Vianet Group plc Consolidated Annual Report & Accounts Year ended 31 March 2016 One Surtees Way, Surtees Business Park, Stockton on Tees, TS18 3HR www.vianetplc.com The market leading provider of real time monitoring systems, data management services, and actionable insights for the leisure and vending sectors HIGHLIGHTS Financial highlights (including discontinued operations) • Revenue for the year up 3.8% to £19.24 million (2015: £18.53 million) of which revenue from continuing operations was £14.3 million (2015: £14.4 million) • • Recurring revenues remain strong at 69% (2015: 71%) Operating profit pre-ammortisation of intangibles, share option and exceptional costs up 8.2% to £3.44 million (2015: £3.18 million) of which the operating profit from continuing operations is £3.02 million. Profit before tax (pre loss on disposal) up 14.2% to £1.95 million (2015: £1.71 million) Profit before tax (net of loss on disposal) at £1.57 million (2015: £1.71 million) Operational cash generation up 19.2% to £3.42 million (2015: £2.87 million) • • • • Net cash of £2.01 million (2015: £2.09 million net debt) • Basic earnings per share (pre deferred tax adjustment) at 5.78 pence (2015: 6.33 pence) was impacted by non- operating exceptional items • • Final dividend of 4.00 pence per share proposed giving a full year total of 5.70 pence per share (2015: 5.70 pence per share) Fuel Solutions (sold January 2016 for £3.5 million) adjusted* operating profit £0.42 million (2015: £0.03 million) * Adjusted operating profit pre amortisation of intangibles, share options and exceptional costs Divisional highlights • Leisure delivers resilient adjusted* operating profit of £4.12 million (2015 £4.14 million) despite further fall in the number of installations and Statutory Code uncertainties • • • • • • Leisure division signs five year core beer monitoring contract extensions with Star Pubs and Bars, Trust Inns, Punch Taverns, Admiral Taverns 455 new beer monitoring installations of which 372 were higher value iDraught™ (2015: 555 and 526 units respectively) Vending Solutions adjusted * operating profit of £0.53 million (2015: £0.56 million) after taking account of the c£0.2m cost of new appointments and one-off PCI compliance costs Vending Solutions extend footprint with 5,284 new units (2015: 5,072) including a five year contract with Jacobs Douwe Egberts (“JDE”) Two high calibre appointments to the new roles of Managing Director of Vending Solutions, and Director of Technology & Innovation Highest level of Payment Card industry compliance (PCI-DSS level 1) was achieved in September 2015 for Cashless Payment deployment. Vianet Group plc i CONTENTS Section Company Information Chairman’s Statement 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 Cash flow Statement Notes to the Consolidated Financial Statements Report of the Independent Auditor (Parent Company) Company Balance Sheet Company Statement of Changes in Equity Notes to the Company Balance Sheet Page 1 2 4 11 16 19 20 21 22 23 24-51 52 54 55 56-63 ii Vianet Group plc COMPANY INFORMATION Directors S W Darling (Chief Executive Officer) J W Dickson (Non-Executive Chairman) M H Foster (Chief Financial Officer) S C Gilliland (Non-Executive Director) retired 31 December 2015 M McGoun (Non-Executive Director) C Williams (Non-Executive Director) 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 Lloyds Banking Group plc 1st Floor Black Horse House 91 Sandyford Road Newcastle NE1 8HQ 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 incurred and whilst this process will result in further legal costs during the new financial year these are not expected to be material. Overview Vianet’s UK core beer flow monitoring, including the higher value iDraught™ operation, has strengthened its market position and maintained its contribution to the Group despite further ongoing pub closures. Although there have been no lost contracts, there has been a net loss of c 630 beer monitoring installations. This loss of pub sites has held back financial performance over the past few years, but continued investment in Vending division growth, innovation in the Leisure division, and the (now sold) Fuel division moving into good profit have offset this drag and help provide an encouraging outlook for the Group as a whole. investment Vending Telemetry is benefitting from the Group’s in people and capability increased during the year which resulted in strong revenue growth during the second half. Prospects for this business remain excellent, particularly for coffee market solutions including development of supply into machine manufacturers, and cashless payment solutions. A significant five year contract with the multinational coffee company JDE has continued to roll out through the period. The division’s operating profits remained broadly level at £0.53 million (2015: £0.56 million) despite c. £0.20 million of additional costs associated with new roles including the recruitment of a high calibre Managing Director, and one off PCI Compliance costs. Impacted by a deferred tax asset provision and exceptional items, basic earnings per share post- exceptional costs (pre-deferred tax asset movements) for the Group reduced to 5.78 pence from 6.33 pence in 2015. Against this backdrop, coupled with the continued strength of recurring income and the strong prospects for the Group, the Board is proposing to maintain the final dividend at 4.00 pence which, if approved by shareholders, would give a total dividend for the year of 5.70 pence (2015: 5.70 pence). Subject to approval from shareholders at the Annual General Meeting, to be held on 30 June 2016, the final dividend will be paid on 28 July 2016 to shareholders on the register as at 17 June 2016. Board and Staff Following his appointment as Chairman of Booker, and with other commitments including the role of Introduction Encouraging progress has been made across the business, and the focus on exploiting growth opportunities in both the Vending and Leisure divisions together with optimising the sale value of the Fuel Solutions division, has positioned Vianet well for future growth. The sale of the Group’s Fuel Solutions division was completed on 31 January 2016, strengthening the Group’s cash position and enabling Vianet to focus on the core businesses of Leisure and Vending Solutions and consolidating its financial resources. Whilst Fuel Solutions influenced growth in the period, it is important to note that trading in both the Leisure and Vending divisions has been robust in H2 and into the new financial year. Vianet’s core beer flow monitoring operations are evolving to address external market pressures, with innovative new solutions are being developed and introduced to ensure we remain relevant to our core pub industry customers who are themselves adapting to changes in their markets. Group turnover of £19.24 million (2015: £18.53m) including discontinued operations was 3.8% ahead of last year, whilst operating profit of £3.44 million was up by 8.2%. Group profit before taxation representing profit from continuing operations less the loss from discontinued operations, amounted to £1.57 million (2015: £1.71 million) Increased exceptional costs of £0.96 million (2015 £0.60 million) included £0.38 million in respect of the VFS disposal as well as £0.29 million of US litigation costs. As outlined in our interim statement, the Group is defending itself in court in the US against certain claims asserted by third parties, as can sometimes occur from transacting business in the US. Following legal advice, the Board considers these claims to lack merit. The majority of costs have already been 2 Vianet Group plc senior Non-Executive Director at Mitchells & Butler, Stewart Gilliland retired from the Board on 31 December 2015. Whilst we are delighted for Stewart, it was sad to lose a trusted advisor who had been with Vianet since early 2006. At the same time, following the sale of VFS, it was agreed that I should complete the transition from Executive to Non-Executive Chairman with effect from January 2016. This has resulted in a five member board consisting of two executive directors and three NEDs. I am confident that the Board will function well under the new structure and we will continue to evaluate its composition to ensure that it contains the optimum balance of experience and independence to support our day to day operations and also our growth strategies. The senior management team has been strengthened with two high calibre appointments reporting directly to Stewart Darling, Group CEO. Matt Lane, in the new role of Managing Director of the Vending Solutions division, has extensive experience in the vending sector having recently held the roles of Head of Beverage Solutions and Head of Vending at Nestle Professional UK. David Mountford, who joined as Director of Technology & Innovation in February 2016, brings a wealth of experience in managing, developing and delivering enterprise IT solutions in the manufacturing sector. David was formerly Vice President Information Systems at CSR plc a global semiconductor manufacturer. The Group’s culture, values and frameworks, whereby everyone at Vianet collectively and individually always ‘seeks to do the right thing’, have been fundamental in gaining support and strengthening the Group’s position and reputation, whether dealing with customers, politicians, suppliers or other stakeholders. The Group continues to engage in large development projects and change programmes and it is pleasing that our people continue to respond with their usual enthusiasm, demonstrating commitment which continues to build the Group’s reputation with customers. I would again like to thank all staff, senior management, and my Board colleagues, for their continued efforts and commitment in driving the Group forward over the past year. Outlook Although Vianet’s growth and profitability remains influenced by external factors be they legislative, socio-economic, or corporate activities affecting our customers, the Group continues to make good progress through further focus on strong growth opportunities where there has been good momentum into the new financial year. • • • The UK beer flow monitoring business continues to evolve and innovate to deliver relevant solutions in a changing business environment and to sustain its resilient earnings performance from the extension of long term contracts. Whilst the backdrop to trading may remain challenging, the rate of pub closures seems to be diminishing and prospects for increased iDraught™ sales are encouraging. Vending Solutions should deliver strong profits growth having made excellent progress in developing significant new sales opportunities with major global customers. Its prospects remain excellent and there is real focus on developing our capability to take advantage of both our leading position in coffee vending and our vending contactless payment solutions where sales momentum will continue to grow. The Group’s financial resources have been the sale of VFS, and strengthened with underpinned by high levels of recurring income, the Group’s cash flow is strong. The Board remains confident that Vianet’s long term strategy is the right one, that the Group is well positioned, within the parameters of its influence, to deliver sustained earnings growth, which in doing so should also expand the future strategic options for Vianet. James Dickson Chairman Vianet Group plc 3 STRATEGIC REPORT Stewart Darling Chief Executive Officer Vianet are the leading provider of real time monitoring systems, data management services, and actionable insights for the leisure and vending sectors. Our mission is to help customers make better decisions through delivering game changing strategic insights and actionable data which give a compelling return on investment to those customers which include most large UK pub companies and multinational gourmet coffee companies such as Jacob Douwe Egbert and Costa Coffee. This is primarily achieved through developing solutions which are built on an in-depth understanding of the challenges and opportunities faced by our customers in their chosen markets. Through this understanding, we are able to provide data and insight that support better decision making at both operational and strategic levels with the aim of transforming business performance for our customers. As the Internet of Things market evolves, we recognise that the fundamental value driver from a customer perspective is data and insight, and not our legacy enablement capability such as hardware and connectivity. Being able to provide customers with powerful data and insight, some of which has never been available to them before, is the key to the strategic growth of the business in the coming years. However, harnessing the immense power of ‘big data’ is a transformational change for the business as it requires a significant step change in business capability and competence, and a radically different approach to engaging customers. This has implications for legacy enablement activities that we have historically managed in-house such as technology infrastructure and component development. As we aim to become world class at delivering strategic insight through big data, we cannot also be world class at managing all of the other enablement activities necessary to deliver the overall solution. Therefore, our strategic approach is to build partnerships with leading providers and partners whose core business capability encompasses this activity such as our new contactless payment solution delivered with Elavon and Creditcall. Whilst the Group has developed a clear and compelling growth strategy, much work has also been done to ensure that the legacy flow monitoring business stays fit for purpose in relation to the changing needs of our customers, the impact of legislative change and the uncertainty that could well be created as customers rethink their business models. Operating Review Leisure Solutions Whilst progress is being made with our own beer monitoring products and services, the implementation of the Statutory Code continues to cast some uncertainty over leased and tenanted pub companies with a corresponding impact on industry confidence. Pub companies have adapted to this changing landscape through a number of different strategies such as developing managed estates from high performing or strategically located properties, and creating franchised models with increased operating performance potential and greater transparency. Whilst there is emerging clarity around the direction and ambition of individual pub companies, it is clear that this background has caused investment expenditure to be more targeted towards developing these new models. Despite this, our enhanced toolset is being increasingly adopted as part of these changes as pub companies seek to improve retailing capability and overall quality standards. Whilst the overall rate of pub closure seems to be slowing and reduced from the previous year, (Vianet pub disposals 2016: 1,100 and 2015:1,400) this resulted in a net loss of approximately 630 standard beer monitoring installations over the financial year with a consequent impact on operating contribution. However, the combination of improved recurring revenues from contract extension negotiations and ad-hoc support activity, combined with 372 iDraught™ sales has resulted in a largely stable income stream for the period under review The commercial trials of iDraught™ have been successful in terms of the results yielded and operating performance improvement. The challenge for the business is to build growth on the back of this success and we are optimistic for progress this year. 4 Vianet Group plc The launch of our new contactless payment solution in September supported by leading industry partners Elavon and CreditCall has given further impetus to providing a solution to the vending market where traditional cash-only payments have long been an inhibitor of consumption, usage and customer experience. The evolution and growth of contactless payment solutions provides a material opportunity to change this dynamic and attract more consumers to vending. We expect that Vianet’s contactless payment solution and significant experience developed in this new and dynamic space could offer exciting growth opportunities in years to come. Overall, the Board remains cautiously confident for the prospects for further growth in the higher value iDraught™ products and service but the implementation of the MRO option within the Statutory Code and likely further pubs disposals will continue to dampen this effect. Vianet Americas Inc. Vianet Americas has made sales and operating performance progress, albeit at a slower rate than anticipated. indicates that Vianet’s Market analysis clearly iDraught™ solution is substantially ahead of all competitors in the USA, and this advantage, combined with our strategic alliance with Micro Matic USA for nationwide installation, service and sales support, leaves the Board moderately optimistic that we will now see the progress in sales and reduction in trading losses that efforts to date have merited. Vending Solutions The Vending Solutions division continued to make very good progress in the period. This progress is attributed to the development of business capability in the that exploits powerful strategic drivers marketplace and securing contracts with major blue chip customers whose businesses are growing as a result of delivering services aligned to these drivers. The successful implementation of this strategy is particularly encouraging when factoring in the impact of vending estate rationalisation which is an inevitable outcome of installing our solution. Operating profit performance, however, remained broadly flat in the year as a result of enhancing the team’s capability including recruiting Matt Lane from Nestle Professional Services to lead the business, and outsourcing cloud based contactless payment processing in order to meet the rigorous demands of PCI accreditation which was achieved in September 2015. This emphasises our strategy of focusing only on those activities which are core to driving value, and outsourcing to partners where they do not. Without these additional costs, operating performance would have been well ahead of last year and we are optimistic for the future growth of this business. Vianet Group plc 5 FINANCIAL REVIEW Mark Foster Chief Financial Officer Overall Group trading results Group results overall, before amortisation of intangible assets, share based payments, option costs, and exceptional costs, were up 8.2% to a profit of £3.44 million as compared to £3.18 million in the financial year ended 31 March 2015. The table below shows the performance of the Group (under IFRS) including discontinued operations, pre and post exceptional costs, as follows: FY2015 £’000 18,530 11,010 59.4% 3,176 1,709 1,709 2,309 £’000 Total 19,241 11,155 58% Revenue Gross Profit Operating Profit pre amortisation, share based payments and exceptional costs Profit before tax post exceptional costs (post VFS disposal) Profit before tax post exceptional costs (pre VFS disposal) Profit before tax pre-exceptional costs FY2016 £’000 19,241 11,155 58.0% 3,436 1,570 1,952 2,531 Divisional Performance FY 2016 Revenue Gross profit Operating profit/(loss) pre amortisation, share based payments and exceptional costs Exceptionals VFS disposal US legal costs Other exceptionals Total £’000 Leisure 12,050 8,558 71% £’000 Vending £’000 Technology 2,179 1,414 65% 60 39 65% £’000 Fuel Solutions 4,952 1,144 23% £’000 Corporate - - - 4,120 527 (256) 419 (1,374) 3,436 FY2016 £’000 FY2015 £’000 382 297 282 961 - 90 510 600 Underlying trading related exceptional costs in accordance with Group exceptional policy, have reduced year on year by £228k. Current year costs are predominately related to rationalisation of staff base. VFS disposal costs is the net impact of the disposal of the Fuel division on 31 January 2016. US legal costs are commented on in the Chairman’s statement. 6 Vianet Group plc Group trading result The financial year under review featured a robust performance in Leisure, underlying growth in Vending post senior leadership investment cost, with a good increase in the Fuel Solutions contribution up to the date of disposal of 31 January 2016, and reduced losses in the US. The Group continues to seek ongoing cost rationalisation, has maintained margins, has invested for growth, and added key people where needed. Group turnover of £19.24 million (2015: £18.53m) was 3.8% ahead of last year, whilst operating profit of £3.44 million was up by 8.2%. In particular, the Vending division’s operating profits remained constant post the recruitment of the Managing Director and other up-scaling costs at £0.53 million (2015: £0.56 million). Group profit before taxation amounted to £1.57 million (2015: £1.71 million) and was impacted by increased exceptional costs of £0.96 million (2015 £0.60 million) which included £0.38 million in respect of the VFS disposal. Pre this factor, the Group profit before taxation was up 14.2% at £1.95 million. Blended recurring revenues for the Group are slightly behind last year at 69% (2015: 71%) due to product mix. Divisional performance Leisure Turnover Operating profit/(loss) pre amortisation, share based payments and exceptional costs New unit sales – UK pubs Net estate – UK pubs iDraught™ penetration – UK 12,050 4,120 455 c14,900 22.5% 12,146 4,136 555 c15,500 19.6% 2016 2015 The Leisure division, consisting of the core beer monitoring business (including the US), and gaming machine monitoring. Gross margins remained consistent around 70%. New iDraught™ growth is reflected in the above results (372 units, 2015: 526 units). Performance was satisfactory set against further pub disposals of c 1,100 (2015: c 1,400) which saw a net reduction in estate of c630. The final part of the Leisure division is Machine Insite brand which contributed a robust £0.20 million (2015: £0.22 million) this year. Vending Turnover Operating profit/(loss) pre amortisation, share based payments and exceptional costs New unit sales Net estate 2,179 527 5,284 c19,000 2,105 559 5,702 c14,200 2016 2015 The division’s operating profits remained broadly level at £0.53 million (2015: £0.56 million) despite c£0.20 million of additional costs associated with new roles including the recruitment of a high calibre Managing Director, and one off PCI Compliance costs. Vending made progress in the year with additional growth in unit sales as shown above which includes cashless growth of 553 units (2015: 888 units). Growth during the year is reflected in the estate figures. Recurring revenue mix has increased to c55% (2015: c45%) Vianet Group plc 7 Financial Review (continued) Technology During 2016/2017 the Technology division will transfer to a main stream cost centre servicing the Group (historically this has been absorbed throughout the Divisions) Fuel Solutions The discontinued impact of Vianet Fuel Solutions Limited, and at the end of January 2016, was a pre-exceptional profit of £0.42m (2015: £0.03m) Taxation The Group has continued to utilise available tax losses during the year resulting in no tax being paid (2015: £nil). The Group will continue to utilise the available tax losses carried forward into FY2016. In the financial year under review, the tax line includes a deferred tax asset provision release of £0.54 million (2015: £0.42 million) recognising the impact of the tax losses available and being utilised. Earnings per share Earnings per share has been impacted by the recognition of the deferred tax assets provision referred to above, realising the losses carried by the Group and the unwinding of that provision in FY2014. The exceptional cost of £382k resulting from the loss on disposal of Vianet Fuel Solutions impacted overall basic earnings per share. Excluding this one-off non-operating exceptional cost the overall basic earnings per share before exceptional costs would have increased to 7.28 pence for FY2016 as compared to 7.00 pence for FY2015. The underlying earnings per share pre the deferred tax asset provision and exceptional items is 9.32 pence for FY2016 compared to 8.55 pence for FY2015. Fully diluted earnings per share (before exceptional costs), which takes account of all outstanding share options, amounted to 9.27 pence in FY2016 which compares to 8.54 pence in the prior financial year. Balance sheet and cash flow The Group balance sheet remains consistently strong. The Group generated operating cash flow of £3.42 million (2015: £2.87 million) an increase of 19.2%, with positive working capital movement. Despite the effects of a challenging core beer market and continued pub company disposal programmes, coupled with reduced losses in the US, the Leisure business overall had a very healthy operational cash generation of c£5.1 million. Excluding the funds generated from the sale of Vianet Fuel Solutions Limited, the cash generated in FY2016 were utilised to invest in the Group’s technology through research and development, service borrowings and fund dividends. At the year end, the Group had borrowings of £1.59 million (2015: £2.5 million), and post the VFS disposal, net cash of £ 2.01 million (2015: £2.09 million net debt). The balance sheet and cash generating capacity of Vianet Limited (post disposal of Vianet Fuel Solutions Limited) provides a solid platform to pursue the significant growth opportunities that will generate shareholder value. Business risk The Board and senior management review business risk on a regular basis. 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, and will benefit from the disposal of the Fuel division, cost rationalisation and overall market confidence in liquidity and credit. 8 Vianet Group plc The directors consider that other material business risks are limited to: The potential impact of the proposed Statutory Code but the impact of which will be planned and managed when there is increased clarity on the outcomes. The potential for a Cyber security breach where data security is compromised resulting in unauthorised access to information which is sensitive and/or proprietary to Vianet or its customers. This threat is in common with most technology businesses, however both short term and long term mitigation plans are in place. Payment Card Industry Data Security Standard (PCI DSS – Level 1) highest level of compliance has already been achieved to support the Group’s cashless payment solutions. The Board potentially failing to ensure that the business builds a capable architecture and software development infrastructure to meet our growth demands and expectations. This risk is mitigated by ongoing evolution of our systems architecture, infrastructure, people and security protocols. Key performance indicators Percentage of revenue from recurring income streams1 Gross Margin2 Employee Turnover3 Notes to KPIs Target 70% 50% 2% Actual 2016 69% 58% 2.7% Actual 2015 71% 59% 2% 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 employer with positive values and career prospects. Summary and Outlook Following the review of operations, it is clear to the Board that delivering world class strategic insight and actionable data to customers is where greatest value can be driven. Supporting our customers with data and insight that allows them to make even better and more informed decisions will underpin the growth of the business in the coming years and we will focus our energy and investment to achieve that objective. This will require new investment in the technologies and competencies essential to developing world class big data capability, as well as continued investment in our people and teams. Developing great people, culture and values has always been at the core of what we do and the simple philosophy for leading the business is that only great people can deliver great strategies, relationships and products. As a result of continuing uncertainty due to the impact of the implementation of the industry MRO option, Vianet’s traditional beer monitoring business will likely remain under some pressure from pub closures and disposals, and reduced investment expenditure. However the Board expects this to be, at least partially, offset by continued growth in iDraught™ installations plus other initiatives. Vianet Group plc 9 Financial Review (continued) Vending Solutions continues to enjoy great traction in the marketplace particularly in the quality coffee segment where consumption growth is being driven by rampant consumer demand. With the addition of our new contactless payment solution, and the leadership of Matt Lane with his industry knowledge and relationships, the Vending business is in good health and poised for further growth. Focusing on delivering even greater value to customers through world class strategic insight and actionable data, together with rigorous cost management of Vianet’s legacy business and service provision, should deliver the desired benefits and performance for customers and shareholders alike. In what has continued to be a challenging business environment, the Group has continued to make good underlying progress and built a solid foundation, which positions Vianet well for future profitable growth. Stewart Darling Chief Executive Officer 6 June 2016 10 Vianet Group plc REPORT OF THE DIRECTORS Directors left to right, Chris Williams non-executive, Mark Foster CFO, Stewart Darling CEO, James Dickson non-executive Chairman, Mike McGoun non-executive The directors present their report and the audited financial statements for the year ended 31 March 2016. Going Concern The Directors, after having made appropriate enquiries, including (but not limited to) a review of the Group’s budget for 2016/2017, 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. Financial Instruments Information about the use of financial instruments by the company and its subsidiaries and the Group’s financial risk management policies is given in note 17 Environment The Group’s policy with regard to the environment, and in particular Health and Safety requirements, is to ensure that the Group’s operational subsidiaries understand and effectively operate in such a way that they comply with all the legal requirements relating to the Health and Safety environments in which they operate. During the period covered by this reports no Group company has incurred any fine or penalties or been investigated for any breach of Health and Safety regulations. Employees 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. 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 2.7%, in line with the threshold we have set. Vianet Group plc 11 Report of the Directors (continued) 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 £746,000 (2015: £707,000) all of which has been recognised as an asset on the balance sheet (2015: £707,000) Dividends The directors recommend the payment of a final dividend of 4.00p per share (2015: final 4.00p), taking the full year dividend to 5.70p. (2015: 5.70p) Capital Structure Details of the authorised and issued share capital, together with details of the movements in the company’s issued share capital during the year are shown in note 19. The company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the company. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the company’s shares that may result in restrictions on the transfer of securities or on voting rights Details of employee share schemes are set out in note 22 and no person has any special rights of control over the company’s share capital and all issued shares are fully paid Directors’ Indemnity Qualifying third party indemnity provisions are in force for the benefit of the directors 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 C Williams M McGoun Ordinary shares of 10p each 2016 33,244 4,658,420 228,000 9,250 - Ordinary shares of 10p each 2015 - 4,487,860 78,000 9,250 - 12 Vianet Group plc Directors’ emoluments Details of Directors’ emoluments for the year are as follows: Executive M H Foster S W Darling Non-executive J W Dickson S C Gilliland C Williams M McGoun Total Salary and fees 2016 £’000 Other emoluments 2016 £’000 Total emoluments 2016 £’000 Salary and fees 2015 £’000 Other emoluments 2015 £’000 Total emoluments 2015 £’000 266 293 173 28 30 30 820 33 36 32 - - - 101 299 329 205 28 30 30 921 211 220 151 38 30 30 680 32 34 55 - - - 121 243 254 206 38 30 30 801 1. Executive remuneration is determined by the remuneration committee consisting of non-executive Directors C Williams, M McGoun and J W Dickson. 2. No payments were made to any Director in respect of compensation for loss of office in 2016 or 2015 3. Other emoluments received consist of the provision for private medical care, motor car allowances and pension contributions. 4. S Gilliland’s fees were paid to SMDH Consulting Limited, a company of which he is a Director. S Gilliland retired on 31 December 2015 5. C William’s fees are paid to MCHD Investments Limited, a company of which he is a Director 6. M McGoun’s fees are paid to Noble Adamson Limited, a company of which he is a Director 7. 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. 8. J W Dickson moved to non-executive terms on 1 February 2016 Directors’ share options Details of the share options held by Directors are as follows: J W Dickson M H Foster S W Darling At 1 April 2015 75,000 18,600 150,000 18,600 135,000 - 18,600 285,000 At 31 March 2016 75,000 18,600 - 18,600 135,000 124,000 18,600 285,000 Option price Date granted 123.0p 96.5p 67.2p 96.5p 85.0p October 2006 January 2011 March 2006 January 2011 May 2014 103.0p December 2015 January 2011 May 2014 96.5p 85.0p Share options are exercisable between nil and ten years from the date of the grant. The market price of the Company’s shares at the end of the financial year was 98.0p and the range of market prices during the year was between 85.0p and 105.5p. Vianet Group plc 13 Report of the Directors (continued) 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 25 May 2016 the following shareholders (excluding Directors) held substantial holdings of the issued ordinary shares of the company: AXA Investment Managers UK Livingbridge Helium Fund Management Lazard Asset Management Hargreaves Lansdown Asset Management Octopus Investments Downing LLP Barclays Wealth and Investment Management Artemis Fund Managers Limited Unicorn Asset Management Holding of Ordinary shares Number Issued Share capital % 3,365,000 2,693,982 2,132,000 1,396,922 1,285,394 1,269,533 1,017,650 830,051 735,000 625,200 12.03% 9.63% 7.62% 4.99% 4.60% 4.54% 3.64% 2.97% 2.63% 2.24% Annual General Meeting The Annual General Meeting will be held on 30 June 2016 at 11.30am, at the offices of Grant Thornton UK LLP, No 1 Whitehall Riverside, Leeds, LS1 4BN. 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 14 Vianet Group plc • • 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. 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 6 June 2016 and signed on its behalf by: Mark Foster Director Vianet Group plc 15 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 two Executive and three Non-Executive Directors as follows: Executive Directors S W Darling (Chief Executive Officer) M H Foster (Chief Financial Officer and Company Secretary) Non-Executive Directors J W Dickson (Chairman) M McGoun C Williams All directors have access to the advice and services of the Company Secretary. There is a clear division of responsibilities between the Chairman, who is responsible for the running of the Board, and the Chief Executive Officer, who, together with the other Executive Director, are responsible for running the business. The Board meets regularly, with no less than eight meetings planned over 10 days 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: C Williams (Chairman) J W Dickson M McGoun It meets at least twice in any year, and is usually attended as a minimum by the Chief Executive Officer and the Chief Financial Officer, as well as the Group’s External Auditor. 16 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: M McGoun (Chairman) J W Dickson C Williams 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 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: J W Dickson (Chairman) C Williams M 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 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 Vianet Group plc 17 Corporate Governance statement (continued) • • 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 2016 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. 18 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 2016 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 14 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 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 Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate 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 2016 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 2016. Mark Overfield BSc FCA Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Leeds 6 June 2016 Vianet Group plc 19 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2016 Note 3 Continuing operations Revenue Cost of sales Gross profit Administration and other operating expenses Operating profit pre amortisation and share based payments from continuing operations Operating profit pre amortisation and share based payments from discontinued operations Operating profit pre amortisation and share based payments Intangible asset amortisation Share based payments Total administration expense Operating profit post amortisation and share based payments Net finance costs Profit from continuing operations before tax Income tax expense Profit from continuing operations Discontinued operations: Revenue Loss on disposal of subsidiary Other administration expenses Operating profit pre amortisation and share based payments from discontinued operations Share based payments Intangible asset amortisation Loss from discontinued operations: Profit and other comprehensive income for the year Earnings per share Continuing Operations – Basic – Diluted Discontinued Operations – Basic – Diluted 6 5 7 3 8 8 8 8 Before Exceptional 2016 £000 Exceptional 2016 £000 Total 2016 £000 14,290 (4,279) 10,011 Total 2015 £000 14,358 (4,423) 9,935 - - - (439) (7,433) (7,280) 14,290 (4,279) 10,011 (6,994) 3,017 (439) 2,578 2,655 419 (522) (103) (79) 3,436 (661) (28) (7,683) 2,328 (44) 2,284 (553) 1,731 4,951 - (724) 419 (15) (157) 247 1,978 (961) - - (439) (439) - (439) - (439) - (382) (140) (522) - - (522) (961) 2,475 (661) (28) (8,122) 1,889 (44) 1,845 (553) 1,292 4,951 (382) (864) (103) (15) (157) (275) 2,576 (586) (37) (7,903) 2,032 (65) 1,967 (419) 1,548 4,172 - (1,153) (79) (8) (171) (258) 1,017 1,290 4.76p 4.73p 5.73p 5.73p (1.02)p (1.01)p (0.96)p (0.95)p The accompanying accounting policies and notes form an integral part of these financial statements. Details of the exceptional items are included in note 4. 20 Vianet Group plc CONSOLIDATED BALANCE SHEET at 31 March 2016 Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment 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 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 2016 £000 2015 £000 10 11 12 13 14 18 15 16 16 19 15,503 1,982 3,143 20,628 1,810 3,564 482 3,605 9,461 17,723 2,436 3,537 23,696 1,897 4,187 1,024 548 7,656 30,089 31,352 4,016 489 4,505 1,103 1,103 2,843 11,287 217 (1,221) 310 11,045 24,481 3,947 1,043 4,990 1,594 1,594 2,831 11,198 209 (1,381) 310 11,601 24,768 Total equity and liabilities 30,089 31,352 The Group financial statements were approved by the Board of Directors on 6 June 2016 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 21 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2016 At 1 April 2014 Dividends Issue of 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 2015 At 1 April 2015 Dividends Issue of shares Share based payments Share option forfeitures Exercise of options Share capital £000 2,827 - 4 - - 4 - - Share premium account £000 11,182 - 16 - - 16 - - Own shares £000 (1,381) - - - - - - - 2,831 11,198 (1,381) 2,831 - 12 - - - 11,198 - 89 - - - (1,381) - - - - 160 Transactions with owners 12 89 160 Profit and total comprehensive income for the year Total comprehensive income less owners’ transactions - - - 12 89 160 Share based payment reserve £000 Merger reserve £’000 Retained profit £000 293 - - 45 (129) (84) - (84) 209 209 - - 43 (35) - 8 - 8 310 - - - - - - - 310 310 - - - - - - - - Total £000 24,952 (1,539) 20 45 - 11,721 (1,539) - - 129 (1,410) (1,474) 1,290 1,290 (120) (184) 11,601 24,768 11,601 (1,549) - - 35 (59) 24,768 (1,549) 101 43 - 101 (1,573) (1,304) 1,017 1,017 (556) (287) At 31 March 2016 2,843 11,287 (1,221) 217 310 11,045 24,481 22 Vianet Group plc CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 March 2016 Cash flows from operating activities Profit for the year Adjustments for Net interest payable Income tax expense Amortisation of intangible assets Depreciation Payment of deferred consideration (Profit)/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 subsidiary division Cash disposed with subsidiary Purchases of property, plant and equipment Purchases of intangible assets Net cash used in investing activities Cash flows from financing activities Net interest payable Issue of share capital Share options exercised Repayments of borrowings New borrowings Dividends paid Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Vianet Group plc Note 2016 £000 2015 £000 1,017 1,290 44 553 818 449 (22) (207) 43 2,695 (34) (338) 1,099 727 3,422 - 3,422 - 3,400 (90) (383) (855) 2,072 (44) 101 100 (486) - (1,549) (1,878) 3,616 (11) 3,605 24 65 419 757 492 (20) 14 45 3,062 (46) (352) 205 (193) 2,869 - 2,869 21 - - (363) (787) (1,129) (65) 20 - (1,067) 1,000 (1,539) (1,651) 89 (100) (11) 23 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2016 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 principal 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 2016/2017, 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 2016. 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 parent 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. 24 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 25 Notes to the Financial Statements for the year ended 31 March 2016 (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 of 1 January 2010 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. 26 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 2 to 5 years 10 years 2 to 5 years 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. Capitalised development costs are amortised over the life of the product within cost of sales, which is usually no more than five years. However, until completion of the development project, the assets are subject to impairment testing only. 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 27 Notes to the Financial Statements for the year ended 31 March 2016 (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. 28 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 an average pricing 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. 1.15 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 29 Notes to the Financial Statements for the year ended 31 March 2016 (continued) Significant accounting policies (continued) 1. 1.16 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: 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. 1.17 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. 1.18 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. 30 Vianet Group plc Significant accounting policies (continued) 1. 1.19 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. 1.20 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 9 Financial Instruments (effective date 1 January 2018) IIFRS 9 Financial Instruments (IASB effective date 1 January 2018) IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018) IFRS 16 Leases (effective 1 January 2019) Clarification of Acceptable Methods of Depreciation and Amortisation – Amendments to IAS 16 and IAS 38 (IASB effective date 1 January 2016) Annual Improvements to IFRSs 2012-2014 Cycle (effective 1 January 2016) Amendments to IAS 27: Equity Method in Separate Financial Statements (effective 1 January 2016) Amendments to IAS 1 Presentation of Financial Statements (effective 1 January 2016) Amendments to IAS 7 Statement of Cash Flows (effective 1 January 2017) Amendments to IFRS 10 and IAS 28 (effective 1 January 2016) Amendments to IAS 12: Recognition of Deferred Tax assets for Unrealised Losses (effective 1 January 2017) 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 31 Notes to the Financial Statements for the year ended 31 March 2016 (continued) Significant accounting policies (continued) 1. 1.21 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, legal 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. 32 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. 3. Segment reporting 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 Operating Decision Maker to make decisions about resources to be allocated to the segment and assess its performance. Leisure is further analysed into three segments – Leisure Services, Vending and Technology highlighting the three key divisions within Leisure. Vending and Technology do not meet the quantitative thresholds required for segmental reporting but the directors believe that it is important to separately disclose its results given the importance of its activity to the group. The products/services offered by each operating segment are: Leisure Services: design, product development, sale and rental of fluid monitoring equipment, data management and related services Vending: design product development, sale and rental of machine monitoring equipment, data management and related services. Technology: provision of data management and technology related services Fuel Solutions: wet stock 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, certain intangible assets, 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 33 Notes to the Financial Statements for the year ended 31 March 2016 (continued) Segment reporting (continued) 3. 2016 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 Fuel Solutions £000 12,051 2,179 3,946 (438) 3,508 (30) 3,478 240 - 240 - 240 60 (428) (49) (477) - (477) Profit for the year from continuing operations Other information Additions to property, plant, equipment and intangible assets Depreciation and amortisation 345 469 529 285 145 239 Corporate £000 Total £000 - 14,290 (1,430) 48 (1,382) (14) (1,396) 2,328 (439) 1,889 (44) 1,845 (553) 1,292 20 49 1,039 1,042 - - - - - - - - Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Leisure Services £000 25,938 - 25,938 5,161 - 5,161 Vending £000 Technology £000 Fuel Solutions £000 Corporate £000 - - - - - - - - - - - - - - - - - - 3,669 482 4,151 447 - 447 Total £000 29,607 482 30,089 5,608 - 5,608 The asset base of the leisure division cannot be split across Leisure Services, Vending and Technology, so has been allocated to Leisure Services. Discontinued Operations (post exceptional items) Total revenue Pre-exceptional segment result Exceptional costs Post exceptional segment result Finance costs Profit/(loss) before taxation Taxation Profit for the year from continuing operations Other information Additions to property, plant, equipment and intangible assets Depreciation and amortisation Leisure Services £000 Vending £000 Technology £000 - - - - - - - - - - - - - - - - - - - - - - - - Fuel Solutions £000 4,951 247 (522) (275) - (275) 133 225 Corporate £000 - - - - - - - - Total £000 4,951 247 (522) (275) - (275) - (275) - - 34 Vianet Group plc Segment reporting (continued) 3. 2015 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 12,146 2,105 3,957 (336) 3,621 (36) 3,585 293 (41) 252 - 252 107 (318) (66) (384) - (384) Fuel Solutions £000 4,172 (151) (105) (256) - (256) Corporate £000 Total £000 - 18,530 (1,407) (52) (1,459) (29) (1,488) 2,374 (600) 1,774 (65) 1,709 (419) 1,290 Profit for the year from continuing operations Other information Additions to property, plant, equipment and intangible assets Depreciation and amortisation 257 422 302 277 209 247 233 243 69 60 1,070 1,249 Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Leisure Services £000 25,686 - 25,686 5,387 - 5,387 Vending £000 Technology £000 Fuel Solutions £000 Corporate £000 - - - - - - - - - - - - 4,421 - 4,421 893 - 893 220 1,025 1,245 304 - 304 Total £000 30,327 1,025 31,352 6,584 - 6,584 The asset base of the Leisure division cannot be split across Leisure Services, Vending and Technology, so has been allocated to Leisure Services. Vianet Group plc 35 Notes to the Financial Statements for the year ended 31 March 2016 (continued) Segment reporting (continued) 3. Analysis of revenue by category Continuing operations Sale of goods - leisure Rendering of services - leisure Geographical analysis - United Kingdom - Rest of Europe - United States/Canada - Other Discontinued operations Rendering of services - fuel Geographical analysis - United Kingdom - Rest of Europe 4. Exceptional items Disposal of VFS subsidiary US litigation Corporate restructuring and transitional costs 2016 £000 2015 £000 1,993 2,260 12,297 14,290 13,308 749 231 2 14,290 12,098 14,358 13,121 1,005 198 34 14,358 2016 £000 2015 £000 4,951 4,951 4,852 99 4,951 2016 £000 382 297 282 961 4,172 4,172 4,133 39 4,172 2015 £000 - 90 510 600 Corporate restructuring and transitional costs have reduced year on year, the primary background being the transition of people and management to ensure we have the succession and calibre of people on board to deliver the strategic aims and aspirations of the Group. Disposal of VFS subsidiary relates to all costs incurred in disposing of the subsidiary offset by the proceeds from the sale ie loss on sale. For details behind the US litigation costs, see the Chairman’s statement. 36 Vianet Group plc 5. Profit for the year The following items have been included in arriving at profit for the year: Employee benefits expense (note 20) Depreciation of property, plant and equipment (note 12) Amortisation of intangible assets (note 11) (Profit)/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 - taxation compliance services Other services relating to tax – all other Other services – half year reporting and accounting advice 6. Net finance costs Interest payable on bank borrowings Interest receivable on bank deposits 2016 £000 7,770 449 818 (207) 293 2016 £000 15 27 8 26 13 89 2016 £000 48 48 2016 £000 4 4 2015 £000 7,928 492 757 14 226 2015 £000 14 36 15 1 57 123 2015 £000 65 65 2015 £000 - - Vianet Group plc 37 Notes to the Financial Statements for the year ended 31 March 2016 (continued) 7. Taxation Analysis of charge in period Current tax expense – Amounts in respect of the current year – Amounts in respect of prior periods Deferred tax charge/credit – Amounts in respect of the current year Income tax credit 2016 £000 - - - 553 553 2015 £000 - 1 1 418 419 Reconciliation of effective tax rate The tax for the 2016 period is higher (2015 was lower) than the standard rate of corporation tax in the UK (2016: 20% and 2015: 21%). The differences are explained below: Profit before taxation – Continuing operations Profit before taxation multiplied by rate of corporation tax in the UK of 20% (2015:21%) Effects of: Other expenses not deductible for tax purposes Amortisation of intangibles Utilisation of losses Movement on losses Adjustments for prior years Research and development Total tax charge 2016 £000 1,570 314 (38) 120 - 440 - (283) 553 2015 £000 1,709 359 15 24 (228) 426 1 (178) 419 38 Vianet Group plc Earnings per share 8. Earnings per share has been impacted by the reversal of a deferred tax asset provision realised in previous years. Even with a higher deferred tax charge, the overall basic earnings per share for the year ended 31 March 2016 before exceptional costs increased to 7.28 pence compared to 7.00 pence at March 2015. Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders (£1,017k) 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 and post the impact of the movement in the deferred tax asset. Pre-tax profit attributable to equity shareholders Post-tax profit attributable to equity shareholders Post-tax, pre-exceptional profit attributable to equity shareholders 2016 Basic earnings per share Earnings £000 Diluted earnings per share Earnings £000 2015 Basic earnings per share Diluted earnings per share 1,570 1,017 5.78p 3.74p 5.75p 3.72p 1,709 1,209 6.33p 4.78p 6.33p 4.47p 1,978 7.28p 7.24p 1,890 7.00p 6.99p Weighted average number of ordinary shares Dilutive effect of share options Diluted weighted average number of ordinary shares 9. Ordinary dividends 2016 Number 2015 Number 27,168,095 141,814 26,996,763 36,977 27,309,909 27,033,740 Final dividend for the year ended 31 March 2015 of 4.0p (year ended 31 March 2014: 4.0p) Interim dividend paid in respect of the year of 1.70p (2015: 1.70p) Amounts recognised as distributions to equity holders 2016 £000 1,087 462 1,549 2015 £000 1,081 458 1,539 In addition, the directors are proposing a final dividend in respect of the year ended 31 March 2016 of 4.0p per share. If approved by shareholders, it will be paid on 28 July 2016 to shareholders who are on the register of members on 17 June 2016. Total dividend payable 5.70p (2015: 5.70p). Vianet Group plc 39 Notes to the Financial Statements for the year ended 31 March 2016 (continued) 10. Goodwill Group Cost At 1 April Disposal At 31 March Accumulated impairment losses At 1 April Disposal At 31 March Net book amount 2016 £000 2015 £000 17,973 (2,470) 15,503 (250) 250 - 17,973 - 17,973 (250) - - 15,503 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 2016 £000 15,503 - 15,503 2015 £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 ended 31 March 2016 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. 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. Discount rate assumptions, applied to both the leisure services: 10% based on management’s view of risks specific to the group. 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. 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. The Directors are confident that the restructuring and exit of loss making services in fuel solutions results in no impairment being required. This is continually reviewed by the Directors. 40 Vianet Group plc 11. Other intangible assets Group Cost At 1 April 2014 Internally generated development costs At 31 March 2015 Reclassified (note 12) Internally generated development costs Additions Disposals At 31 March 2016 Amortisation At 1 April 2014 Charge for the year At 31 March 2015 Reclassified (note 12) Charge for the year Disposals At 31 March 2016 Net book amount At 31 March 2016 At 31 March 2015 Capitalised development £000 Order book £000 Software £000 Customer contracts £000 Patents £000 Total £000 3,627 695 4,322 - 745 - (1,033) 4,034 1,281 721 2,002 - 736 (510) 2,228 1,806 2,320 281 - 281 - - - - 281 281 - 281 - - - 281 - - - - - 223 - 38 - 261 - - - 77 62 - 2,136 - 2,136 - - - (691) 1,445 2,046 23 2,069 - 19 (643) 139 1,445 122 - - 67 70 12 82 - - 6 - 88 20 13 33 - 1 - 34 54 49 6,114 707 6,821 223 745 44 (1,724) 6,109 3,628 757 4,385 77 818 (1,153) 4,127 1,982 2,436 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 £745,000 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 related product, commencing on the sale of the first commercial unit. Vianet Group plc 41 Notes to the Financial Statements for the year ended 31 March 2016 (continued) 12. Property, plant and equipment Group Cost At 1 April 2014 Additions Disposals At 31 March 2015 Additions Reclassified (note 11) Disposals At 31 March 2016 Accumulated depreciation At 1 April 2014 Charge for the year Disposals At 31 March 2015 Charge for the year Reclassified (note 11) Disposals At 31 March 2016 Net book amount At 31 March 2016 At 31 March 2015 13. Inventories Raw materials Write down on raw materials Work in progress Freehold Land and buildings £000 Plant, vehicles and equipment £000 Fixtures and fittings £000 3,125 - - 3,125 - - - 3,125 472 60 - 532 61 - - 593 2,532 2,593 963 113 (70) 1,006 139 - (281) 864 477 139 (52) 564 179 - (155) 588 276 442 2,982 250 (63) 3,169 244 (223) (110) 3,080 2,421 293 (47) 2,667 209 (77) (54) 2,745 335 502 2016 £000 1,815 (5) - 1,810 Total £000 7,070 363 (133) 7,300 383 (223) (391) 7,069 3,370 492 (99) 3,763 449 (77) (209) 3,926 3,143 3,537 2015 £000 1,887 (10) 20 1,897 No reversal of previous write-downs was recognised as a reduction of expense in 2015 or 2016. In 2016 £2,312,393 (2015: £2,586,169) 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 comprise 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. 42 Vianet Group plc 14. Trade and other receivables Trade receivables Other receivables Prepayments and accrued income 2016 £000 2,900 153 511 3,564 2015 £000 3,422 82 683 4,187 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 £45,000 (2015: £26,000) has been recorded accordingly (note 17) In addition some of the unimpaired trade receivables were past due at the balance sheet date as follows: Not past due 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 15. Trade and other payables Trade payables Other taxation and social security Accruals and deferred income Deferred consideration 2016 £000 1,738 1,054 80 28 2,900 2016 £000 789 726 2,501 - 4,016 2015 £000 2,087 1,068 174 93 3,422 2015 £000 1,036 712 2,170 29 3,947 The Directors consider that the carrying amount of trade and other payables approximates their fair value. Vianet Group plc 43 Notes to the Financial Statements for the year ended 31 March 2016 (continued) 16. Borrowings Current Bank overdraft Bank loans Non-current Bank loans 2016 £000 - 489 489 2016 £000 1,103 1,103 2015 £000 559 484 1,043 2015 £000 1,594 1,594 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 2016 % 2.5 1.5 2016 £000 325 486 292 2015 % 2.5 1.5 2015 £000 489 647 458 1,103 1,594 The Group’s bank borrowings bear interest at floating rates, which represent prevailing market rates. 44 Vianet Group plc 17. 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 2016 $000 110 - 110 2016 a000 23 - 23 2015 $000 147 - 147 2015 a000 140 - 140 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 2016 £000 3,605 3,053 6,658 2015 £000 548 3,504 4,052 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 Vianet Group plc 45 Notes to the Financial Statements for the year ended 31 March 2016 (continued) 17. Financial Instruments (continued) Credit risk analysis (continued) Bad debt provision at 31 March 2015 Amounts provided Bad debt provision at 31 March 2016 £000 26 19 45 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 Current liabilities Financial liabilities measured at amortised cost Non current liabilities Financial liabilities measured at amortised cost Net financial assets/(liabilities) The carrying value of the above assets and liabilities are equal to their fair value. 2016 £000 3,605 3,053 6,658 2016 £000 3,779 1,103 4,882 1,776 2015 £000 548 3,504 4,052 2015 £000 4,249 1,594 5,843 (1,791) 46 Vianet Group plc 17. 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 2016 £000 24,481 (3,605) 20,876 2015 £000 24,768 (548) 24,220 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. 18. Deferred tax Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 19% (2015: 20%). The movement on the deferred tax account is as shown below: At 1 April Adjustment re VFS disposal Profit and loss credit in respect of losses recognised At 31 March 2016 £000 (1,024) (11) 553 (482) 2015 £000 (1,443) - 419 (1,024) 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 £ (482)k (2015: £(1,204)k) are amounts of £ (482) k relating to tax losses (2015: £(1,024)k). The group has unused tax losses amounting to £nil (2015: £4,168k) for which no deferred tax asset has been recognised Vianet Group plc 47 Notes to the Financial Statements for the year ended 31 March 2016 (continued) 19. Issued share capital Issued and fully paid Ordinary shares of 10p each: 28,423,164 (2015: 28,308,164) 2016 £000 2015 £000 2,843 2,831 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 2016, the Trust owned 668,470 shares (2015: 818,470 shares) with a nominal value of £66,847 (2015: £81,847). At 31 March 2016, Vianet Group plc owned 456,000 shares (2015: 456,000 shares) with a nominal value of £45,600 (2015: £45,600), all held in treasury. Own shares held in Trust and Treasury are value at cost. Dividends payable on these shares have been waived. 20. 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 Sales Engineering VRS Management Administration Key management personnel - Directors Group Short term employment benefits Pension contributions Share based payments 2016 £000 6,812 714 201 43 7,770 2015 £000 6,936 682 265 45 7,928 2016 Number 2015 Number 9 51 5 8 135 208 2016 £000 858 63 44 965 12 51 5 11 137 216 2015 £000 719 82 45 846 During the year three (2015: three) directors had benefits accruing under defined contribution pension schemes. 48 Vianet Group plc 20. Employees and directors (continued) Highest paid director Short term employment benefits Pension contributions 2016 £000 305 24 329 2015 £000 232 22 254 21. 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 2015 Within one year After one year and less than five years Motor Vehicles £000 Land and Buildings £000 110 52 162 33 103 136 2016 Total £000 143 155 298 2015 Total £000 235 159 394 22. 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 start of the financial year Exercised Granted Forfeited At end of financial year 2016 2015 Number of share options 1,909,300 (269,000) 384,000 (241,500) 1,782,800 Weighted average exercise price p 90.7 75.1 96.8 92.5 94.2 Number of share options 1,251,050 (40,000) 1,432,500 (734,250) 1,909,300 Exercisable at end of financial year 447,800 111.4 707,300 Vianet Group plc Weighted average exercise price p 105.5 50.0 85.0 112.9 90.7 100.5 49 Notes to the Financial Statements for the year ended 31 March 2016 (continued) 22. Share-based payments (continued) Name of director / senior employee Date of grant Number of options Exercise price Exercise date M H Foster J W Dickson S C Gilliland S C Gilliland J W Dickson M H Foster S Darling M H Foster S Darling M H Foster 31/03/06 26/10/06 26/10/06 25/09/09 27/01/11 27/01/11 27/01/11 09/04/14 09/04/14 21/12/15 150,000 75,000 24,000 30,000 18,600 18,600 18,600 135,000 285,000 124,000 67.2p 123.0p 123.0p 102.5p 96.5p 96.5p 96.5p 85.0p 85.0p 103.0p 10/06/15 - - - - - - - - - Weighted average share price at date of exercise 106.4p - - - - - - - - - Gain on exercise £58,800 - - - - - - - - - Exercise period 01/04/06 to 31/03/16 27/10/09 to 26/10/15 27/10/09 to 26/10/15 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 10/04/17 to 09/04/24 10/04/17 to 09/04/24 21/12/18 to 20/12/25 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 expense of £44,000 (2015: £45,000) in relation to equity settled share-based payment transactions in the year. During the year, options were granted on 19 June 2015, 21 September 2015, 25 September 2015 and 21 December 2015 (2015: 9 April 2014). The aggregate of the estimated fair values of the options granted on those dates is £52,000 (2015: £130,000) Weighted average share price (p) Weighted average exercise price (p) Expected volatility (%) Expected life (years) Risk free rate (%) Joint Ownership Plan 2016 96.8 96.8 6.19 10 2.49 2015 77.0 85.0 6.19 10 2.49 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 2015. 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. 50 Vianet Group plc 23. 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 former non-executive director, invoiced Vianet Group plc for fees totalling £30,801 (2015: £42,570). As at 31 March 2016, there was £nil outstanding (2015: £ nil). C Williams, a non-executive director, invoiced Vianet Group plc for fees totalling £31,193 (2015: £23,453). As at 31 March 2016, there was £nil outstanding (2015: £nil). M McGoun, a non- executive director, invoiced Vianet Group plc for fees totalling £38,146 (2015: £37,222). As at 31 March 2016 there was £nil outstanding (2015: £nil). 24. Cash flows from discontinued operations Prior to disposal on 31 January 2016, Vianet Fuel Solutions Limited contributed the following cash flows to the Group Cash flows from operating activities Loss for the year Adjustments for Amortisation of intangible assets Depreciation 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 Purchases of property, plant and equipment Purchases of intangible assets Net cash used in investing activities Cash flows from financing activities Intercompany funding Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Vianet Group plc 2016 £000 (274) 156 61 (22) 18 15 (46) (3) 33 53 83 37 - 37 (75) (148) (223) (70) (70) (256) 346 90 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 2016 which comprise the Company balance sheet, the Company statement of changes in equity and the related notes. The financial reporting framework that has been applied in the preparation of the parent company financial statements is United Kingdom Generally Accepted Accounting Practice including FRS 101 ‘Reduced Disclosure Framework’. 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 14 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 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 Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate 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 2016; have been properly prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 101 ‘Reduced Disclosure Framework’; 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: • • • • 52 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. Vianet Group plc Independent auditor’s report to the members of Vianet Group plc Other matter We have reported separately on the group financial statements of Vianet Group plc for the year ended 31 March 2016. Mark Overfield BSc FCA Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Leeds 6 June 2016 Vianet Group plc 53 COMPANY BALANCE SHEET at 31 March 2016 Fixed assets Investments in subsidiaries Other intangible assets Tangible assets Current assets Debtors Cash at bank 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 *Restated: See note 15 Note 2 3 4 5 6 7 8 8 8 8 8 8 2016 £000 4,905 113 12 5,030 9,790 3,326 13,116 Restated* 2015 £000 5,199 150 4 5,353 13,794 - 13,794 (471) (304) 12,645 17,675 2,843 11,287 218 (1,227) 310 4,244 17,675 13,490 18,843 2,831 11,198 209 (1,387) 310 5,682 18,843 The balance sheet was approved by the Board on 6 June 2016 and signed on its behalf by: J Dickson Director Company number: 5345684 The accompanying accounting policies and notes form an integral part of the financial statements. 54 Vianet Group plc STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2016 At 1 April 2014 Dividends Issue of shares Share based payment Share option forfeiture Total transactions with owners Profit and total comprehensive income for the year At 31 March 2015 Dividends Issue of shares Share based payment Share option forfeiture Exercised options Total transactions with owners Profit and total comprehensive income for the year Share capital £000 2,827 - 4 - - 4 - Share premium £000 11,182 - 16 - - 16 - Own shares £000 Share based payment reserve £000 Merger reserve £’000 Retained earnings £000 (1,387) - - - - - - 293 - - 45 (129) (84) - 310 - - - - - - Total £000 18,153 (1,539) 20 45 - 4,928 (1,539) - - 129 (1,410) (1,474) 2,164 2,164 2,831 11,198 (1,387) 209 310 5,682 18,843 - 12 - - - 12 - - 89 - - - 89 - - - - - 160 160 - - - 44 (35) - 9 - - - - - - - - (1,550) - - 35 - (1,550) 101 44 - 160 (1,515) (1,245) 77 77 At 31 March 2016 2,843 11,287 (1,227) 218 310 4,244 17,675 The accompanying accounting policies and notes form an integral part of the financial statements. Vianet Group plc 55 NOTES TO THE COMPANY BALANCE SHEET 1. Principal accounting policies 1.1 Statement of compliance These financial statements have been prepared in accordance with applicable accounting standards and in accordance with Financial Reporting Standard 101 – ‘The Reduced Disclosure Framework’ (FRS 101). The principle accounting policies adopted in the preparation of these financial statements are set out below. These policies have all been applied consistently throughout the year unless otherwise stated. The financial statements have been prepared on a historical cost basis except for the revaluation of certain properties and financial instruments. The financial statements are presented in Sterling (£) 1.2 Changes in accounting polices This is the first year in which the financial statements have been prepared in accordance with FRS 101. The date of transition is 1 April 2014. An explanation of the transition is included in note 15 to the financial statements. In applying FRS 101 for the first time the Company has applied early the amendment of FRS 101 which permits a first time adopter not to present an opening statement of financial position at the beginning of the earliest comparative period presented. 1.3 Disclosure exemptions In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101. Therefore these financial statements do not include • • • • • • • • • • • • A statement of cash flows and related notes Non-current asset held for sale and discontinued operation net cash flow disclosure The requirement to produce a balance sheet at the beginning of the earliest comparative period The requirements of IAS 24 related party disclosures to disclose related party transactions entered in to between two or more members of the group as they are wholly owned within the group Presentation of comparative reconciliations for property, plant and equipment, intangible assets, investment properties and agriculture Disclosure of key management personnel compensation Capital management disclosures Presentation of comparative reconciliation of the number of shares outstanding at the beginning and at the end of the period The effect of future accounting standards not adopted Certain share based payments disclosures Disclosures in relation to impairment of assets Fair value measurement disclosures (other than disclosures required as a result of recording financial instruments at fair value) The Company intend on continuing to apply these disclosure exemptions next year. A shareholder or shareholders holding in aggregate 5% or more of the total allotted shares in Vianet Group plc can serve objections to the use of the disclosure exemptions in writing, to its registered office. 56 Vianet Group plc Notes to the Company Balance Sheet (continued) Income taxes 1. Principal accounting policies (continued) 1.4 Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Calculation of current tax is based on tax rates and laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income taxes are calculated using the liability method. Calculation of deferred tax is based on tax rates and laws that have been enacted or substantively enacted by the end of the reporting period that are expected to apply when the asset is realised or the liability is settled. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the entity expects to recover the related asset or settle the related obligation. Certain of the Company’s investment property portfolio is to be recovered through sale whereas investment property occupied by group companies is expected to be recovered through use. Deferred tax assets are recognised to the extent that it is probable that the underlying tax loss or deductible temporary difference will be utilised against future taxable income. This is assessed based on the Company’s forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit. Deferred tax assets are not discounted. Deferred tax liabilities are generally recognised in full with the exception of the following: on the initial recognition of goodwill on investments in subsidiaries and joint ventures where the Company is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future on the initial recognition of a transaction that is not a business combination and at the time of the transaction affects neither accounting or taxable profit. Deferred tax liabilities are not discounted. Investment in subsidiaries 1.5 Investments in subsidiary undertakings, associates and joint ventures are stated at cost less any applicable provision for impairment. 1.6 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 57 Notes to the Company Balance Sheet (continued) 1. Principal accounting policies (continued) 1.7 Tangible assets Property plant and equipment (PPE) is initially recognised at acquisition cost or manufacturing cost, including any costs directly attributable to bringing the assets to the location and condition necessary for them to be capable of operating in the manner intended by the Company’s management. 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. 1.7 Intangible assets Patents Patents are stated at cost net of amortisation and any provision for impairment. Software Purchased software 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 Purchased software expected length of patent 4 years Methods of amortisation, residual values and useful lives are reviewed, and if necessary adjusted, at each balance sheet date. 2. Investments in subsidiaries Company Cost and net book amount: Shares in subsidiaries At 1 April Additions Impairment Disposal At 31 March 58 2016 £000 2015 £000 5,199 5,272 (2,066) (3,500) 4,905 5,170 29 - - 5,199 Vianet Group plc Notes to the Company Balance Sheet (continued) Investments in subsidiaries (continued) 2. The company owns the whole of the issued ordinary share capital of the following subsidiaries: Subsidiary Shareholding Country of incorporation Brulines Trustee Company Limited Edis Limited Bruline Limited Nucleus Data Holdings Limited Retail & Forecourt Solutions Limited LBI Installations Limited Energy Level Systems Limited Vianet Americas Inc Vianet Limited 100% 100% 100% 100% 100% 100% 100% 100% 100% UK UK UK UK UK UK UK USA UK Principal activity Employee Trust Dormant Dormant Dormant Dormant Dormant Dormant Leisure Solutions Leisure 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 the disposed VFS subsidiary prior to disposal. These balances were subsequently reviewed for impairment and reduced to the £3.5m carrying value disposed. 3. Other intangible assets Cost At 1 April 2014 Additions At 31 March 2015 Additions At 31 March 2016 Amortisation At 1 April 2014 Charge for the year At 31 March 2015 Charge for the year At 31 March 2016 Net book amount At 31 March 2016 At 31 March 2015 *Restated: See note 15 Vianet Group plc Patents £000 *Restated Software £000 43 11 54 6 60 4 5 9 6 15 45 45 106 55 161 4 165 17 39 56 41 97 68 105 Total £000 149 66 215 10 225 21 44 65 47 112 113 150 59 Notes to the Company Balance Sheet (continued) 4. Tangible Assets Cost At 1 April 2014 Additions At 31 March 2015 Additions At 31 March 2016 Accumulated depreciation At 1 April 2014 Charge for the year At 31 March 2015 Charge for the year At 31 March 2016 Net book amount At 31 March 2016 At 31 March 2015 *Restated: See note 15 5. Debtors Amounts due from subsidiaries Trade debtors Other debtors Other taxation All intercompany debt is repayable on demand. 6. Creditors: amounts falling due within one year Bank overdraft Other payables Accruals and deferred income *Restated Fixtures and fittings £000 4 2 6 10 16 1 1 2 2 4 12 4 2015 £000 13,704 - 70 20 13,794 2015 £000 2 100 202 304 2016 £000 9,551 2 213 24 9,790 2016 £000 - 88 383 471 60 Vianet Group plc 7. Issued share capital Issued and fully paid Ordinary shares of 10p each : 28,427,164 (2015: 28,308,164) 2016 £000 2015 £000 2,843 2,831 Allotments during the year Since the end of the financial year no shares have been issued under the share option scheme. Share capital and reserves 8. Called-up share capital – represents the nominal value of shares that have been issued Share premium account – includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium Own shares – represents the shares held in Trust and Treasury at historical cost. Share based payment reserve – represents the fair value of all share options issued by the Company which have yet to be exercised Merger reserve – excess of fair value of shares issued over nominal value when shares are issued in exchange for obtaining at least a 90% interest in the equity share capital of another entity Profit and loss account – includes all current and prior period retained profits and losses 9. Dividends Final dividend for the year ended 31 March 2015 of 4.0p (year ended 31 March 2014: 4.0p) Interim dividend paid in respect of the year of 1.70p (2015: 1.70p) Amounts recognised as distributions to equity holders 2016 £000 1,087 462 1,549 2015 £000 1,081 458 1,539 In addition, the directors are proposing a final dividend in respect of the year ended 31 March 2016 of 4.0p per share. If approved by shareholders, it will be paid on 28 July 2016 to shareholders who are on the register of members on 17 June 2016. Total dividend payable 5.70p (2015: 5.70p). Vianet Group plc 61 Notes to the Company Balance Sheet (continued) 10. 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 11. Directors Directors’ emoluments Pension contribution The amounts in respect of the highest paid director are as follows: Directors’ emoluments Pension contribution 2016 £000 781 117 63 44 1,005 2015 £000 729 78 86 45 938 2016 Number 2015 Number 6 6 2016 £000 858 63 921 2016 £000 305 24 329 6 6 2015 £000 719 82 801 2015 £000 232 22 254 For other Directors’ emoluments see page 13 in the Report of the Directors. 12. Share-based payments The company disclosures required under FRS 101 are identical to those required under IFRS. See Group accounts, note 22, for details. 13. 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 £2,923,000 (2015: loss £836,000). 62 Vianet Group plc 14. Related Party Transactions As permitted by FRS 101 related party transactions with wholly owned members of Vianet Group plc have not been disclosed Non-executive director payments were incurred in the company during this year. 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 former non-executive director, invoiced Vianet Group plc for fees totalling £30,801 (2015: £42,570). As at 31 March 2016 there was £nil outstanding (2015: £ nil). C Williams, a non-executive director, invoiced Vianet Group plc for fees totalling £31,193 (2015: £23,453). As at 31 March 2016, there was £nil outstanding (2015: £nil). M McGoun, a non-executive director, invoiced Vianet Group plc for fees totalling £38,146 (2015: £37,222). As at 31 March 2016 there was £nil outstanding (2015: £nil). See Group accounts, Report of the Directors for details of non-executive directors’ emoluments. 15. Transition to FRS 101 The Company has adopted FRS 101 for the first time having previously applied UK GAAP that was effective before periods commencing on or after 1 January 2015. The date of transition to FRS 101 was 1 January 2014. The Company has restated its comparatives for the year ended 31 December 2014. Under previous UK GAAP software was classified as tangible fixed assets. Under FRS 101, software is classified as intangible fixed assets. This has nil impact on shareholders’ funds. On applying FRS 101 for the first time the following transitional reliefs were adopted: • • • the Company elected to commence the capitalisation of borrowing costs on the construction of qualifying assets at the date of transition to FRS 101 the Company has elected not to restate business combinations that were entered into before the date of transition to FRS 101 the company has elected to retain its interests in subsidiaries, associates and joint ventures at the previous UK GAAP carrying amounts at the date of transition to FRS 101 Vianet Group plc 63 NP0416.2099 One Surtees Way, Surtees Business Park, Stockton on Tees, TS18 3HR www.vianetplc.com