes to the Financial Statements for the year ended 31 March 2014 (continued) Segment reporting (continued) 3. 2014 Continuing Operations (post exceptional items) Total revenue Pre-exceptional segment result Exceptional costs Post exceptional segment result Finance costs Profit/(loss) before taxation Taxation Leisure Services £000 Vending £000 Technology £000 12,451 1,509 4,084 (302) 3,782 (21) 3,761 137 (154) (17) 1 (16) 187 (223) (34) (257) - (257) Fuel Solutions £000 4,188 (323) (292) (615) - (615) Corporate £000 Total £000 - 18,335 (1,351) 73 (1,278) (32) (1,310) 2,324 (709) 1,615 (52) 1,563 1,570 3,133 Profit for the year from continuing operations Other information Additions to property, plant, equipment and intangible assets Depreciation and amortisation 325 594 189 183 294 138 567 202 122 139 1,497 1,256 Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Leisure Services £000 9,679 - 9,679 5,096 - 5,096 Vending £000 Technology £000 Fuel Solutions £000 - - - - - - - - - - - - 2,246 - 2,246 729 - 729 Corporate £000 135 19,161 19,296 444 - 444 Total £000 12,060 19,161 31,221 6,269 - 6,269 The asset base of the Leisure division cannot be split across Vending and Technology. 36 Vianet Group plc Segment reporting (continued) 3. 2013 Continuing Operations (post exceptional items) Total revenue Pre-exceptional segment result Exceptional costs Post exceptional segment result Finance costs Profit/(loss) before taxation Taxation Leisure Services £000 14,490 4,563 (128) 4,435 (23) 4,412 Vending £000 Technology £000 907 (231) (17) (248) - (248) 873 (264) (11) (275) - (275) Fuel Solutions £000 4,815 (397) (350) (747) (1) (748) Corporate £000 Total £000 - 21,085 (1,049) (232) (1,281) (40) (1,321) 2,622 (738) 1,884 (64) 1,820 110 1,930 Profit for the year from continuing operations Other information Additions to property, plant, equipment and intangible assets Depreciation and amortisation 579 368 247 322 293 151 207 159 30 1 1,356 1,001 Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Leisure Services £000 10,748 - 10,748 6,686 - 6,686 Vending £000 Technology £000 - - - - - - - - - - - - Fuel Solutions £000 1,800 - 1,800 638 - 638 Corporate £000 32 18,539 18,571 269 157 426 Total £000 12,580 18,539 31,119 7,593 157 7,750 The asset base of the Leisure division cannot be split across Vending and Technology. Analysis of revenue by category Continuing operations Sale of goods - leisure - fuel Rendering of services - leisure - fuel Geographical analysis - United Kingdom - Rest of Europe - United States/Canada Vianet Group plc 2014 £000 2013 £000 1,437 - 12,710 4,188 18,335 17,849 327 159 18,335 3,077 - 13,193 4,815 21,085 20,314 694 77 21,085 37 Notes to the Financial Statements for the year ended 31 March 2014 (continued) 4. Exceptional items Corporate restructuring and transitional costs 2014 £000 709 709 2013 £000 738 738 This year has seen an unusually high level of exceptional costs, the primary background being a transition of people and management (30 staff left between January 2013 and March 2014) to ensure we have the succession and calibre of people on board to deliver the strategic aims and aspirations of the Group. This, coupled with the long overdue rationalisation of the group structure of 18 companies into a tax efficient 4 company base allowing the access to over £16m of tax losses, as well as the adverse impacts of the Statutory Code costs to ensure we do our utmost to achieve a fair outcome, has impacted one off costs at an unusually higher level, not expected to be seen again. 5. Profit for the year The following items have been included in arriving at profit for the year: Employee benefits expense (note 21) Depreciation of property, plant and equipment (note 12) Amortisation of intangible assets (note 11) Loss on disposal of property, plant and equipment Operating lease rentals payable Auditor’s remuneration Services to the company and its subsidiaries Fees payable to the company’s auditor for the audit of the annual financial statements Fees payable to the company’s auditor and its associates for other services: Audit of the financial statements of the company’s subsidiaries pursuant to legislation Other services relating to tax - compliance and advice Other services – IFRS advice, half year reporting and accounting advice 6. Finance costs Interest payable on bank borrowings 2014 £000 8,343 522 734 26 301 2014 £000 14 41 18 43 116 2014 £000 52 52 2013 £000 8,238 410 591 19 300 2013 £000 12 39 20 73 144 2013 £000 64 64 38 Vianet Group plc Taxation 7. Analysis of charge in period Current tax expense – UK corporation tax on profits of the period – Amounts in respect of prior periods Deferred tax credit (note 19): – Temporary differences Income tax credit 2014 £000 - 30 30 (1,600) (1,570) 2013 £000 - (110) (110) - (110) Reconciliation of effective tax rate The tax for the period is lower (2013 lower) than the standard rate of corporation tax in the UK (23%/24%). The differences are explained below: Profit before taxation – Continuing operations Profit before taxation multiplied by rate of corporation tax in the UK of 23% (2013:24%) Effects of: Other expenses not deductible for tax purposes Amortisation of intangibles Utilisation of losses Losses recognised Adjustments for prior years Research and development Movement on losses not recognised Total tax credit 2014 £000 1,563 359 (66) 159 (806) (1,531) 30 (167) 452 (1,570) 2013 £000 1,820 437 38 149 (691) - (110) (486) 553 (110) Vianet Group plc 39 Notes to the Financial Statements for the year ended 31 March 2014 (continued) Earnings per share 8. Earnings per share has been impacted by a deferred tax asset provision realising the losses carried by the Group. This has increased the overall basic earnings per share for the year ended 31 March 2014 before exceptional costs amounted to 14.23 pence compared to 9.84 pence at March 2013. Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders (£3,133k) by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are calculated on the basis of profit for the year after tax divided by the weighted average number of shares in issue in the year plus the weighted average number of shares which would be issued if all the options granted were exercised The table below shows the earnings pre the impact of the deferred tax asset. Profit attributable to equity shareholders 1,563 5.79p 5.78p 1,930 7.12p 7.08p 2014 Basic earnings per share Earnings £000 Diluted earnings per share Earnings £000 2013 Basic earnings per share Diluted earnings per share Weighted average number of ordinary shares Dilutive effect of share options Diluted weighted average number of ordinary shares 9. Ordinary dividends 2014 Number 2013 Number 26,993,694 34,575 27,098,352 172,940 27,028,269 27,271,292 Final dividend for the year ended 31 March 2013 of 4.0p (year ended 31 March 2012: 4.00p) Interim dividend paid in respect of the year of 1.70p (2013: 1.70p) Amounts recognised as distributions to equity holders 2014 £000 1,082 458 1,540 2013 £000 1,089 458 1,547 In addition, the directors are proposing a final dividend in respect of the year ended 31 March 2014 of 4.0p per share. If approved by shareholders, it will be paid on 1 August 2014 to shareholders who are on the register of members on 20 June 2014. Total dividend payable 5.70p (2013: 5.70p). 40 Vianet Group plc 10. Goodwill Group Cost At 1 April Additions At 31 March Accumulated impairment losses At 1 April Impairment loss during period At 31 March Net book amount 31 March 2014 £000 2013 £000 17,973 - 17,973 (250) - (250) 17,973 - 17,973 (250) - (250) 17,723 17,723 Goodwill is tested for impairment annually or when events or changes in circumstances indicate that the carrying amount may not be recoverable. The goodwill impairment test is performed by comparing the carrying value of the CGU including associated goodwill with the aggregate recoverable amount. The carrying value of goodwill is allocated to the following cash generating units: Leisure Services Fuel Solutions Carrying amount 31 March 2014 £000 15,503 2,220 17,723 2013 £000 15,503 2,220 17,723 Two further cash generating units exist being Vending and Technology, but no goodwill is allocated to these units. The recoverable amounts attributed are based on value in use calculations. The key assumptions made in undertaking the value in use calculations are set out below. Budgeted profit and cash flow forecasts for the financial year ending 31 March 2015 were extrapolated for a five year period using sector growth assumptions and used as the basis for the impairment review. The key assumption included within these is a return/improvement in profitability in the future of a number of subsidiary companies, based on committed (medium to long term contracts) and pipeline orders. Basis of budgets and assumptions are based around historical track record and committed medium to long term contracts. Sector growth assumptions, applied to the leisure services segments: 3% based on estimates of specific industry rates, where available. Sector growth assumptions, applied to the fuel solutions segments: between 3% and 7.5% based on estimates of specific industry rates, where available. Discount rate assumptions, applied to both the leisure services and fuel solutions segments: 10% based on management’s view of risks specific to the group. Vianet Group plc 41 Notes to the Financial Statements for the year ended 31 March 2014 (continued) 10. Goodwill (continued) If sector growth assumption rates were applied at 0% and a discount rate assumption of 10% was applied, the leisure services segment would require no impairment, but the fuel solutions segment would require an impairment of £450,000. If sector growth assumption rates were applied at 3% and a discount rate assumption of 15% was applied, the leisure services segment would require no impairment, but the fuel solutions segment would require an impairment of £1,154,000. If sector growth assumption rates were applied at 0% and a discount rate assumption of 15% was applied, the leisure services segment would require no impairment, but the fuel solutions segment would require an impairment of £1,433,000. The Directors are confident that the restructuring and exit of loss making services in fuel solutions result in no impairment being required. This is continually reviewed by the Directors. 11. Other intangible assets Group Cost At 1 April 2012 Internally generated development costs At 31 March 2013 Internally generated development costs Disposals At 31 March 2014 Amortisation At 1 April 2012 Charge for the year At 31 March 2013 Charge for the year At 31 March 2014 Net book amount At 31 March 2014 At 31 March 2013 Capitalised development £000 Order book £000 Customer contracts £000 Patents £000 1,852 753 2,605 1,022 - 3,627 318 362 680 601 1,281 2,346 1,925 281 - 281 - - 281 251 27 278 3 281 - 3 2,136 - 2,136 - - 2,136 1,723 199 1,922 124 2,046 90 214 24 27 51 20 (1) 70 11 3 14 6 20 50 37 Total £000 4,293 780 5,073 1,042 (1) 6,114 2,303 591 2,894 734 3,628 2,486 2,179 Where appropriate, intangible assets identified in business combinations have been recognised in accordance with the provisions of IFRS 3 (Business Combinations) and IAS 38 (Intangible Assets). Intangible assets have only been recognised where they have identifiable future economic benefits that are controlled by the entity, it is probable that these benefits will flow to the entity and their fair value can be measured reliably. The £1,042,000 of capitalised development costs represents expenditure developing technological advancements to ensure the group is at the forefront of technology that fulfils the requirement of IAS 38. These costs will be amortised over the future commercial life of the product, commencing on the sale of the first commercial unit. 42 Vianet Group plc 12. Property, plant and equipment Group Cost At 1 April 2012 Additions Disposals At 31 March 2013 Additions Disposals At 31 March 2014 Accumulated depreciation At 1 April 2012 Charge for the year Disposals At 31 March 2013 Charge for the year Disposals At 31 March 2014 Net book amount At 31 March 2014 At 31 March 2013 13. Investments Valuation: Other shares At 1 April At 31 March Freehold Land and buildings £000 Plant, vehicles and equipment £000 Fixtures and fittings £000 3,110 1 - 3,111 14 - 3,125 350 60 - 410 62 - 472 2,653 2,701 567 329 (41) 855 173 (65) 963 268 92 (18) 342 154 (19) 477 486 513 2,501 267 (24) 2,744 268 (30) 2,982 1,898 258 (10) 2,146 306 (31) 2,421 561 598 2014 £000 533 - Total £000 6,178 597 (65) 6,710 455 (95) 7,070 2,516 410 (28) 2,898 522 (50) 3,370 3,700 3,812 2013 £000 533 533 On 16 April 2013 the Group disposed of its entire shareholding in Universe Group plc at a price of 4.75p per share realising a profit on disposal of £90,049 Vianet Group plc 43 Notes to the Financial Statements for the year ended 31 March 2014 (continued) 14. Inventories Raw materials Write down on raw materials Work in progress 2014 £000 1,900 (66) 17 1,851 2013 £000 2,054 (272) 93 1,875 No reversal of previous write-downs was recognised as a reduction of expense in 2013 or 2014. In 2014 £2,337,508 (2013: £3,199,743) was included in the statement of comprehensive income under cost of sales. None of the inventories are pledged as securities for liabilities. The Group’s inventories are comprised of products, which are not generally subject to rapid obsolescence on account of technological, deterioration in condition or market trends. Consequently management considers that there is little risk of significant adjustments to the Group’s inventory assets within the next financial year. 15. Trade and other receivables Trade receivables Other receivables Prepayments and accrued income 2014 £000 3,199 20 616 3,835 2013 £000 3,184 36 441 3,661 The directors consider that the carrying amount of trade and other receivables approximates their fair value. All trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be impaired and a provision of £nil (2013: £14,504) has been recorded accordingly (note 18) In addition some of the unimpaired trade receivables were past due at the balance sheet date as follows: Not more than three months More than three months but not more than six months More than six months but not more than one year More than one year 2014 £000 1,213 136 - - 1,349 2013 £000 1,012 97 34 - 1,143 44 Vianet Group plc 16. Trade and other payables Trade payables Other taxation and social security Accruals and deferred income Deferred consideration 2014 £000 1,014 552 2,228 47 3,841 The directors consider that the carrying amount of trade and other payables approximates their fair value. 17. Borrowings Current Bank overdraft Bank loans Hire purchase Non-current Bank loans 2014 £000 283 900 - 1,183 2014 £000 1,245 1,245 2013 £000 929 723 2,829 67 4,548 2013 £000 - 898 1 899 2013 £000 2,146 2,146 Bank loans are denominated in £ sterling and bear interest based on Bank of Scotland Base Rate plus a rate of between 1% and 3%. The bank loans are secured by a fixed charge over the land and buildings of the Group. The weighted average effective interest rates on the Group’s borrowings were as follows: Bank overdrafts – floating rates Bank borrowings – floating rates The maturity profile of the Group’s non-current bank loans and hire purchase was as follows: Between one and two years Between two and five years More than five years 2014 % 2.5 1.5 2014 £000 155 478 612 2013 % 2.5 1.5 2013 £000 900 438 808 1,245 2,146 The Group’s bank borrowings bear interest at floating rates, which represent prevailing market rates. Vianet Group plc 45 Notes to the Financial Statements for the year ended 31 March 2014 (continued) 18. Financial Instruments The Group is exposed on a minimal basis to market risk through its use of a US Dollar and a Euro account. The Group’s risk management is co-ordinated by the directors who focus actively on securing the Group’s short to medium term cash flows through regular review of all the operating activities of the business. The Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Group is exposed are described below. Foreign currency sensitivity Exposures to currency exchange rates arise from the Group’s overseas activities, all of which are denominated in US Dollars and Euros. Due to the non material nature of the Group’s exposure to foreign currency risk, sensitivity analyses to movement in exchange rates are not produced. Foreign currency denominated financial assets and liabilities are set out below. Financial assets Financial liabilities Financial assets Financial liabilities 2014 $000 151 - 151 2014 a000 98 - 98 2013 $000 351 - 351 2013 a000 36 - 36 The Group has no long term foreign exchange exposure. At the beginning and end of the year, the Group had no unexpired forward foreign exchange contracts. Credit risk analysis The Group’s exposure to credit risk is limited to the carrying amount of financial assets recognised at the balance sheet date and which are set out below. Cash and cash equivalents Trade and receivables 2014 £000 183 3,199 3,382 2013 £000 1,196 3,184 4,380 The Group continuously monitors credit risk of customers and other counterparties and incorporates this information into its credit risk controls. The Group takes up trade references on all new customers and its policy is to deal only with credit worthy companies. The movement on the bad debt provision in the period is analysed below. The Group provides for bad debts on a specific basis with reference to the age profile of the trade receivables held at the year end 46 Vianet Group plc 18. Financial Instruments (continued) Credit risk analysis (continued) Bad debt provision at 31 March 2013 Amounts utilised Amounts provided Bad debt provision at 31 March 2014 £000 15 (15) - - Management considers that all the above financial assets are of good credit quality, including those that are past due. None of the Group’s financial assets are secured by collateral or other credit enhancements. In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk for liquid funds is considered negligible, since the counterparty is a reputable bank with a high quality external credit rating. Liquidity risk analysis The Group manages its liquidity needs by carefully monitoring all scheduled cash outflows. Liquidity needs are monitored in various time bands, on a day-to-day and week to week basis, as well as on the basis of a rolling eight week projection. Longer term needs are monitored as part of the Group’s regular rolling monthly reforecasting process. Loans and receivables Current Assets Cash and cash equivalents Trade and receivables Non-Current Assets Available for sale financial assets Current Liabilities Financial liabilities measured at amortised cost Non Current Liabilities Financial liabilities measured at amortised cost Net financial (liabilities)/assets The carrying value of the above assets and liabilities is equal to their fair value. Vianet Group plc 2014 £000 183 3,199 3,382 2014 £000 - - 2014 £000 2,197 1,245 3,442 (60) 2013 £000 1,196 3,184 4,380 2013 £000 533 533 2013 £000 1,827 2,146 3,973 940 47 Notes to the Financial Statements for the year ended 31 March 2014 (continued) 18. Financial instruments (continued) Capital management policies and procedures The Group’s capital management objectives are to ensure its ability to continue as a going concern and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Group’s dividend policy is to monitor reserves available for distribution to shareholders The Group monitors capital on the basis of carrying amount of equity less cash and cash equivalents as presented on the face of the balance sheet. Capital for the reporting periods under review is set out below. Total equity Less cash equivalents 2014 £000 24,952 (183) 24,769 2013 £000 23,369 (1,196) 22,173 The Group is not subject to external imposed capital requirements, other than the minimum capital requirements and duties regarding reduction of capital as imposed by the Companies Act 2006 for all public limited companies. 19. Deferred tax Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 20% (2013: 23%). The movement on the deferred tax account is as shown below: At 1 April Profit and loss credit in respect of losses recognised At 31 March 2014 £000 157 (1,600) (1,443) 2013 £000 157 - 157 Deferred tax has been recognised during the year in respect of tax losses in certain of the group’s subsidiaries as the directors believe there is sufficient certainty over the extent and timing of their recovery to do so. Included in the amount of £(1,443)k (2013: £157k) are amounts of £(1,457)k relating to tax losses (2013: £nil). The group has unused tax losses amount to £3,329k (2013: £2,333k) for which no deferred tax asset has been recognised 48 Vianet Group plc 20. Issued share capital Issued and fully paid Ordinary shares of 10p each: 28,268,164 (2013: 28,268,164) 2014 £000 2013 £000 2,827 2,827 Own shares The Group accounts for its own shares held by the Trustees of the employee option scheme as a deduction from shareholders equity. At 31 March 2014, the Trust owned 818,470 shares (2013: 818,470 shares) with a nominal value of £81,847 (2013: £81,847). At 31 March 2014, Vianet Group plc owned 456,000 shares (2013: 456,000 shares) with a nominal value of £45,600 (2013: £45,600), all held in treasury. Dividends payable on these shares have been waived. 21. Employees and directors Employee benefit expense during the period Wages and salaries Social security costs Pension costs Share based payments Average monthly number of people (including directors) employed 2014 £000 7,388 735 230 (10) 8,343 2013 £000 7,246 735 205 52 8,238 2014 Number 2013 Number Sales Engineering VRS Management Administration Key management personnel - Directors Group Short term employment benefits Pension contributions Share based payments 11 53 5 12 154 235 2014 £000 585 70 (11) 644 During the year three (2013: four) directors had benefits accruing under defined contribution pension schemes. Vianet Group plc 11 68 5 6 152 242 2013 £000 614 67 52 733 49 Notes to the Financial Statements for the year ended 31 March 2014 (continued) 21. Employees and directors (continued) Highest paid director Short term employment benefits Pension contributions 2014 £000 175 30 205 2013 £000 181 29 210 22. Operating lease commitments The Group lease various motor vehicles and property under non-cancellable operating leases. The leases have been entered into under normal commercial terms. Total future minimum lease payments under non-cancellable operating leases: Group 2014 Within one year After one year and less than five years Motor Vehicles £000 Land and Buildings £000 223 284 507 75 55 130 2014 Total £000 298 339 637 2013 Total £000 307 366 673 23. Share-based payments There are five share option plans in place the EMI Plan, the Executive Plan, the Employee Plan, an Employee Company Share Option Plan and an Executive Joint Ownership Plan. Under the share option plans, the directors can grant options over shares in the company to employees. Options are granted with a fixed exercise price equal to the market value of the shares at the date of grant. The contractual life of an option is 10 years. Options granted under the EMI share option plans will become exercisable immediately, and options granted under the Executive Plan and the Employee Plan will become exercisable on the third anniversary of the date of grant. Exercise of an option is subject to continued employment. Details of share options outstanding during the period (including those held by directors) are set out below: At 1 April Exercised Forfeited At 31 March Exercisable at 31 March 2014 2013 Number of share options 1,621,250 - (370,200) 1,251,050 1,226,050 Weighted average exercise price p 105.4 - 105.2 105.5 109.0 Number of share options 1,926,250 (140,000) (165,000) 1,621,250 1,021,750 Weighted average exercise price p 102.9 54.9 118.6 105.4 115.2 50 Vianet Group plc 23. Share-based payments (continued) Name of director / senior employee M H Foster J W Dickson M H Foster S C Gilliland S Darling S C Gilliland J W Dickson M H Foster S Darling Date of grant 31/03/06 26/10/06 26/10/06 26/10/06 07/04/09 25/09/09 27/01/11 27/01/11 27/01/11 Number of options Exercise price Exercise date Exercise period 150,000 75,000 65,000 24,000 100,000 30,000 18,600 18,600 18,600 67.2p 123.0p 123.0p 123.0p 125.0p 102.5p 96.5p 96.5p 96.5p - - - - - - - - - 01/04/06 to 31/03/16 27/10/09 to 26/10/16 27/10/09 to 26/10/16 27/10/09 to 26/10/16 08/04/12 to 07/04/19 26/09/12 to 25/09/19 28/01/14 to 27/01/20 28/01/14 to 27/01/21 28/01/14 to 27/01/21 Expected volatility was determined by discounting the weighted average volatility of comparable listed companies to a comparable private company volatility. The share price of £0.348 was agreed with HMR&C as the fair value of Vianet Group plc shares at the time of grant of the EMI options. The fair value of the other shares was as per market value at date of grant as shown above. The risk free rate of return is the yield on zero coupon UK government bonds of a term consistent with the assumed option life. The fair value on the EMI Plan, the Executive Plan, the Employee Plan and the Employee Company Share Option Plan were all calculated under the Black Scholes model. The Group recognised a credit of £10,000 (2013: expense £52,000) in relation to equity settled share-based payment transactions in the year. Joint Ownership Plan The following awards over shares in the Company were made to the following Executive Directors of the Company on 25 September 2009 by a Joint Ownership Plan. Director J W Dickson M H Foster S Darling Number of Plan shares in which the Director has an interest 100,000 100,000 100,000 Awards were made by the Company’s Remuneration Committee through the Company’s employee benefit trust operated by Halifax EES Trustees International Limited. The awards are subject to EPS performance targets and dependant on performance vest on 31 March 2014. No value has been paid on grant of the Plan shares and participants are entitled to growth over the Plan term. The fair value on the Joint Ownership plan was calculated under the Black Scholes model. 24. Related party transactions IAS 24 (Related party transactions) requires the disclosure of the details of material transactions between reporting entities and related parties. Transactions with group entities are eliminated on consolidation. S Gilliland, a non- executive director invoiced Vianet Group plc for fees totalling £35,909 (2013: £29,025). As at 31 March 2014, there was £nil outstanding (2013: £2,500). C Williams, a non-executive director invoiced Vianet Group plc for fees totalling £21,494 (2013: £nil). As at 31 March 2014, there was £7,888 outstanding (2013: £nil). M McGoun, a non-executive director invoiced Vianet Group plc for fees totalling £5,000 (2013: £nil). As at 31 March 2014, there was £3,000 outstanding (2013: £nil). Vianet Group plc 51 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VIANET GROUP PLC We have audited the parent company financial statements of Vianet Group plc for the year ended 31 March 2014 which comprise the Company balance sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 16 the directors are responsible for the preparation of the parent company 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 parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/ apb/scope/private.cfm Opinion on financial statements In our opinion the parent company financial statements: • give a true and fair view of the state of the company’s affairs as at 31 March 2014; • 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. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. 52 Vianet Group plc Other matter We have reported separately on the group financial statements of Vianet Group plc for the year ended 31 March 2014. Paul Houghton Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Leeds 9 June 2014 Vianet Group plc 53 COMPANY BALANCE SHEET at 31 March 2014 Fixed assets Investments in subsidiaries Other intangible assets Property, plant and equipment Investments Current assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Net assets Capital and reserves Ordinary share capital Share premium Share based payment reserve Own shares Merger reserve Retained earnings Total equity Note 2 3 4 5 6 7 8 9 9 9 9 9 9 2014 £000 5,170 39 92 - 5,301 12,992 - 12,992 2013 £000 5,170 22 7 533 5,732 14,831 4 14,835 (140) (239) 12,852 18,153 2,827 11,182 293 (1,387) 310 4,928 18,153 14,596 20,328 2,827 11,182 345 (1,081) 310 6,745 20,328 The balance sheet was approved by the Board on 9 June 2014 and signed on its behalf by: J W Dickson Director Company number: 5345684 The accompanying accounting policies and notes form an integral part of the financial statements. 54 Vianet Group plc NOTES TO THE COMPANY BALANCE SHEET 1. Principal accounting policies 1.1 Basis of preparation This balance sheet has been prepared under the historical cost convention and in accordance with UK Generally Accepted Accounting Practice. The principal accounting policies of the company are set out below and have remained unchanged from the previous year. 1.2 Taxation Deferred tax is provided, except as noted below, on timing differences that have arisen but not reversed by the balance sheet date, where the timing differences result in an obligation to pay more tax, or a right to pay less tax, in the future. Timing differences arise because of differences between the treatment of certain items for accounting and taxation purposes. In accordance with FRS19 deferred tax is not provided on timing differences arising from gains on the sale of non- monetary assets, where on the basis of all available evidence it is more likely than not that the taxable gain will be rolled over into replacement assets. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax is measured at the tax rates that are expected to apply in the periods when the timing differences are expected to reverse, based on tax rates and law enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted. Where law or accounting standards require gains and losses to be recognised in the statement of total recognised gains and losses, the related taxation is also taken directly to the statement of total recognised gains and losses in due course. Investments 1.3 Investments in subsidiary undertakings and other entities are stated at cost net of impairments. 1.4 Employee share option schemes All share-based payment arrangements are recognised in the financial statements in accordance with IFRS 2. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets). All equity-settled share-based payments are ultimately recognised as an expense in the profit and loss account with a corresponding credit to “share based payment” reserve. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. Vianet Group plc 55 Notes to the Company Balance Sheet (continued) 1.5 Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any impairment losses. Cost comprises the purchase price of property, plant and equipment together with any directly attributable costs. Depreciation commences when an asset is available for use. Depreciation is charged so as to write off the depreciable amount of assets to their residual values over their estimated useful lives using a method that reflects the pattern in which the assets’ future economic benefits are expected to be consumed by the Company. Depreciation is charged in equal annual instalments over the following periods: Fixtures and fittings 4 years Methods of depreciation, residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. The gain or loss arising from the disposal or retirement of an item of property, plant and equipment is determined as the difference between the net disposal proceeds and the carrying amount of the item, and is included in the Group statement of comprehensive income. Intangible Assets 1.6 Patents Patents are stated at cost net of amortisation and any provision for impairment. Amortisation Intangible assets are amortised on a straight-line basis, to reduce their carrying value to their residual value, over their estimated useful lives. The following useful lives were applied during the year: Patents expected length of patent Methods of amortisation, residual values and useful lives are reviewed, and if necessary adjusted, at each balance sheet date. 2. Investments in subsidiary Company Cost and net book amount: Shares in subsidiaries At 1 April Additions Impairment Transfer to group undertakings At 31 March 2014 £000 2013 £000 5,170 1,666 (1,666) - 5,170 20,323 85 - (15,238) 5,170 56 Vianet Group plc Investments in subsidiary (continued) 2. The company owns the whole of the issued ordinary share capital of the following operating subsidiaries: Subsidiary Shareholding Brulines Trustee Company Limited Edis Limited Bruline Limited Nucleus Data Holdings Limited Vianet Americas Inc Vianet Fuel Solutions Limited Vianet Limited 100% 100% 100% 100% 100% 100% 100% Country of incorporation UK UK UK UK USA UK UK Principal activity Employee Trust Dormant Dormant Dormant Leisure Solutions Forecourt Solutions Leisure Solutions Energy Level Systems Limited, Retail & Forecourt Solutions Limited and LBI Installations Limited are indirect investments via Vianet Fuel Solutions Limited in Fuel solutions. Brulines Limited, Machine Insite Limited, Coin Metrics Limited, Viatelemetry Limited and Lookout Solutions Limited are indirect investments via Vianet Limited in Leisure. Nucleus Data Limited is an indirect investment via Nucleus Data Holdings Limited. The addition to investments relates to waiver of intercompany debt due from non trading subsidiaries during the year. These balances were subsequently reviewed for impairment and reduced to £nil carrying value. 3. Other intangible assets Cost At 1 April 2012 Additions At 31 March 2013 Additions At 31 March 2014 Amortisation At 1 April 2012 Charge for the year At 31 March 2013 Charge for the year At 31 March 2014 Net book amount At 31 March 2014 At 31 March 2013 Vianet Group plc Patents £000 - 23 23 20 43 - 1 1 3 4 39 22 57 Notes to the Company Balance Sheet (continued) 4. Property, plant and equipment Cost At 1 April 2012 Additions At 31 March 2013 Additions At 31 March 2014 Accumulated depreciation At 1 April 2012 Charge for the year At 31 March 2013 Charge for the year At 31 March 2014 Net book amount At 31 March 2014 At 31 March 2013 5. Investment Company Cost and net book amount: Other shares At 1 April Disposals At 31 March Fixtures and fittings £000 - 8 8 102 110 - 1 1 17 18 92 7 2013 £000 533 - 533 2014 £000 533 (533) - 58 Vianet Group plc 6. Debtors Amounts due from subsidiaries Other debtors Other taxation 2014 £000 12,965 6 21 12,992 2013 £000 14,796 21 14 14,831 All intercompany debt is repayable on demand, however Vianet Group plc will not insist on repayment in the next twelve months. 7. Creditors: amounts falling due within one year Bank overdraft Other payables Accruals and deferred income 8. Issued share capital 2014 £000 12 81 47 140 2014 £000 2013 £000 - 35 204 239 2013 £000 Issued and fully paid Ordinary shares of 10p each: 28,268,164 (2013: 28,268,164) 2,827 2,827 Allotments during the year Since the end of the financial year no shares have been issued under the share option scheme. Vianet Group plc 59 Notes to the Company Balance Sheet (continued) 9. Reserves At 1 April 2012 Loss for the year Share capital issued Purchase own shares Share option exercise Share based payment Share option forfeiture Dividends At 31 March 2013 Loss for the year Transfer of shares Share based payment Share option forfeiture Dividends At 31 March 2014 10. Dividends Share capital £000 2,825 - 2 - - - - - 2,827 - - - - - 2,827 Share based payment reserve £000 Own shares £000 Merger reserve £000 Retained earnings £000 Share premium £000 11,174 - 8 - - - - - 11,182 - - - - - (851) - - (321) 91 - - - (1,081) - (306) - - - 11,182 (1,387) 333 - - - (3) 52 (37) - 345 - - (11) (41) - 293 310 - - - - - - - 310 - - - - - 310 Total £000 23,187 (1,093) 10 (321) 40 52 - (1,547) 20,328 (318) (306) (11) - (1,540) 9,396 (1,093) - - (48) - 37 (1,547) 6,745 (318) - - 41 (1,540) 4,928 18,153 2014 £000 1,082 458 1,540 2013 £000 1,089 458 1,547 Final dividend for the year ended 31 March 2013 of 4.0p (year ended 31 March 2012: 4.00p) Interim dividend paid in respect of the year of 1.70p (2013:1.70p) Amounts recognised as distributions to equity holders In addition, the directors are proposing a final dividend in respect of the year ended 31 March 2014 of 4.00p per share. If approved by shareholders, it will be paid on 1 August 2014 to shareholders who are on the register of members on 20 June 2014. 11. Employees and directors Employee benefit expense during the period Wages and salaries Social security costs Pension costs Share based payments Average monthly number of people (including directors) employed Management 60 2014 £000 638 81 80 (11) 788 2013 £000 387 49 47 52 535 2014 Number 2013 Number 7 7 4 4 Vianet Group plc 12. Directors Directors’ emoluments Pension contribution The amounts in respect of the highest paid director are as follows: Directors’ emoluments Pension contribution 2014 £000 529 70 599 2014 £000 175 30 205 2013 £000 412 46 458 2013 £000 181 29 210 Other Directors’ emoluments see Group accounts, Report of the Directors. 13. Share-based payments The company disclosures required under UK GAAP are identical to those required under IFRS. See Group accounts, note 23 for details. 14. Parent Company Profit and Loss Account The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The parent company’s loss for the financial year was £318,000 (2013: loss £1,093,000). 15. Related Party Transactions Non-executive director payments were incurred in the company during this year. S Gilliland, a non-executive director invoiced Vianet Group plc for fees totalling £35,909 (2013: £29,025). As at 31 March 2014, there was £nil outstanding (2013: £2,500). C Williams, a non-executive director invoiced Vianet Group plc for fees totalling £21,494 (2013: £nil). As at 31 March 2014, there was £7,888 outstanding (2013: £nil). M McGoun, a non-executive director invoiced Vianet Group plc for fees totalling £5,000 (2013: £nil). As at 31 March 2014, there was £3,000 outstanding (2013: £nil). See Group accounts, Report of the Directors for details of non-executive directors’ emoluments. The company has taken advantage of the FRS 8 exemption not to disclose related party transactions between wholly owned group undertakings as these will be eliminated within the consolidated financial statements. Vianet Group plc 61 Vianet Group plc Consolidated Annual Report & Accounts Year ended 31 March 2014 One Surtees Way, Surtees Business Park, Stockton on Tees, TS18 3HR One Surtees Way, Surtees Business Park, Stockton on Tees, TS18 3HR www.vianetplc.com www.vianetplc.com The market leading provider of real time monitoring systems and data management services for the UK leisure and forecourt sectors