ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2017 Xpediator PLC 700 Avenue West Skyline 120 CM77 7AA United Kingdom 249388_Xpediator_AR_Cover Spread 5mm.indd 1-3 05/06/2018 10:49 Company Registration Number: 10397171 CONTENTS HIGHLIGHTS 1 FINANCIAL STATEMENTS STRATEGIC REPORT CHAIRMAN’S STATEMENT CEO’S STATEMENT RISKS AND UNCERTAINTIES GOVERNANCE BOARD OF DIRECTORS CORPORATE GOVERNANCE STATEMENT DIRECTORS’ REPORT STATEMENT OF DIRECTORS’ RESPONSIBILITIES INDEPENDENT AUDITOR’S REPORT 3 5 9 11 12 16 17 18 CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS 23 24 25 27 29 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 COMPANY STATEMENT OF FINANCIAL POSITION COMPANY STATEMENT OF CHANGES IN EQUITY NOTES TO THE COMPANY FINANCIAL STATEMENTS 68 69 70 249388_Xpediator_AR_Cover Spread 5mm.indd 4-6 05/06/2018 10:49 Designed and Printed by Perivan HIGHLIGHTS FINANCIAL PERFORMANCE £116.3m £1.8m 60% increase in revenues to £116.3 million (2016: £72.8 million) Profit after tax increased to £1.8 million (2016: £1.1 million) £3.9m £4.8m 81% increase in EBITDA to £3.9m (2016: £2.1 million) 72% increase in adjusted EBITDA to £4.8m (2016: £2.8 million)1 £3.1m £3.3m 70% increase in reported operating profit to £3.1 million (2016: £1.8 million) Adjusted Earnings increased to £3.3 million (2016: £1.7 million)3 1.64p Basic EPS of 1.64p (2016: 0.70p) reflecting the increased number of shares in issue post equity fundraisings and acquisitions 0.64p Final dividend recommended of 0.64p per share OPERATIONAL ACHIEVEMENTS LOOKING AHEAD TO 2018 • Completed listing on AIM of the London Stock Exchange in August 2017 • Strong pipeline of complementary acquisition targets in the UK and Europe • Successful fund raises totalling £7.8 million • Continued high demand for road of new capital transportation • Strong organic growth across all three • Postive Q1 trading performance divisions • Eshopwedrop well placed for further growth • Completed three earnings enhancing through franchising acquisitions • Notable client wins in Romania and UK • EshopWedrop developing well • Continued growth of Pallex Romania facilitating contract logistics expansion • Fulfilment a growth area for 2018 NOTES 1 Adjusted EBITDA excludes the costs associated with the acquisitions, £240,000 and the costs associated with the listing £672,000. 2 Adjusted EBIT excludes the costs associated with the acquisitions, £240,000, the costs associated with the listing £672,000 and the amortisation on the intangible assets created, due to the acquisitions, £330,000. 3 Adjusted earnings are equal to the Profit after tax excluding the costs associated with the acquisitions, £240,000, the costs associated with the listing £672,000 and the amortisation on the intangible assets created, due to the acquisitions, £330,000 and the non-cash interest charges relating to the acquisitions £295,000. 1 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 1 04/06/2018 16:32 Alex Borrelli Chairman “...all three divisions have performed well during the year, increasing both revenues and profits.” 2 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 2 04/06/2018 16:32 CHAIRMAN’S STATEMENT +60% Revenues increased to £116.3 million (2016: £72.8 million) 70% Operating profit increased to £3.1 million (2016: £1.8 million) T R O P E R C G E T A R T S I I am pleased to present the consolidated financial statements of Xpediator for the year ended 31 December 2017. This is the first publication of the Company’s annual trading results following our successful admission to AIM on the London Stock Exchange, in August 2017. 2017 was a particularly successful year for the business as shown by revenues increasing by 60% to £116 million. Importantly, this increase came primarily from organic growth across the business with £10 million contributed from three acquisitions completed during the year. As a result, the Company is well placed to continue to grow organically, as well as benefit from full contributions from the acquisitions made in 2017. SIGNIFICANT PROGRESS MADE IN 2017 The Group operates through three divisions – Freight Forwarding, Transport Services and Logistics & Warehousing – all three divisions have performed well during the year, increasing both revenues and profits. We have a strong management team who have been together for many years and hold significant equity interests in the Company. The team is led by Stephen Blyth, CEO, who founded the business in 1988, and whose leadership has been fundamental to the Group’s success. On 11 August 2017, Xpediator was successfully admitted to the AIM market of the London Stock Exchange, raising £5 million before expenses. The rationale for listing on the stock market was to support the Company’s ambition to grow the business taking advantage of the high demand for road transportation and to support the Group’s strategy to act as a consolidator in a very fragmented market place. The Group’s acquisition strategy is based on identifying potential targets with similar activities that can enhance our existing offering to customers, create cross-selling opportunities and in particular add to our burgeoning e-commerce activities. Transactions have been funded through a mix of cash and new shares and include a significant performance related element. Each acquisition to date has been earnings enhancing from completion. During the year under review, the Company completed three significant acquisitions. In March 2017, Xpediator acquired EMT, a specialist fashion processor and domestic distributor, for an initial consideration of £5.1 million, and an expected earn out consideration deferred of £2.4 million. This a highly complementary fit with the Company’s existing retail and warehouse operations. Utilising the funds from the IPO, together with a further successful Placing in November raising £2.8 million, Xpediator made two further earnings accretive acquisitions. In October 2017, the Company acquired Benfleet Forwarding for an initial consideration of £6.6 million and an expected earn out consideration of £0.6 million. This is a complementary UK based international freight forwarder. In November 2017, Regional Express was acquired for an initial £1.2 million and an expected earn out consideration deferred of £0.5 million. This is a UK based freight forwarder, international courier and recognised service provider for Amazon sellers in the UK, US and Europe. 3 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 3 04/06/2018 16:32 CHAIRMAN’S STATEMENT CONTINUED The Group’s e-commerce business, EshopWedrop had a successful 12 months; beginning with the acquisition of UKbuy in January 2017, for an initial £0.1 million and an expected earn out consideration deffered of £0.3 million. This is an Lithuanian based cross-border online delivery service platform. Expanding the EshopWedrop network is a key focus in 2018. As the Group expands, there are increasing challenges for our evolving business. We recognise the importance of investing in the business, particularly in the areas of systems and IT, and we continue to invest in people with the recruitment of skilled personnel at all levels. The Group now has over 700 employees across 11 countries. I would like to thank all our employees for their commitment and contribution to the Group and welcome our recent recruits who joined during the year. We are also committed to the introduction this year of appropriate performance plans to reward our staff, which are expected to be in the form of options and cash. GROUP RESULTS Group revenues increased by 60% to £116.3 million for the year ended 31 December 2017 (2016: £72.8 million). Group adjusted EBIT, to exclude costs associated with the listing and acquisitions and the amortisation relating to the intangible assets of the acquired entities, increased by 75% to £4.3 million (2016: £2.5 million). EBIT increased by 81% to £3.9 million (2016: £2.1 million). Adjusted earnings, increased by 94% to £3.3 million (2016: £1.7 million). Basic earnings per share were 1.64p (2016: 0.70p) reflecting the increased number of shares in issue following the successful fund raisings and shares issued for the acquisitions. Net assets amounted to £14.8 million (2016: £3.6 million). AWARDS Continuing the Company’s successful track record of winning industry awards, in 2017 the Company was awarded the BIFA Award for “European Logistics”, the “Service Excellence Award” from the Chartered Institute of Logistics & Transport and named as “Freight Carrier of the Year” at the FTA Logistics Awards – in addition to being shortlisted as finalists at the Global Freight Awards. 4 SHARES AND FUNDRAISINGS During the year, we issued 20,833,333 new shares at 24p per share to raise £5 million in conjunction with the AIM listing. In November 2017, we issued 7,000,000 new shares at 40p per share raising £2.8 million. A further 9,219,858 new shares were issued as part of the acquisition of Benfleet and 377,953 new shares as part of the acquisition of Regional Express. Following the fundraisings and acquisitions part financed by shares, the Company has 117,431,144 shares in issue and we welcome our new shareholders. BOARD AND GOVERNANCE I joined the Board as Chairman in January 2017, and as part of the Company’s listing on AIM, the Board was expanded through the addition of Geoff Gillo as a Non- Executive Director, with significant sector and managerial expertise. The executive Directors on the Board are Stephen Blyth, CEO, and Richard Myson, CFO. We are looking to expand the Board with the addition of further non-executive directors, where their expertise can add value to the Group as a whole, in addition to our commitment of maintaining high corporate governance standards. DIVIDEND The Board is pleased to recommend a final dividend of 0.64p per share. The proposed dividend, if approved by shareholders, will be paid on 3rd August 2018, to shareholders on the register at the close of business on 6th July 2018. NOTICE OF CFO RETIREMENT Richard Myson has decided to retire from the Group for personal reasons and will step down as a director on 31 October 2018. I would particularly like to thank Richard for his significant contribution to the growth of the Group over the last 14 years and wish him well for the future. OUTLOOK The markets in which we operate are in growth mode. Demand for road transportation is increasing across Europe, supported by economic stability together with a burgeoning e-commerce sector. Xpediator is well placed to capitalise on this positive market environment and has invested behind the existing business and in complementary acquisitions to capture an increasing share of the freight management market in Europe and further afield. We look forward to a further year of progress in 2018. Alex Borrelli (Non Executive) Chairman 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 4 04/06/2018 16:32 CEO’S STATEMENT 2017 has been a transformative year for Xpediator and it has been a pleasure to be a part of the business’s growth. We achieved many of our objectives in terms of the stock market listing and expanding the scale of the business but most importantly we are well placed to continue to grow. T R O P E R C G E T A R T S I Stephen Blyth Chief Executive Officer +60% Revenues increased to £116.3 million (2016: £72.8 million) +70% Operating profit increased to £3.1 million (2016: £1.8 million) Demand for transportation services in our core markets of the UK and Eastern Europe is strong and is being further enhanced by the significant increase in e-commerce activities. These trends match the services we provide and this makes Xpediator well placed to take advantage of these opportunities. We have clear expansion plans for all three divisions and a pipeline of potential acquisitions, which we anticipate will further support the growth of the business. 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 5 04/06/2018 16:32 5 CHIEF EXECUTIVE OFFICER’S STATEMENT CONTINUED DIVISIONAL REVIEW FREIGHT FORWARDING £93.3m Revenue £2.4m Operating Profit before exceptionals The Group’s largest division and trading as Delamode International logistics enjoyed a successful 12 months. The strategic decision to focus on selling full loads as opposed to part loads, has continued to benefit this division with revenue income increasing significantly over the period. Growth has come from continued demand across this divisions’ 10,000 strong customer base and a key challenge has been the ability to source capacity through a wide database of suppliers. Geographically, the Baltic markets showed the strongest improvement year on year and this was driven by new client wins and a general increase in demand. Post-acquisition activity of Benfleet and Regional Express has been included in the Freight forwarding division in 2017, this contributed £5.5m of turnover for Benfleet and £1.5m for Regional Express. TRANSPORT SERVICES £4.58m Revenue £1.95m Operating Profit before exceptionals £120m Gross Billings Transport Services which trades under the Affinity brand and provides bundled fuel and toll cards had an excellent period benefitting from the general increase in activity across the CEE region. The focus for this division is to expand the customer base of 1,700 Eastern European hauliers operating approximately 12,000 trucks by offering extra services such as roadside assistance, GPS and ferry bookings thereby acting as a “one stop” solution. In addition, the Company is developing a financing solution for customers to lease trucks and purchase insurance all under the Affinity brand. LOGISTICS AND WAREHOUSING EshopWedrop was established in 2015 in Lithuania and has since expanded into Latvia, Estonia and Romania. The Group’s EshopWedrop service made its first country franchise awards in Cyprus and Albania. £18.4m Revenue The service is a B2C offering that overlays existing B2B groupage service lines run by the Group’s freight forwarding division, Delamode. The service enables consumers in these countries to make online purchases in the UK, Poland, Italy, France, Germany and the USA and have goods delivered to consolidation points at a local cost. Many e-commerce retailers deliver within country for free. The goods are delivered internationally and the overall cost is highly competitive and little more than a domestic delivery cost. The concept is to franchise the service across the world to courier companies or entities capable of last mile delivery. 6 £0.9m Operating Profit before exceptionals Logistics and Warehousing is focused on the UK and Romania . Also in Romania the Company operates the Pallex franchise. The ability to deliver consignments within 24 hours will be a key advantage to growing the contract logistics and warehousing in Romania. 2017 was a successful period for this division seeing a significant increase in turnover arising from increased Pallex activity and also the successful awards of several new customers both in the UK and Romania. In March 2017, the Company opened a new facility in Bucharest to accommodate the increase in the warehouse activity and client base in Romania and a further site was approved late in 2017. Approval has been given for a new cross dock in Sibiu for Pallex and Delamode storage, which is expected to be operational in Q1 2019. This will significantly enhance service and profit levels. Given the nature of the EMT activity, this has been included in the Logistics and Warehousing division, the post-acquisition turnover contributed £2.9m. 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 6 04/06/2018 16:32 T R O P E R C G E T A R T S I CHIEF EXECUTIVE OFFICER’S STATEMENT CONTINUED FINANCIAL REVIEW The Group generated revenues for the year to 31 December 2017 of £116.3 million representing a 60% increase (2016: £72.8 million), driven in particular by a strong performance in the Baltics region and increased demand for Pallex in Romania, as well as key customer wins in the UK and acquisitions. Operating profit increased by 70% to £3.1 million (2016: £1.8 million) including £0.9m of exceptional costs in relation to the acquisitions successfully completed in 2017 and the costs relating to the listing process. Excluding the exceptional costs, the operating margin of the business was in line with 2016 levels. Adjusted EBIT, excluding listing costs, acquisitions costs and amortisation relating to acquired entities increased by 75% to £4.3 million (2016: £2.5 million). Reported profit before tax increased by 60% to £2.4 million (2016: £1.5 million), leading to the Company recording EPS of 1.64p (2016: 0.70p), the calculation on the EPS reflects the increase in the number of share in issue from 80 million in 2016 to 117 million, following the equity placings in 2017. Adjusted earnings for the period increased by 94% to £3.3 million (2016: 1.7 million). In August 2017, as part of the admission to AIM, the Company successfully raised £5 million, before costs. Then in November 2017 the Company returned to the market and raised a further £2.8 million in an oversubscribed placing. The additional costs of becoming a listed entity should remain relatively fixed, as we seek to grow the scale of activity in the Group through a combination of M&A activity and strong organic growth. As at 31 December 2017, the Company demonstrated a strong balance sheet with net cash of £1.5 million at year end, with £7.4m of cash at the bank offset by £5.9m of bank loans (2016: net cash of £0.0 million). The Company generated cash from operating activities of £2.8 million in the year, (2016 : £4.7 million) this includes the payment of costs relating to the listing and for acquisitions of £0.9 million. The Company has minimal capital expenditure requirements and has to date, achieved strong cash generation. In 2017, operating cash flow was 72% of EBITDA. Working capital increased by £1.0 million during 2017 to £0.5 million, which when compared to revenue growth of 60%, reflects an improvement in working capital profile at year end. M&A Xpediator is well placed to act as a consolidator of freight management businesses that are earnings accretive and can flourish as part of a wider Group. The three acquisitions made in 2017 have expanded the Group’s operating capabilities in the UK and widened the range of activities beyond the core CEE markets into Southern Europe and China, sea freight capability, UK port offices for potential post Brexit customs work and, through Regional Express, international ecommerce capability. All three acquisitions have integrated well and are contributing positively to the overall business. FUTURE DEVELOPMENTS AND OUTLOOK The Company achieved significant goals in 2017 and remains confident of continuing its future growth and development in 2018. The core business is well positioned and is benefiting from a positive market environment with high demand for road transportation services. Alongside this, the capabilities and opportunities across the Group have been enhanced with the acquisitions completed in 2017 adding new air, sea and port services and introducing new clients, in particular, Amazon, all of which are combining to improve the future prospects of the business. Trading in 2018 has begun positively with revenues for Q1 ahead of the prior year and we have improved profit margin. This performance means the Group has started well and is well placed to deliver a good performance for the year. There continues to be many opportunities for organic growth and M&A activity. Acquisitions will strategically enhance the group’s ability to offer a one stop solution to an ever increasing customer base. Stephen Blyth Chief Executive Officer 7 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 7 04/06/2018 16:32 KEY PERFORMANCE INDICATORS A qualitative review of the performance during the year is provided in the Chairman and CEO’s Statements and the results for the year are presented in the Consolidated Financial Statements. The key indicators of performance for the Group are shown below; REVENUE (£000’s) 2016 72,758 GROSS PROFIT (£000’s) 2016 17,199 2017 116,297 2017 28,111 60.0% GROSS MARGIN (%) 2016 2017 23.64 24.17 0.5% ADJUSTED EARNINGS5 (£000’s) 2016 1,714 2017 3,322 94% NET CASH FROM OPERATING ACTIVITIES (£000’s) 2016 2017 3,634 1,653 55% 63.0% OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS4 (£000’s) 2016 2,468 2017 4,001 62% NET CASH LESS BANK LOANS (£000’s) 1 2016 2017 1,500 1,500% NOTES 4 Exceptional items include the costs associated with the acquisitions, £240,000 and the costs associated with the listing £672,000. 5 Adjusted earnings exclude the exceptional items relating to the listing and acquisitions, the non cash interest charge £295,000 and the amortisation on the intangible assets relating to the acquired entities, £330,000. 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 8 04/06/2018 16:32 T R O P E R C G E T A R T S I RISKS AND UNCERTAINTIES The Board has overall responsibility for ensuring risk is appropriately managed across the business. The Board sets clear strategic objectives for the business. The risks to the achievement of those objectives are identified by corporate and divisional management. The audit committee provides further independent review and robust challenge. Identified risks are evaluated, both before and after controls and mitigating actions have been applied, as to their likelihood of occurring and potential financial and reputational impact. Risks are treated in accordance with risk appetite, which has been defined by the Board across a range of risk categories. The success of the Group depends on its ability to mitigate and understand the risks facing the business and take appropriate action. The Board of directors meets regularly to evaluate the group’s risk appetite. The risks are addressed on page 10, principal risks and uncertainties facing the Group are broadly grouped as economic and financial risk. “The success of the Company depends on its ability to mitigate and understand the risks facing the business.” 9 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 9 04/06/2018 16:32 RISKS AND UNCERTAINTIES CONTINUED Economic risk Whilst the Group strives to win market share, we operate in a service industry, which relies on the activity of our customers for its success. Any downturn or change in the pattern of world trade can have a marked effect on the activity of the Group; major costs are variable and the Group is able to respond and adapt to meet customers’ needs. The Group has a wide customer base across a number of countries with no dominant customers. Financial risk and management objectives and policies The Group’s activities expose it to a limited number of financial risks. The Group aims to manage these risks on a day to day basis. Further analysis of financial risks is provided in note 24 to the financial statements. Liquidity risk The Group has sufficient liquid resources to meet the operating needs of the business. Regular cash flow forecasts are prepared and reviewed by the Board to monitor and forecast working capital requirements, and funds may be transferred between Group companies to assist in managing this risk. Credit risk All customers who wish to trade on credit terms are subject to credit verification procedures, and control of customer credit limits and the collection of outstanding debts are carefully controlled. Trade debtors are reviewed and monitored on a regular basis at board level each month, and provision is made for doubtful debts where necessary. Foreign exchange risk The Group has exposure to foreign exchange risk. The currencies that expose the Group are mainly the Euro and the Romanian Lei. Certain liabilities, principally finance leases and borrowings, are denominated in foreign currencies, which are retranslated at the prevailing exchange rate at the balance sheet date. The Group results are consolidated into sterling. Interest rate risk The interest rate cash flow risk is the risk that the interest cost will fluctuate over time. Assets financed through finance leases are leased at fixed interest rates. Borrowing rates are dependent on Euribor fluctuations. The Group companies have not entered into any hedging arrangements in respect of its interest rate exposure. The long term debt of the Group is denominated in sterling and is based on a blend of fixed rate and margin above base, which currently has a blended average rate of approx. 4% per annum. CYBER SECURITY IT systems are used to facilitate operations, business management and for record keeping. The threat of an unauthorised or malicious attack is an ongoing risk, which could impact on the performance of the Group. Any downtime because of a systems breach or failure would affect the ability to perform the operations to its optimal level, and thus may affect customer relationships and loyalty. 10 In order to mitigate any such risk, the IT systems, whether proprietary or from third parties, are tested for security from attack. Critical systems are backed up regularly and or hosted on third party data centres with appropriate backup redundancy. Disaster recovery plans are in place to ensure business can recover from any interruptions with minimal impact – the main trading websites and internal network is protected by a firewall with frequently updated anti-virus software. Post year end, we have recruited a Chief Information Officer who will implement the continued improvement programme relating to our cyber security. Dependence on key suppliers Over the last 14 years the Group has developed a strong and successful relationship with DKV. This relationship is supported by a contract which has been in place since 2002. Any event which leads to the sudden loss or deterioration of this relationship could materially adversely affect the Group’s performance prospects, results of operations and financial condition. ACQUISITIONS The risks are and the actions taken by the board to mitigate them are shown below; Risk of overpaying The group’s strategy on all acquisitions is that the consideration is based on a multiple of earnings, with the consideration based on a payment on completion with a further payment based on the future earnings of the acquired entity. Based on this structure the Group mitigates any overpayment as the payment should be largely linear to the profit generated post acquisition. Insufficient operational diligence The Group looks to minimise any risks associated with the due diligence process by having suitability experienced people involved in the due diligence process, this includes both operational and financial individuals. Limited target Company knowledge When considering a potential target, the Group look at entities, which are generally known to the senior management team. This benefits the Group as there is already a knowledge base relating to the potential target and this mitigates some potential risks. Brexit With the final details of Brexit still to be agreed, there is a certain level of uncertainty as to the impact the exit from the EU will have on the economy and the customs processes. If there are any changes to the customs formalities in which goods traded with the UK require customs clearance, then the Company is well positioned to provide these services to its client base and thus improving profit and margins. The strategic report was approved by the board on 14 May 2018 and signed on its behalf by, Stephen Blyth Chief Executive Officer 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 10 04/06/2018 16:32 BOARD OF DIRECTORS Michael Alexander (Alex) Borrelli Non-executive Chairman (aged 62) Stephen William Blyth Chief Executive Officer (aged 63) Alex initially studied medicine and then qualified as a chartered accountant in 1982. He has subsequently been active within the investment banking sector and has acted on a wide variety of corporate transactions in a senior role for over 20 years, including flotations, takeovers, mergers and acquisitions for private and listed companies. He is chairman and chief executive officer of BMR Group PLC, an AIM listed Company in the mining sector. He is also currently Non-executive Chairman of Greatland Gold plc and of Black Sea Property plc. Alex was appointed Chairman of Xpediator in January 2017. Stephen qualified as a chartered accountant in 1981. In 1984 Stephen joined one of his audit clients, Bleckmann (UK) Limited, a logistics Company, as managing director. Bleckmann was a subsidiary of Frans Maas, a listed Dutch logistics and freight forwarding Company, subsequently acquired by DSV, a listed global transport and logistics entity in Denmark. Having turned around the fortunes of Bleckmann and securing new business from the likes of Gap and Next and introducing new service lines, Stephen left Bleckmann in 1988 to set up the Group. In addition to Xpediator, Stephen has been involved in a number of other businesses across a broad range of activities. E C N A N R E V O G Richard Lee Myson Group Chief Financial Officer (aged 46) Geoffrey (Geoff) Michael Gillo Non-executive Director (aged 64) Richard qualified as a chartered management accountant in 2002 and has over 20 years’ experience in finance largely in a Logistics and Supply Chain management environment. Richard has a proven track record in the finance departments of several large multinational companies, including Tibbett and Britten Group Plc, where he was employed before he joined Delamode in 2004, initially as the UK Finance Director. In 2010 he became the Group Chief Financial Officer and was appointed as the Chief Executive Officer of Affinity in April 2012. In February 2016, Richard was appointed Group Corporate Development Director and was subsequently re-appointed Group Chief Financial Officer in October 2016. Geoff qualified as a chartered accountant with Peat Marwick Mitchell & Co in 1976. Moving in to logistics with United Transport Co Ltd (part of BET plc) he qualified as a chartered member of the Institute of Logistics and Transport. Following periods in automotive retail and contract hire, food manufacturing, processing and retailing he returned to logistics and supply chain management becoming the European Commercial and Finance Director of Tibbett & Britten Group plc. He is a founder director and shareholder of The Keswick Enterprises Group Ltd and has held and holds non-executive directorships in a number of logistics companies, including Non-executive Director of Delamode between 2004 and 2010. Geoff was appointed to the Board of Xpediator in January 2017. 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 11 04/06/2018 16:32 11 CORPORATE GOVERNANCE STATEMENT COMPLIANCE STATEMENT The Board seeks to follow best practice in corporate governance appropriate to the Company’s size and in accordance with the regulatory framework that applies to AIM companies. Although the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size Quoted Companies 2013 (“QCA Code”) is not compulsory for AIM quoted companies. The Board intends to comply, so far as practicable and having regard to the size and nature of the Company’s business, with the principles and disclosures as set out in the QCA Code. Given its size and the nature of its current operations the Company does not seek to adopt the full UK Corporate Governance Code. The main features of the Company’s corporate governance arrangements are: The Board intends to meet regularly and at least six times per year for formal Board meetings. It will consider strategy, performance and approve financial statements, dividends and significant changes in accounting practices and key commercial matters, such as decisions to be taken on whether to take forward or to cancel a research project. There is a formal schedule of matters reserved for decision by the Board in place. The Company has an audit committee and remuneration committee, further details of which are provided below. The Company does not have a nomination committee, as the Board does not consider it appropriate to establish one at this stage of the Company’s development. The Board will take decisions regarding the appointment of new directors as a whole and this will follow a thorough assessment of a potential candidate’s skill and suitability for the role. BOARD COMPOSITION The Company is managed by a Board of directors and they have the necessary skills and experience to effectively operate and control the business. There are currently four directors as at the date of this report being; Alex Borrelli, Geoff Gillo, Stephen Blyth and Richard Myson. The Board is satisfied that, between the Directors, it has an effective and appropriate balance of skills and experience, including in the areas of the stock market regulation, logistics operations, finance and M&A. The Board comprises two non-executive directors, including the Chairman, and two executive directors. The Board believe the current split of non-executive and executive directors is appropriate for the requirements of the Company. The Board considers that the non-executive directors bring an independent judgement to bear. 12 The Board is satisfied that it has a suitable balance between independence on the one hand, and knowledge of the Company on the other, to enable it to discharge its duties and responsibilities effectively. All directors are encouraged to use their independent judgement and to challenge all matters, whether strategic or operational. As the business develops, the composition of the Board will remain under review to ensure that it remains appropriate to the managerial requirements of the Company. All new Directors appointed since the previous Annual General Meeting are required to seek election at the next Annual General Meeting. Directors rotate frequently in accordance with the Company’s articles of association. This enables the shareholders to decide on the election of the Company’s Board. There are no Directors who are required to seek re-election at the next Annual General Meeting this year. BOARD COMMITTEES The Company has an Audit Committee and a Remuneration Committee with formally delegated duties and responsibilities. The composition of these committees may change over time as the composition of the Board changes. Audit Committee The Audit Committee has responsibility for ensuring that the financial performance of the Company is properly reported on and reviewed, and its role includes monitoring the integrity of the financial statements of the Company (including annual and interim accounts and results announcements), reviewing internal control and risk management systems, reviewing any changes to accounting policies, reviewing and monitoring the extent of the non-audit services undertaken by external auditors and advising on the appointment of external auditors. The Audit, AIM Rules and MAR Compliance Committee will have unrestricted access to the Company’s external auditors. The Audit Committee meets regularly at the appropriate times in the financial reporting and audit cycle. The Audit Committee comprises of two members, who are both non-executive Directors: Alex Borrelli and Geoff Gillo. Remuneration Committee The Remuneration Committee has responsibility for determining, within the agreed terms of reference, the Company’s policy on the remuneration packages of the Company’s chief executive, the chairman, the executive directors, the Company secretary and other senior executives. The Remuneration Committee also has responsibility for determining the total individual remuneration package of the chairman, each executive 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 12 04/06/2018 16:32 E C N A N R E V O G CORPORATE GOVERNANCE STATEMENT CONTINUED director, the Company secretary and other senior executives (including bonuses, incentive payments and share options or other share awards), in each case within the terms of the Company’s remuneration policy and in consultation with the Chairman of the Board and/or the Chief Executive Officer. No Director or manager may be involved in any discussions as to their own remuneration. The Remuneration Committee comprises two members, who are both non-executive Directors, Alex Borrelli and Geoff Gillo. MEETINGS AND ATTENDANCE The directors’ attendance at Board and Committee meetings during the year is shown below: Plc Board Audit Committee Remuneration Committee Operational Board Meetings held during the year Directors’ Attendance Alex Borrelli Stephen Blyth Geoff Gillo Richard Myson 4 4 4 4 4 2 2 2 1 1 1 11 9 11 4 11 The operating board, which consist of the Company’s executive directors and the COOs of the operating divisions meet regularly to discuss matters relating to the development of the of the Group and ongoing financial performance. INTERNAL CONTROLS AND FINANCIAL RISK MANAGEMENT The Board is responsible for establishing and maintaining the Group’s financial and non-financial controls. The Board recognises that whilst internal controls reduces risk it cannot eliminate it completely. The key procedures, which the Directors have established with a view to providing effective internal controls are set out below. The Board sets policies, which it reviews regularly directly and through the audit committee, assurance that these policies are appropriate to mitigate key strategic, financial, operational, compliance and reputational risks. 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 13 04/06/2018 16:32 13 CORPORATE GOVERNANCE STATEMENT CONTINUED Authorisation limits are in place. The Board ensures that there is an appropriate finance function for each business unit within the Group with the appropriately qualified and experienced professionals dependent on the size and complexity of the respective business. Each business unit prepares monthly financial reports, which are circulated to the Group, which details operating results, cash flow, balance sheet information, compared to the budget and latest estimate. Each business unit has clearly defined segregation of duties, authorisation limits and other key internal controls in place, which are suitable for the respective entity, dependent on the size and nature of the business unit. Financial planning and monitoring The Company sets annual budgets, which detail the operating results, cash flow, balance sheet information. These are updated at least twice in the year, all of which are subject to Board approval. The Board reviews the business performance monthly by comparing the financial information, against the budget and latest estimate. Policies, procedures and authorisation limits The Company has adequate authorisation limits in place, which cover the key areas for the business units. QUALITY AND INTEGRITY OF PERSONNEL The competence and integrity of personnel are ensured through high recruitment standards and subsequent training. High quality of personnel is seen as an essential part of the control environment. IDENTIFICATION OF BUSINESS RISKS The Board is responsible for identifying the major business risks faced by the Company and for determining the appropriate course of action to manage those risks. GOING CONCERN The Directors have prepared the financial statements on a going concern basis, as explained in Note 3 to the financial statements. As at 31 December 2017, the Group had cash or cash equivalent totaling £7,340,000. The Group also has funding facilities in place which it does not envisage will be withdrawn thus there are sufficient funds available to meet its liabilities as they fall due for a period of not less than 12 months from the date of approval of the financial statements. DIRECTORS’ REMUNERATION The Board is responsible for an overall remuneration package for each of the executive directors and other senior executives capable of achieving the Company objectives and approved by the remuneration committee. Remuneration packages are designed to attract, retain and motivate directors of the right calibre. FEES The fees for non-executive directors are determined by the Board within the limits stipulated in the Articles of Association. The non-executive directors are not involved in any discussions or decisions about their own remuneration. Details of amounts received by the Directors during the year ended 31 December 2017 are set out in note 7 to the financial statements. CONTRACTS OF SERVICE The current executive directors have service contracts with the Company, of whom Stephen Blyth’s can be terminated with a notice period of nine months by either party, and Richard Myson’s can be terminated with a notice period of six months by either party. The Board considers that this is appropriate. SHARE OPTIONS Details regarding share options are set out in notes 27 of the financial statements. COMMUNICATIONS WITH SHAREHOLDERS The Directors consider that the Annual Report is fair, balanced and understandable. DIRECTORS The Directors of the Company who were in office during the year to the date of signing the financial statements unless otherwise stated were: • Alex Borrelli (Non-executive chairman) • Stephen Blyth (Executive Director) • Richard Myson (Executive Director) • Geoff Gillo (Non-executive director) LONG TERM INCENTIVES During the year, the Non-Executive directors were granted share options, which contain a 16 month vesting period, with the options targeted to EPS growth to align the Boards focus to that of the investors. 14 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 14 04/06/2018 16:32 CORPORATE GOVERNANCE STATEMENT CONTINUED DIRECTORS’ REMUNERATION The remuneration of Directors for the year ended 31 December 2017 was as follows: DIRECTOR Director Alex Borrelli Stephen Blyth Geoff Gillo Richard Myson Total Base Salary £000 Bonuses £000 Share Option £000 Other benefits £000 2017 Total £000 2016 Total £000 50.0 183.3 25.0 108.7 367.0 - - - - - 7.0 - 3.5 - 10.5 - 8.1 - 3.6 11.7 57.0 191.4 28.5 112.3 389.2 - 13.3 - 92.9 106.2 E C N A N R E V O G The values for 2016 relate to the remuneration of the current directors of Xpediator plc. DIRECTORS AND THEIR INTERESTS- INTEREST IN ORDINARY SHARES OF 5P The Directors of the Company held the following interest in the ordinary shares of Xpediator plc: Director Alex Borrelli Stephen Blyth6 Geoff Gillo Richard Myson Total 31 December 2017 Number - 34,840,000 - 4,000,000 38,840,000 31 December 2017 % - 29.67 - 3.41 31 December 2016 Number - 34,840,000 - 4,000,000 33.08 38,840,000 31 December 2016 % - 43.5 - 5 48.5 6 Shares held via COGELS Investment BV, a company wholly owned by the wife and adult children of Stephen Blyth. Given the ownership structure of COGELs, it is deemed, for the purposes of the City Code, to be acting in concert with Stephen Blyth. SHARE OPTIONS AND WARRANTS The Directors of the Company held the following options for Xpediator plc which were issued to them Director Alex Borrelli Stephen Blyth Geoff Gillo Richard Myson Total Granted in the year Number 31 December 2017 Number Exercise price Pence 416,667 416,667 - - 208,333 208,333 - - 625,000 625,000 24.00 - 24.00 - Vesting Date Expiry Date7 May 2019 May 2019 - - May 2019 May 2019 - - 7 The expiry date is 10 days after the approval of the Group’s consolidated audited accounts for the year ending 31 December 2018. 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 15 04/06/2018 16:32 15 DIRECTORS’ REPORT PRINCIPAL ACTIVITIES DIRECTORS’ INDEMNITY PROVISIONS The principal activities of the Group are freight management which includes freight forwarding, logistics and the provision of services to the transport sector (Affinity Division). The Group has been in the business of freight management for 30 years. The consolidated Financial Statements give the Group results for the year ended 31 December 2017. The Group and its subsidiaries operate from a network of 10 locations in Europe, mainly in Central and Eastern European areas and the UK. The group’s overall financial objectives are to increase sales, profitability, network coverage and enhance the asset base supporting the business. In order to monitor its progress towards achieving these objectives, the Group has set a number of key performance indicators, which deal predominately with sales, profitability, margin and cash flow as per page 8 in the Strategic Report. RESULTS AND DIVIDENDS The results for the year are set out on page 23. An interim dividend of £350,000 has been paid and the Directors are recommending a final dividend of £750,000 making a total for the year of £1,100,000. SHARE CAPITAL The Group purchased and maintained throughout the financial period Directors’ and Officers’ liability insurance in respect of itself and its Directors. POLITICAL DONATIONS The Group made no political donations in the financial year. EMPLOYEE INVOLVEMENT The Group regularly consults with the employees of the Company to ensure that their opinions are considered when decisions are made that are likely to affect their interests. Details of the Group’s activities are regularly communicated to the employees via a Company employee newsletter, plus the regular circulation of Company announcements which include the interim and annual results. DISABLED PERSONS It is the Group’s policy to employ the best person for the role, irrespective of gender, nationality, race, sexual orientation or disability. As such applications for employment by disabled individuals are given full and fair consideration. If an employee becomes disabled, the Group makes every effort to retrain them in the business in a suitable role. Details of the changes in the share capital are set out in note 25 to the financial statements. AUDITOR RE-APPOINTMENT FINANCIAL INSTRUMENTS As at 31 December 2017 the Company had bank borrowings from Lloyds bank in the UK totalling £3.2 million and a invoice discounting facility provided by Barclays bank. The financial risk management objectives and policies are disclosed in note 24 and summarised on page 10 in the strategic report. DIRECTORS The Directors of the Company during the period and to the date of this report are as follows: • Alex Borrelli • Stephen Blyth • Geoff Gillo • Richard Myson 16 BDO LLP have expressed willingness to continue in office. In accordance with section 489(4) of the Companies Act 2006 a resolution to re-appoint BDO LLP will be proposed at the AGM. SUBSEQUENT EVENTS In April 2018 the Group incorporated an new entity in Latvia, which is a wholly owned subsidiary of Delamode Baltics UAB. FUTURE DEVELOPMENTS Planned future developments are disclosed in the strategic report on page 7. The Directors’ report was approved by the Board and signed on its behalf by: Stephen Blyth Chief Executive Officer 14 May 2018 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 16 04/06/2018 16:32 STATEMENT OF DIRECTORS’ RESPONSIBILITIES E C N A N R E V O G RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OFTHE ANNUAL FINANCIAL REPORT We confirm that to the best of our knowledge: To the best of each Director’s knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s auditor is unaware. Each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006. WEBSITE PUBLICATION The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial Statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the on-going integrity of the Financial Statements contained therein. This report was approved by the board on 14 May 2018 and signed on its behalf by: Stephen Blyth Chief Executive Officer 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 elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under Company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on AIM. In preparing these financial statements, the directors are required to: • • • • select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether they have been prepared in accordance with IFRSs as adopted by the European Union, 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 requirements of 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. 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 17 04/06/2018 16:32 17 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XPEDIATOR PLC OPINION We have audited the financial statements of Xpediator Plc (the ‘parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2017 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows, the Company statement of financial position, the Company statement of changes in equity and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). In our opinion: and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. USE OF OUR REPORT This report is made solely to the parent 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 parent 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 parent Company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed. CONCLUSIONS RELATING TO GOING CONCERN We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • • • • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2017 and of the group’s profit for the year then ended; • • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the “Auditor’s responsibilities for the audit of the financial statements” section of our report. We are independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, 18 the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 18 04/06/2018 16:32 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XPEDIATOR PLC CONTINUED KEY AUDIT MATTER Revenue recognition A potential risk to the correct cut-off of revenue arises with respect to recording revenue for freight forwarding projects where the deliveries are undertaken across the year end date. The Group’s accounting policy for revenue recognition is disclosed in note 3 and the financial statements disclose further detail concerning the group’s revenues in notes 4 and 8. UK business combinations In the current year, the Group acquired three UK incorporated entities. These are Easy Management Transport Limited, Benfleet Forwarding Limited, and Regional Express Limited. Each acquisition was independent of each other and all were accounted for in accordance with IFRS 3 Business Combinations. The consideration for each acquisition included subsequent deferred contingent consideration based on the future performance of the acquired companies. There are three main judgemental areas in the accounting for the acquisition of each of these companies: • • • The estimation of the valuation of the deferred contingent consideration based on the expected future performance of the companies acquired at the date of acquisition; Whether the deferred contingent consideration represents part of the cost of the acquisition or remuneration for post-acquisition services provided; The valuation and useful economic lives of the separately identifiable intangible assets. Therefore, the accounting for the acquisitions is considered to be a Key Audit Matter. The group’s accounting policy for business combinations is disclosed in note 3 and the financial statements disclose further detail concerning the Group’s acquisitions in note 32. Completeness of liabilities Due to the volume of suppliers and the timing of the receipt of supplier invoices, there is a risk that the Group will not recognise the complete costs associated with each freight- forwarding job in the appropriate period. As a result, this is considered to be a key audit matter. Further detail concerning the group’s trade and other payables is disclosed in note 22. HOW WE ADDRESSED THE MATTER IN OUR AUDIT Our audit procedures included: • Obtaining reports from the operating systems for each significant freight forwarding subsidiary before and post year-end, selected a sample of revenues recorded in the system and agreed to supporting documents to ensure they were recorded in the correct periods; Our audit procedures included: • • • • Considering and challenging the forecasts used in the calculation of the expected value of the deferred contingent consideration by reference to the performance of the companies prior to and post the acquisition date; Considering the criteria for the payment of the deferred contingent consideration and management’s assessment that the amounts payable to selling shareholders are not contingent on continuing employment and assessed other criteria for the payment of the deferred contingent consideration; Agreeing all material amounts used in the calculation of the cost of acquisition to supporting purchase documentation. Agreed material balances of assets acquired and liabilities assumed on acquisition to completion balance sheets and supporting management information; Engaging our internal valuation specialists to assess the reasonableness of the inputs, assumptions and methodology used by management and their appointed external specialist in determining the fair values and useful economic lives of intangible assets acquired, contingent considerations and goodwill arising; • Reviewing the disclosure in the financial statements to assess compliance with the requirements of IFRS 3. Our audit procedures included: • • • Reconciling the year-end creditor position to either supplier statements or to direct confirmations received from the supplier for a sample of suppliers; Performing a review of after-date payments or after- date invoices received for unrecorded liabilities at the year-end date; Assessing a sample of projects for unusual margins and where this review highlighted unexpected margins, we performed further review to satisfy ourselves that relevant costs have been correctly accrued. S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 19 04/06/2018 16:32 19 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XPEDIATOR PLC CONTINUED Our audit procedures included: • • • • Selecting a sample of year end trade receivable balances. We then tested the receipt of cash after the year end date in settlement of these balances; Selecting a sample of year end trade receivable balances and sought direct written confirmation from the customer of the year end receivable balance; Reviewing the ageing profile of trade receivables at the balance sheet date and considered over-due receivables and the sufficiency of provisions for doubtful debts; Discussing overdue balances with management and considered evidence of recoverability from corresponding liability balances with the customer or agreed payment plans in place. Materiality in respect of the audit of the parent Company has been set at £225k based on the net assets of the Company, capped at 65% of Group materiality. Performance materiality was set at 75% (2016: 75%) of materiality. In setting the level of performance materiality we considered a number of factors including the expected total value of known and likely misstatements (based on past experience and other factors) and management’s attitude towards proposed adjustments. Component materiality Where financial information from components was audited separately, component materiality levels were set for this purpose at lower levels up to a maximum of 65% of Group materiality. In the audit of each component, we further applied a performance materiality level of 75% of the component materiality level to our testing to ensure that the aggregation risk of errors exceeding component materiality was appropriately mitigated. Agreement with the Audit Committee We agreed with the Audit Committee that we would report on all differences individually in excess of £12,500 (2016: £12,500). We also report to the Audit Committee on financial statement disclosure matters identified when assessing the overall consistency and presentation of the consolidated financial statements. Recoverability of trade receivables The trade receivables balance is highly material to the financial statements at £45.0m (2016: 25.7m). This balance is made up from a large volume of customers across many geographic regions. The determination as to whether an individual trade receivable balance is recoverable involves management judgement. Certain factors are assessed including the age of the balance, the credit worthiness of the customer, recent payment history and whether any amounts are in dispute. Due to the significance of the overall balance, the large volume of customers across a number of geographical locations, the recoverability of trade receivables is considered to be a key audit matter. Further detail concerning the group’s ageing profile and provision for impaired trade receivables is disclosed in note 20 in the financial statements. OUR APPLICATION OF MATERIALITY We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For planning, we consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Level of materiality applied and rationale We consider Adjusted Profit Before Tax to be the most appropriate performance measure for the basis of materiality in respect of the audit of the Group as this measure reflects the group’s profitability excluding the impact of certain non-recurring and business acquisition- related items. Adjusted Profit Before Tax is calculated for this purpose as Net Income for the Year Before Taxes adjusted for listing costs, costs associated with subsidiary acquisitions and non-cash interest charges arising on deferred consideration on acquisition of subsidiaries. Using this benchmark, we set materiality at £350k (2016: £250k) being 10% of Adjusted Profit Before Tax (2016: 10% of Adjusted Profit Before Tax). 20 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 20 04/06/2018 16:32 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XPEDIATOR PLC CONTINUED AN OVERVIEW OF THE SCOPE OF OUR AUDIT We tailored the scope of our audit to ensure that enough work was performed to be able to issue an opinion on the financial statements as a whole, whilst taking into consideration the structure of the Group, the accounting processes and controls, and the industry in which the Group operates. During the planning of our Group audit we confirmed our strategy for the procedures to be performed across the group’s nine significant components. All audit work was undertaken by the Group engagement team with the exception of Delamode Bulgaria EOOD, Delamode Baltics UAB, and Delamode Romania Srl, Affinity Transport Solutions, Srl and Pallet Express Srl, where we engaged with component auditors BDO Bulgaria, BDO Lithuania, and BDO Romania. Our strategy is summarised as follows: In relation to the component auditors work on the above mentioned overseas components, we determined the level of involvement required by us to determine whether sufficient appropriate audit evidence had been obtained. We discussed the planned procedures ahead of the audit, examined the conduct, results and findings of their audits and participated in their closing discussions with component management. OTHER INFORMATION The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. S T N E M E T A T S L A C N A N F I I Adjusted Profit before tax Total Revenue Total Assets 7% 8% 9% 9% 28% 41% 85% 63% 50% Full scope audit - BDO UK Full scope audit - other BDO member firms BDO UK limited scope review 21 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 21 04/06/2018 16:32 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XPEDIATOR PLC CONTINUED OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, based on the work undertaken in the course of the audit: • • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION In the light of the knowledge and understanding of the Group and the parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • • • • adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the 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. RESPONSIBILITIES OF DIRECTORS As explained more fully in the directors’ responsibilities statement set out on page 17, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditors responsibilities. This description forms part of our auditor’s report. Sophia Michael (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor London 14 May 2018 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 22 249388_Xpediator_AR_FrontEnd_2017_pp01_pp22.indd 22 04/06/2018 16:32 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017 Notes 8 2017 £’000 23 2, 070 4 5 6 3 0 6 9 9 10 11 12 1 2 12 12 1 2 1 2 Gross Billing CONTINUING OPERATIONS Revenue Cost of sales GROSS PROFIT Other operating income Administrative expenses Exceptional items included in Administrative expenses above OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS OPERATING PROFIT Finance costs Finance income PROFIT BEFORE INCOME TAX Income tax PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS LOSS FOR THE YEAR FROM DISCONTINUED OPERATIONS PROFIT FOR THE YEAR Profit attributable to: Owners of the parent Non-controlling interests Earnings per share attributable to the ordinary equity holders of the parent: Basic earnings pence per share Diluted earnings pence per share Basic earnings pence per share from continuing operations Diluted earnings pence per share from continuing operations Adjusted basic earnings pence per share* Adjusted d iluted basic earnings pence per share* *Earnings per share adjusted as per footnote 3 on page 1 The notes form part of these financial statements S T N E M E T A T S L A C N A N F I I 2016 £’000 169,165 72,758 (55,559) 17,199 556 (15,941) (654) 2,468 1,814 (366) 24 1,472 116,2 97 (88,186) 28, 111 658 (25,6 80 ) (912) 4,001 3,089 ( 665) 12 2,436 (651 ) (233) 1, 785 – 1, 785 1, 540 245 1, 785 1. 6 4 1. 6 3 1.64 1.63 3.27 3.26 1,239 (179) 1,060 563 497 1,060 0.70 0.70 0.93 0.93 1.52 1.52 23 249388_Xpediator_AR_the_BackEnd_pp023-pp030.indd 23 04/06/2018 16:28 CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017 PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Items that may be reclassified to profit or loss: Exchange differences on translation of foreign operations TOTAL COMPREHENSIVE INCOME FOR THE YEAR Total comprehensive income attributable to: Owners of the parent Non-controlling interests 2017 £’000 1, 785 112 1, 897 1, 634 2 63 1,89 7 2016 £’000 1,060 654 1,714 1,153 561 1,714 The notes form part of these financial statements 24 249388_Xpediator_AR_the_BackEnd_pp023-pp030.indd 24 04/06/2018 16:28 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017 ASSETS NON-CURRENT ASSET Intangible assets Property, plant and equipment Investments Trade and other receivables Deferred tax CURRENT ASSETS Inventories Trade and other receivables Cash and cash equivalents TOTAL ASSETS Notes 2017 £’000 2016 £’000 1 4 1 5 1 8 20 10 19 20 2 1 1 5,168 1,600 1 149 196 17,114 50 51,8 06 7,385 59,2 41 7 6,355 2,892 1,186 16 222 106 4,422 44 28,597 5,351 33,992 38,414 S T N E M E T A T S L A C N A N F I I The notes form part of these financial statements 25 249388_Xpediator_AR_the_BackEnd_pp023-pp030.indd 25 04/06/2018 16:28 CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONTINUED AS AT 31 DECEMBER 2017 EQUITY SHAREHOLDERS’ EQUITY Called up share capital Share Premium Equity Reserve Translation Reserve Merger Reserve Retained earnings Issued share capital and reserves attributable to the owners of the parent Non-controlling interests TOTAL EQUITY LIABILITIES NON-CURRENT LIABILITIES Deferred Consideration Interest bearing loans and borrowings Deferred Tax liability CURRENT LIABILITIES Overdrafts Trade and other payables Deferred Consideration Interest bearing loans and borrowings TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES Notes 2017 £’000 2016 £’000 2 5 2 6 2 6 2 6 2 6 2 6 2 2 2 3 10 2 1 2 2 2 2 2 3 5,922 5,792 69 546 ( 1,509) 3, 535 14, 355 413 14, 768 1, 666 3,309 1, 20 9 6, 184 45 5 0,973 1, 840 2,545 5 5, 403 6 1 ,587 7 6,355 4,050 – – 452 (3,750) 2,466 3,218 345 3,563 – 3,878 332 4,210 – 29,167 – 1,474 30,641 34,851 38,414 The financial statements were approved by the Board of Directors on 14 May 2018 and were signed by: Stephen Blyth CEO 1 4 May 201 8 Richard Myson CFO The notes form part of these financial statements 26 249388_Xpediator_AR_the_BackEnd_pp023-pp030.indd 26 04/06/2018 16:28 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017 Notes Share Capital Share Premium Reserve Equity Translation Merger Reserve Reserve Retained Earnings Total NCI Total Equity Carried Forward at 31 December 2016 4,050 - - 452 (3,750) 2,466 3,218 345 3,563 Contributions by and distributions to owners Acquisition of non controlling interests Dividends paid Share based consideration on Acquisitions Share Options not yet exercised Issue of Share Capital Total contributions by and distributions to owners 17 13 - - 25 480 27 25 - 1,392 5,792 - - – - - - - 69 - - - - - - - - (121) (121) (350) (350) (88) (107) (209) (457) 2,241 - - - - - 2,721 69 7,184 - - - 2,721 69 7,184 5,922 5,792 69 452 ( 1,509) 1,995 12,721 150 12,871 Comprehensive income for the year Profit for the year Exchange differences on translation of foreign operations Total comprehensive income for the year Balance as at 31 December 2017 - - - - - - - - - - - 1,540 1,540 245 1,785 94 94 - - - 94 18 112 1,540 1,634 263 1,897 5,922 5,792 69 546 ( 1,509) 3,535 14,355 413 14,768 S T N E M E T A T S L A C N A N F I I The notes form part of these financial statements 27 249388_Xpediator_AR_the_BackEnd_pp023-pp030.indd 27 04/06/2018 16:28 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 Share Premium Reserve Equity Translation Merger Reserve Reserve Retained Earnings Total - (479) 237 8,162 7,920 NCI 299 Total Equity 8,219 Balance at 1 January 2016 Notes Share Capital - Contributions by and distributions to owners Acquisition of non controlling interests Distribution to Owners Capital Contribution Dividends Paid Share Swap Agreement with Delamode Group Holdings Limited Incorporation of Xpediator PLC Total Contributions by and distribution to owners Profit for the year Exchange differences on translation of foreign operations Carried Forward at 31 December 2016 17 11 13 - - - - 25 4,000 25 50 4,050 - - 4,050 - - - - - - - - - - - - - - - - - - - - - - 341 - - - - - - (462) (462) (192) (654) (2,463) (2,122) (58) (2,180) 43 43 - 43 (3,377) (3,377) (265) (3,642) - (3,987) - - - - 13 50 - - 13 50 (138) (3,750) 1,903 2,065 (216) 1,849 - 590 - - 563 563 497 1,060 - 590 64 654 452 (3,750) 2,466 3,218 345 3,563 The notes form part of these financial statements 28 249388_Xpediator_AR_the_BackEnd_pp023-pp030.indd 28 04/06/2018 16:28 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2017 Continuing Operations Cash flows from operating activities Cash generated from operations Interest paid Tax paid Net cash from operating activities Cash flows from investing activities Purchase of tangible fixed assets Acquisition of Subsidiar ies, net of cash acquired Disposal of available for sale assets. Purchase of intangible fixed assets Sale of tangible fixed assets and investment property Sale of investments Interest received Net cash from investing activities Cash flows from financing activities New loans in year Loan repayments in year Share issue (net of share issue costs) Transactions with non-controlling interests Dividends paid Non-Controlling interest dividends paid Net cash from financing activities Notes 1 2017 £’000 2016 £’000 2,785 ( 370) ( 762) 1,653 ( 771 ) ( 5,835) – ( 47) 72 30 12 4,656 (366) (656) 3,634 (593) (1,873) 439 (50) 144 – 24 ( 6,539) ( 1,909) 1,1 98 ( 696) 7, 184 (209) (3 50) (107) 7, 020 319 (2,569) 50 (654) (3,377) (265) (6,496 ) Increase in cash and cash equivalents from continuing operations 2, 134 (4,771) Increase/(Decrease) in cash and cash equivalents from discontinued operations Cash and cash equivalents at beginning of year Effect of foreign exchange rate movements Cash and cash equivalents at end of year 2 2 – 5,351 ( 145) 7,340 – 9,819 303 5,351 S T N E M E T A T S L A C N A N F I I The notes form part of these financial statements 29 249388_Xpediator_AR_the_BackEnd_pp023-pp030.indd 29 04/06/2018 16:28 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2017 FOR THE YEAR ENDED 31 DECEMBER 2017 1. RECONCILIATION OF PROFIT BEFORE INCOME TAX TO CASH GENERATED FROM OPERATIONS Profit before income tax Depreciation charges Amortisation charges Loss on disposal of fixed assets Profit on disposal of Investments Finance costs Finance income Share Based Payments Charge (Increase) in inventories (Increase) in trade and other receivables Increase in trade and other payables Cash generated from operations 2017 £’000 2, 436 368 4 37 8 (15) 6 65 (12) 69 3, 956 (6) ( 17,208) 16,043 2,785 2016 £’000 1,472 242 90 7 – 366 (24) - 2,153 (25) (3,457) 5,985 4,656 2. CASH AND CASH EQUIVALENTS The amounts disclosed on the Statement of Cash Flows in respect of cash and cash equivalents are in respect of these Statement of Financial Position amounts: Cash and cash equivalents Bank accounts Bank Overdrafts Cash and cash equivalents Bank accounts Bank Overdrafts 2017 £’000 7,385 (45) 7,340 2016 £’000 5,351 – 5,351 2016 £’000 5,351 – 5,351 2015 £’000 10,002 (183) 9,819 The notes form part of these financial statements 30 249388_Xpediator_AR_the_BackEnd_pp023-pp030.indd 30 04/06/2018 16:28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU issued by the International Accounting Standards Board, under the historical cost convention . The presentation currency used for the preparation of the financial statements is Sterling, which is the currency of choice of the principal investors of the group. The preparation of financial statements in conformity with IFRSs requires the use of certain accounting estimates. It also requires the directors to exercise their judgement in the process of applying the Group’s accounting policies (see Note 3.2 – Critical accounting estimates and judgements). Description of the Business Xpediator PLC is a public limited Company, is incorporated in England and Wales,, United Kingdom. The registered office is 700 Avenue West, Skyline 120 Great Notley, Braintree, Essex, CM77 7AA and the Company registration number is 10397171. Going Concern The directors have concluded that it is appropriate that the financial statements have been prepared on a going concern basis because at 31 December 2017, the Group had cash or cash equivalent totalling £7,340,000. The Group also has funding facilities in place which it does not envisage will be withdrawn thus there are sufficient funds available to meet its liabilities as they fall due for a period of not less than 12 months from the date of approval of the financial statements . The directors believe that based on the current budgets and forecast cash flows, there is sufficient resources to meet its liabilities as they fall due. The financial statements have therefore been prepared on a going concern basis. Basis of Consolidation The Group financial statements consolidate the financial statements of Xpediator PLC and its subsidiaries drawn up to 31 December each year. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The Company has control over a subsidiary if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. The financial statements of subsidiaries are prepared for the same reporting year as the parent Company, using consistent accounting policies. Intra- Group balances and transactions, including unrealised profits arising from intra- Group transactions, have been eliminated. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Non-controlling interests represent the equity in subsidiaries that is not attributable, directly or indirectly, to Xpediator PLC. Subsequent to the merger accounting noted below t he consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. They are deconsolidated from the date on which control ceases. Merger accounting On 25 May 2017 Xpediator Plc entered into a share swap agreement with the ultimate beneficiaries of Delamode Group Holdings Limited, whereby 4,000,000 new ordinary shares of £1.00 each were issued to the ultimate beneficiaries of Delamode Group Holdings Limited in exchange for their shares in Delamode Group Holdings Limited in the same proportion as their shareholding in Delamode Group Holdings Limited. The merger method of accounting is used to consolidate the results of Xpediator plc and Delamode Group Holdings Limited and subsidiaries. The comparatives used within the consolidated financial statements reflect the financial performance and position of Delamode Group Holdings Limited. The impact of the use of merger accounting is to reflect the Group as though it had always been in existence. Therefore the prior year comparatives reflect those of Delamode Group Holdings Limited. In the current period, the results reflect those of the whole Group for the whole period. The only change to the reported balance sheet position is to reflect the share capital of Xpediator plc rather than that of Delamode Group Holdings Limited. The difference between the nominal value of the shares issued by Xpediator plc in consideration for the share capital of Delamode Group Holdings Limited is taken to the merger reserve. The net asset position of the Group at 31 December 2016 is increased by £50,000 from the £3,513,000 reported in the financial statements of Delamode Group Holdings Limited. This reflects the share capital of Xpediator plc prior to the share swap. 31 S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 31 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 3. ACCOUNTING POLICIES CONTINUED Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3: Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets that are classified as held for sale in accordance with IFRS 5: Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If the cost of the acquisition is less than the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities, the difference is recognised directly in the statement of comprehensive income. Revenue Recognition Revenue from the provision of services is recognised when the Group has completed the agreed upon procedures and transferred the significant risks and rewards of ownership to the buyer and it is probable that the company will receive the previously agreed upon payment. Revenue is recognised at the fair value of the consideration received or receivable net of VAT and other similar sales taxes and trade discounts . The policies adopted for the recognition of revenue are as follows: Freight Forwarding Revenue is recognised when the agreed freight forwarding service is considered delivered and control of the cargo has passed to the customer or another logistics services provider. The time of recognition varies depending on the service provided and the terms of transport agreed. Warehouse Revenue is recognised when the service is rendered. Invoicing varies by contract, but is typically in line with work performed. Calculation of accrued and deferred income is therefore necessary at period ends, with client billing arrangements not always coinciding with the Group’s reporting periods. Judgement is required when determining the appropriate timing and amount of revenue that can be recognised, due to the different contractual arrangements in place. Affinity Revenue generated in the Affinity Division largely relates to the commission that the entity receives for managing the DKV fuel cards business. Commission revenues as an agent are recognised in the period that the service has been actually delivered. With regards the purchase of fuel, this is generally when the fuel has been drawn at the pump. Gross Billings Recoverable disbursements incurred on behalf of our Affinity Division customers based in Romania and the West Balkans which include fuel costs, toll charges and breakdown assistance. The gross billings figure is included within the Groups trade payables and receivables, but are excluded from Consolidated Income Statement revenue. Therefore, in order to make a more meaningful calculation of Days Sales Outstanding and Days Payable Outstanding, it is important to understand the level of billings going through the sales and purchase ledgers. Non-controlling interests The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests. Goodwill Goodwill arising on the acquisition of a business represents any excess of the fair value of the consideration over the fair value of the identifiable assets and liabilities acquired. The identifiable assets and liabilities acquired are incorporated into the consolidated financial statements at their fair value to the Group. Goodwill is not amortised but tested for impairment annually. Any impairment is recognised immediately in the consolidated statement of comprehensive income and is not subsequently reversed. On disposal of a business, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 32 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 32 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 3. ACCOUNTING POLICIES CONTINUED Impairment of non-financial assets (excluding inventories and deferred tax assets) Impairment tests on goodwill and amounts with indefinite useful economic lives are undertaken annually in November as part of the Group’s budgeting process, except in the year of acquisition when they are tested at the year- end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units (‘CGUs’). Goodwill is allocated on initial recognition to each of the Group’s CGUs that are expected to benefit from a business combination that gives rise to the goodwill. Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed. Foreign currencies The financial statements of the group are presented in its reporting currency of Sterling. The functional currency of each Group entity is the currency of the primary economic environment in which the entity operates. Transactions in foreign currencies during the period have been converted at the rates of exchange ruling on the date of the transaction. Assets and liabilities denominated in foreign currencies have been translated at the rates of exchange ruling on the balance sheet date. Any gains or losses arising from these conversions are credited or charged to the Consolidated Income Statement. On consolidation, the results of overseas operations are translated into Sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the translation reserve. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal. Financial assets The Company classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Company has not classified any of its financial assets as held to maturity. Impairment of Financial Assets Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the group will be unable to collect all of the amount due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Loans and Other Receivables The group’s loans and other receivables comprise trade receivables and other receivables, cash and cash equivalents in the consolidated statement of financial position. These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Cash and cash equivalents These include cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and – for the purpose of the statement of cash flows - bank overdrafts. Available for sale Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise principally the company’s strategic investments in entities, qualifying as subsidiaries, associates or jointly controlled entities in separate financial statements of the Company. They are carried at fair value with changes in fair value, other than those arising due to exchange rate fluctuations and interest calculated using the effective interest rate, recognised in other comprehensive income. 33 S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 33 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 3. ACCOUNTING POLICIES CONTINUED Available for sale continued Where there is a significant or prolonged decline in the fair value of an available for sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously recognised in other comprehensive income, is recognised in profit or loss. Purchases and sales of available for sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve. On sale, the cumulative gain or loss recognised in other comprehensive income is reclassified from the available-for-sale reserve to profit or loss. Financial liabilities The Group classifies its financial liabilities into two categories: Other financial liabilities The Group’s other financial liabilities include bank loans, trade and other payables and accruals. Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. Fair value through profit and loss This category only comprises of the element of deferred consideration on business combinations, which is contingent on the performance of the acquired businesses. The expected consideration payable is assessed at each balance sheet date with the movement in the expected liability being recorded in the income statement. Share capital Financial instruments issued by the company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The company’s ordinary shares are classified as equity instruments. Leased assets Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a “finance lease”), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an “operating lease”), the total rentals payable under the lease are charged to the consolidated income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis. Externally acquired intangible assets Externally acquired intangible assets, other than Goodwill, are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see section related to critical estimates and judgements below). The significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows: Intangible asset Licences and trademarks Customer Lists Useful economic life Valuation method 25 years 8-10 Years Multiple of historic profits Excess Earning Model 34 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 34 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 3. ACCOUNTING POLICIES CONTINUED Taxation The charge for current tax is based on the taxable income for the period. The taxable result for the period differs from the result as reported in the statement of comprehensive income because it excludes items which are not assessable or disallowed and it further excludes items that are taxable and deductible in other years. It is calculated using tax rates that have been enacted or substantially enacted by the statement of financial position date. Deferred income tax is provided using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax assets are recognised only to the extent that future taxable profit will be available such that realisation of the related tax benefits is probable. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/ (assets) are settled/(recovered). Property, plant and equipment Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions. Freehold land is not depreciated. Depreciation on assets under construction does not commence until they are complete and available for use. Depreciation is provided on all other items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives. It is provided at the following rates: Freehold buildings Fixtures and fittings Computer equipment Motor vehicles Inventories 2% per annum straight line 20% per annum straight line/10% - 25% on reducing balance, 33% per annum straight line/20% - 50% on reducing balance 33% per annum straight line/20% - 25% on reducing balance Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Capital management The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets (e.g. accounts receivables, other financial assets) and projected cash flows from operations. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, invoice discounting and long term loan finance. Investments Unlisted investments are stated at cost less impairment losses. Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the directors. In the case of final dividends, this is when approved by the shareholders at the annual general meeting. Holiday Pay Accrual All employees accrue holiday pay during the calendar year, the board encourages all employees to use their full entitlement throughout the year, however in the unlikely case that an employee has untaken holiday pay this is accrued for at the daily salary costs, including costs of employment, such as social security. Staff Pensions The company does not operate a pension scheme for its employees however it does make payments to defined contribution pension schemes on behalf of employees in the UK in accordance with auto enrolment legislation. The payments made are recognised as an expense in the period to which they relate. S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 35 04/06/2018 16:29 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 3. ACCOUNTING POLICIES CONTINUED Share-based payments Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss over the remaining vesting period, with a corresponding adjustment to the equity-settled employee benefits reserve. Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods or services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service. 3.1 Changes in accounting policies The following new standards, interpretations and amendments, which are not yet effective and have not been adopted early in these financial statements, will or may have an effect on the Group’s future financial statements: • • • IFRS 15 Revenue from Contracts with Customers, mandatory effective date 1 January 2018. IFRS 15 is intended to clarify the principles of revenue recognition and establish a single framework for revenue recognition. This supersedes IAS 18 Revenue and the core principle is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Based on an assessment, the Group believes that the adoption of IFRS 15 will not have a significant impact on its consolidated financial performance. The Group’s interim financial statements for the period ended 30 June 2018 will be prepared in accordance with IFRS 15. IFRS 9 Financial Instruments will, on 1 January 2018, replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. It also introduces an expected credit loss model for the valuation of certain receivables. Based on an assessment, the Group believes that the adoption of IFRS 9 will not have a significant impact on its consolidated financial performance. The Group’s interim financial statements for the period ended 30 June 2018 will be prepared in accordance with IFRS 9. IFRS 16 Leases sets outs the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and the lessor. It eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee accounting model where the lessee is required to recognise assets and liabilities for all material leases that have a term of greater than a year. The standard has a mandatory implementation date of 1 January 2019. Management are still estimating the likely impact of the new accounting standard. 3.2 Critical accounting estimates and judgements The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. Principal Estimates • Fair value measurement of intangible assets acquired in business combination. • A number of assets and liabilities included in the Group’s financial statements require measurement at, and/ or disclosure of, fair value. As there are no easily identifiable valuation methods for intangible assets such as customer relationships and licences, estimation is required in assessing the fair value when accounting for a business combination. 36 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 36 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 3. ACCOUNTING POLICIES CONTINUED 3.2 Critical accounting estimates and judgements continued • Estimated impairment of goodwill The Group frequently tests whether goodwill has suffered any impairment. These calculations require the use of estimates, both in arriving at the expected future profitability of the entity and the application of a suitable discount rate in order to calculate the present value of these flows. • Trade receivables The Group recognises trade receivables at fair value which are then subsequently impaired when the Group recognise that the debt will not be collected or the debt is greater than 90 days overdue which is based on the judgement of the local management. The amount of the impairment is the difference between the initial fair value balance and the amount which is expected to be recovered. This loss is recognised in the income statement within administration expenses. • Deferred Tax Deferred tax assets have been recognised in relation to trading losses generated in the entities, these have been restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. It is however not guaranteed that these losses will be recovere d . Principal Judgements • Share Swap Agreement with Delamode Group Holdings Limited On 25 May 2017 Xpediator Plc entered into a share swap agreement with the ultimate beneficiaries of Delamode Group Holdings Limited, whereby 4,000,000 new ordinary shares of £1.00 each were issued to the ultimate beneficiaries of Delamode Group Holdings Limited in exchange for their shares in Delamode Group Holdings Limited in the same proportion as their shareholding in Delamode Group Holdings Limited. The merger method of accounting is used to consolidate the results of Xpediator plc and Delamode Group Holdings Limited and subsidiaries. The comparatives used within the consolidated financial statements reflect the financial performance and position of Delamode Group Holdings Limited. The impact of the use of merger accounting is to reflect the Group as though it had always been in existence. Therefore the prior year comparatives reflect those of Delamode Group Holdings Limited. In the current period, the results reflect those of the whole Group for the whole period. The only change to the reported balance sheet position is to reflect the share capital of Xpediator plc rather than that of Delamode Group Holdings Limited. The difference between the nominal value of the shares issued by Xpediator plc in consideration for the share capital of Delamode Group Holdings Limited is taken to the merger reserve. The net asset position of the group at 31 December 2016 is increased by £50,000 from the £3,513,000 reported in the financial statements of Delamode Group Holdings Limited. This reflects the share capital of Xpediator plc prior to the share swap. Deferred Contingent Consideration The Group believes that any deferred consideration payable to sellers who continue to be employed is not part of their remuneration package and forms part of the cost of investment. Amounts payable are irrespective of continued employment with the acquired Company or elsewhere in the Group. The classification is further determined based on the number of factors including the breakdown of the acquisition consideration and the level of remuneration payable to selling shareholder. 4. TURNOVER ANALYSIS BY COUNTRY Lithuania United Kingdom Romania Bulgaria Serbia Other Total Income 2017 £’000 36,167 32,147 25, 739 13,538 4,971 3,735 116,2 97 2016 £’000 18,285 20,027 19,161 10,383 2,291 2,611 72,758 37 S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 37 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 4. TURNOVER ANALYSIS BY COUNTRY CONTINUED Non Current Assets by Country United Kingdom Romania Lithuania Serbia Bulgaria Malta Other 2017 £’000 12,948 3,531 91 9 7 54 5 43 2016 £’000 601 3, 265 72 24 43 87 2 Total Non Current Assets 1 6,769 4, 094 5. OTHER OPERATING INCOME Other operating income arises mainly from sundry services executed by the Group, not being freight forwarding, warehousing or affinity services. Since this is not considered to be part of the main revenue generating activities, the Group presents this income separately from revenue. Recharges to Franchise members Recovery of fines/penalties Rental income Other Total 6. OPERATING PROFIT Operating profit is stated after charging/(crediting) Cost of inventories recognised as expense Hire of plant and machinery Rental payable under operating lease Depreciation - owned assets Depreciation - assets on hire purchase contracts Amortisation of Intangible Assets Auditors’ remuneration - audit Auditors’ remuneration - non audit Loss on disposal of property, plant and equipment. Exceptional Items Bad Debt Costs Foreign exchange losses/(gains) Staff Expenses Other administration expenses Total 38 2017 £’000 437 138 74 9 658 2017 £’000 53 251 2,255 351 17 437 2 27 63 8 912 599 107 13,358 7,042 25,680 2016 £’000 214 210 93 39 556 2016 £’000 69 80 1,752 212 30 90 214 – 7 654 289 (111) 8,433 4,222 15,941 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 38 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 7. EMPLOYEE BENEFIT EXPENSES Employee benefit expenses (including directors) comprise: Wages and salaries Short-term non-monetary benefits Share Based Payments Defined contribution pension cost Social security contributions and similar taxes 2017 £’000 2016 £’000 11,075 7,076 117 69 158 1,939 13,358 75 – 39 1,243 8,433 KEY MANAGEMENT PERSONNEL COMPENSATION Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the directors of the Company. Salary Short-term non-monetary benefits Share Based Payments Defined contribution pension cost DIRECTORS REMUNERATION Salary Other remuneration Share Based Payments Total Other remuneration comprises of private family medical cover, and insurance benefits. Total remuneration regarding the highest paid Director is as follows: Total aggregate remuneration The average number of employees (including directors) during the year was as follows: Freight Forwarding Logistics Other Total 2017 £’000 782 16 69 1 868 2017 £’000 367 12 10 389 2017 £’000 191 2017 313 304 70 687 2016 £’000 497 13 – 2 512 2016 £’000 100 6 – 106 2016 £’000 93 2016 287 242 45 574 39 S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 39 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 8. SEGMENTAL ANALYSIS Types of services from which each reportable segment derives its revenues In 2017 the Group had three main divisions: Transport Solutions, referred to as Affinity, Freight Forwarding, and Logistics and Warehousing. All revenue is derived from the provision of services. • Freight Forwarding - This division is the core business and relates to the movement of freight goods across Europe. This division accounts for the largest proportion of the Group’s business, generating 80% of its external revenues . (2016:81%) • Affinity - This division is the Transport Solution’s arm of the Group. It focuses on the reselling of DKV fuel cards, leasing, ferry crossings and other associated transport related services. This division accounts for 4% of the Group’s business in terms of revenue (2016:5%) • Logistics and warehousing - This division is involved in the warehousing and domestic distribution; it generates 16% of the Group’s external revenues in 2017 (2016:14%). Factors that management used to identify the Group’s reportable segments The Group’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team comprising the Divisional CEOs, the Chief Executive Officer and the Finance Director. No single customer accounted for more than 10% of the Group’s total revenue. Measurement of operating segment profit or loss . The Group evaluates segmental performance on the basis of profit or loss from operations calculated in accordance with IFRS. Inter-segment sales are priced at market rates and at arm’s length basis, along the same lines as sales to external customers. This policy was applied consistently throughout the current and prior period. Freight Forwarding 2017 £’000 Logistics & Warehousing 2017 £’000 Affinity 2017 £’000 Unallocated 2017 £’000 93, 339 18,8 98 1 19,833 – 93, 339 – 93, 339 (235 ) 2, 434 – (115,251) 18,8 98 (52 2) 18, 376 (530) 9 32 4, 58 2 – 4, 582 (38) 1,952 – – – – – (2) (1,31 7) Revenue Gross Billings Less recoverable disbursements Total revenue Inter-segmental revenue Total revenue from external customers Depreciation & amortisation Segment Profit (excluding exceptional items) Net Finance costs Exceptional items Profit before income tax Total 2017 £’000 23 2,070 (115,251) 116, 819 (52 2) 116,2 97 (8 05 ) 4,001 ( 653) (912) 2, 436 40 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 40 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 8. SEGMENTAL ANALYSIS CONTINUED Revenue Gross Billings Less recoverable disbursements Total revenue Inter-segmental revenue Logistics & Freight Forwarding Warehousing 2016 £’000 2016 £’000 58,869 10,896 – 58,869 – – 10,896 (570) Total revenue from external customers 58,869 10,326 Depreciation & amortisation Segment Profit (excluding exceptional items) (125) 1,645 (176) (37) Net Finance costs Exceptional items Profit before income tax 9. NET FINANCE COSTS Finance income: Deposit account interest Finance costs: Unwind of discount on Deferred Consideration Bank loan interest Finance lease interest Net finance costs Affinity 2016 £’000 99,386 95,837 3,549 – 3,549 (30) 1,799 Unallocated 2016 £’000 14 – 14 – 14 (1) (939) Total 2016 £’000 169,165 95,837 73,328 (570) 72,758 (332) 2,468 (342) (654) 1,472 2017 £’000 2016 £’000 12 295 363 7 665 653 24 – 362 4 366 342 S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 41 04/06/2018 16:29 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 10. INCOME TAX Analysis of tax expense Current tax: Tax on profits for the year Adjustments in respect of prior periods Total current tax payable Deferred tax credit Total tax expense in consolidated statement of profit or loss 2017 £’000 2016 £’000 825 (17) 808 ( 157) 6 51 272 - 272 (39) 233 The reconciling items for the difference between the actual tax charge for the year and the standard rate of corporation tax in UK (the ultimate parent company’s tax residency) applied to profits for the year are as follows: Profit before tax Tax using the Company’s domestic effective tax rate of 19.25% (2016:35%) Expenses not deductible for tax purposes Income not taxable Movement in unrecognised deferred tax Deferred tax asset not previously recognised Adjustment in respect of prior periods Other Different tax rates applied in overseas jurisdictions Total tax expense Deferred Tax Assets –Arising from Trading losses Balance as at 1st January Movement in the year as a result of trading Balance as at 31st December Liabilities Balance as at 1st January Recognised on the acquisition of Subsidiaries (note 32 ) Release to P&L Movement in Foreign Exchange Balance as at 31st December 2017 £’000 2, 436 4 69 4 04 (1 5) 1 09 ( 82) (17) (33) (1 84) 6 51 2017 £’000 106 90 196 2017 £’000 (332) ( 9 58) 67 1 4 (1, 209) 2016 £’000 1,472 515 427 (1,129) 859 - – 22 (461) 233 2016 £’000 54 52 106 2016 £’000 – (301) 13 (44) (332) The deferred tax asset relates to losses carried forward at the rate of tax in the relevant jurisdiction. The Group has potential deferred tax assets for trading losses totalling £ 813,000 (2016: £561,000) arising from certain subsidiaries across the Group. These assets have not been recognised due to insufficient certainty that the suitable profits will be generated in the foreseeable future. The deferred tax liabilities relates to liabilities arising as part of the Group’s acquisitions. 42 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 42 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 11. DISCONTINUED ACTIVITIES In November 2016, the Group completed its disposal of its investment in Delamode Holdings BV and its subsidiaries in return for cash consideration of €500,000. (£439,000). The Group had net assets of £Nil (2016 - £2,619,000), and the difference between the consideration received and asset value resulted in a distribution to owners during the year of £Nil (2016 - £2,180,000). Delamode Holding BV is the only operation presented as discontinued operation in 2016 and was classified as held for sale in October 2015. During the year the discontinued operations generated losses of £Nil prior to disposal, (2016: - £179,000) The loss attributable to the disposed Group has been disclosed as a loss from discontinued operations and was determined as follows: Result of discontinued operations Revenue Expenses other than finance costs Finance Income Loss for the year 1 2. EARNINGS PER SHARE Basic Weighted average number of shares Diluted Weighted average number of shares Profit for the year attributable to owners of the Company Earnings pence per share - basic Earnings pence per share - diluted Profit for the year attributable to owners of the Company Exceptional items (note 30) Amortisation of intangible assets arising from acquisitions (note 14) Unwind of discount in deferred consideration ( note 9) Profit for the year attributable to owners of the Company excluding exceptional items Earnings pence per share - basic excluding exceptional items Earnings pence per share – diluted excluding exceptional items Profit for the year attributable to owners of the Company Losses for the year from discontinued operations Profit for the year attributable to owners of the Company continuing operations Basic earnings pence per share continuing operations Diluted earnings pence per share continuing operations Losses for the year from discontinued operations Basic and diluted earnings pence per share discontinued operations 1 3. DIVIDENDS Interim dividend of 0.347p (2016: £21.62 ) per Ordinary shares 2017 £’000 – – – – 2016 £’000 427 (639) 33 (179) 2017 9 4,004 9 4,328 2016 80,000 80,000 £’000 1, 540 1. 6 4 1. 63 1, 540 912 330 295 3,077 3.27 3.26 1, 540 – 1, 540 1. 6 4 1. 63 – – 2017 £’000 350 £’000 563 0.70 0.70 563 654 - - 1,217 1.52 1.52 563 179 742 0.93 0.93 (179) (0.22) 2016 £’000 3,377 The directors are recommending a final dividend of 0. 64p per Ordinary shares (2016: £ nil) per share totalling £750,000 (2016: £ nil) to be paid in August 2018 for the year. This dividend has not been accrued in the consolidated statement of Financial Position. 43 S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp031-pp043.indd 43 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 14 . INTANGIBLE ASSETS Group COST At 1 January 2017 Additions Acquired through Business Combination Disposals Exchange Differences At 31 December 2017 AMORTISATION At 1 January 2017 Charge for the Year Disposals Exchange Differences At 31 December 2017 NET BOOK VALUE At 31 December 2017 At 1 January 2017 COST At 1 January 2016 Additions Acquired through Business Combination Exchange Differences At 31 December 2016 AMORTISATION At 1 January 2016 Charge for the year Exchange differences At 31 December 2016 NET BOOK VALUE At 31 December 2016 At 1 January 2016 Licences £’000 2,453 30 – (6) 198 2,675 243 107 (6) 73 417 Goodwill £’000 682 – 6, 829 – 40 Customer Related £’000 – 17 Total £’000 3,135 47 5, 670 12,49 9 – 2 (6) 2 40 7, 551 5, 689 15 , 915 – – – – – – 330 – – 330 243 4 37 (6) 73 7 47 2,258 2,210 7, 551 682 5, 359 – 15, 168 2,892 £’000 £’000 £’000 £’000 138 50 1,981 284 2,453 125 90 28 243 – – 593 89 682 – – – – 2,210 13 682 - – – – – – – – – – – - 138 50 2,574 373 3,135 125 90 28 243 2,892 13 The goodwill included in the above note, relates to acquisition of Pallet Express Srl in January 2016, UK Buy in January 2017, Easy Managed Transport in March 2017, Benfleet Forwarding Limited in October 2017 and Regional Express Limited in November 2017. 44 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 44 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 14 . INTANGIBLE ASSETS CONTINUED Annual test for impairment The Group carries out its impairment tests annually in November as part of the budget process, all newly acquired entities are also reviewed for impairment at the balance sheet date. Upon acquisition the goodwill and other intangibles are calculated at CGU level, these are then measured based on forecasted cash flow projections, the first year of which is based on the CGU’s current annual financial budget which has been approved by the board. The cash flow projections for years two to five have been derived based on a market growth rates that are considered to be in line with the market expectations. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows. In determining the future free cash flow, the main drivers have been revenue and EBIT margins, with margins remaining at current level. The directors have reviewed the future profit and cash flow forecasts for the next five years and applying a discount rate of between 15%-16% to the cash flow projections when determining the net present value of these cash flows, it believes there is sufficient headroom in the value of the business to not have to impair the goodwill. The WACC of the Group has been calculated at a rate of between 15%-16% with each CGU being adjusted to take into consideration a specific Company risk factor. No impairment losses have been recognised in the year. The Goodwill by CGU is shown below :- Subsidiary Acquired Pallex Express SRL Easy Managed Transport Limited Benfleet Forwarding Limited Regional Express Limited UK Buy Total 15. PROPERTY, PLANT AND EQUIPMENT Group COST At 1 January 2017 Additions Additions acquired with subsidiary Disposals Exchange differences Transfers between categories At 31 December 2017 DEPRECIATION At 1 January 2017 Charge for year Eliminated on disposal Exchange differences At 31 December 2017 NET BOOK VALUE At 31 December 2017 At 1 January 2017 Freehold property £’000 Fixtures and fittings £’000 Motor vehicles £’000 Computer equipment £’000 122 2 15 – 3 142 – 3 – – 3 139 122 921 165 30 (2) 12 (154) 972 508 117 (2) 5 628 344 413 759 224 19 (176) 14 1,058 380 9 (19) 11 154 840 1,593 3,547 504 89 (103) 9 499 341 255 662 159 (12) 8 817 776 396 1,674 368 (117) 22 1,947 1,600 1,186 45 S T N E M E T A T S L A C N A N F I I Value £’000 722 2,258 3, 407 937 227 7, 551 Totals £’000 2,860 771 73 (197) 40 – 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 45 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 15. PROPERTY, PLANT AND EQUIPMENT CONTINUED Group COST At 1 January 2016 Additions Additions acquired with Subsidiary Disposals Exchange differences At 31 December 2016 DEPRECIATION At 1 January 2016 Charge for year Eliminated on disposal Exchange differences At 31 December 2016 NET BOOK VALUE At 31 December 2016 At 1 January 2016 Freehold property £’000 Fixtures and fittings £’000 Motor vehicles £’000 Computer equipment £’000 105 1 – – 16 122 – – – – – 122 105 789 173 8 (82) 33 921 478 91 (78) 17 508 413 311 Totals £’000 2,436 593 29 (337) 139 842 218 12 (55) 41 1,058 2,860 595 75 (34) 26 662 1,541 242 (186) 77 1,674 700 201 9 (200) 49 759 468 76 (74) 34 504 255 232 396 247 1,186 895 The net book value of assets held under finance leases is £86,055, (2016: £135,502) and the depreciation charged in the year for these assets was £17,279 (2016:£29,585). 46 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 46 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 16 . SUBSIDIARIES The subsidiaries of Xpediator PLC, all of which have been included in these combined financial statements, are as follows: Name Delamode Holding Ltd Delamode Distribution UK Ltd Delamode PLC Delamode Property Ltd EshopWeDrop Limited Xpediator Services Limited Easy Managed Transport Limited Benfleet Forwarding Limited Regional Express Limited Affinity Transport Solutions Srl Delamode Moldova Srl Delamode Bulgaria EOOD Delamode Balkans DOO Affinity Balkans DOO Delamode Macedonia Delamode Baltics UAB Delamode Estonia OÜ Delamode Romania Srl Affinity Leasing IFN EshopweDrop Holdings EshopweDrop Baltics Delamode Group Limited Delamode Group Holdings Limited Pallet Express Srl Eshop Romania Pallex Hungary Regostered Office Country of incorporation Proportion of ownership interest 2017 Proportion of ownership interest 2016 1 1 1 1 1 1 1 1 1 2 3 4 5 6 7 8 9 2 2 10 9 10 10 11 2 12 United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Romania Moldova Bulgaria Serbia Montenegro Macedonia Lithuania Estonia Romania Romania Malta Lithuania Malta Malta Romania Romania Hungary 100% 51% 100% 100% 100% 100% 100% 100% 100% 100% 100% 90% 100% 100% 100% 80% 80% 100% 100% 51% 100% 100% 100% 100% – – – 100% 100% 90% 100% 100% 100% 70% 70% 100% 99.95% 99.95% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Delamode Group Holdings Limited, Easy Managed Transport Limited, Benfleet Forwarding Limited and Regional Express Limited are the only Subsidiaries held directly by Xpediator PLC. 1 700 Avenue West, Skyline 120, Braintree, Essex, CM77 7AA, United Kingdom 2 Bd. Timisoara, nr 111-115 Sector 6, Bucharest, 061327, Romania 3 Bd. Moscova 21/5 of. 1011 MD-2068, Chisinau, Republic of Moldova 4 8 Malashevska Street, 1202, Sofia, Bulgaria 5 Bulevar, Mihajla Pupina, 115v, 11070, Belgrade, Serbia 6 Dzordza, Vasingtona 51/43, Podgorica, 81000, Montenegro 7 Naum, Naumovski, Boce 50/2 -17, 1000 Skopje, Macedonia 8 Eiguliu G, 2 03150, Vilnius, Lithuania 9 Parnu mnt. 139/C-1 11317, Tallinn, Estonia 10 37A, Balzan Valley, Balzan, BZN 1408, Malta 1 1 Stefan cel Mare street, no. 193, Sibiu, 550321, Romania 12 1141 Budapest Szuglo utca 82, Hungary 47 S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 47 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 17 . NON–CONTROLLING INTERESTS Non-Controlling interests held in the group are as follows: Delamode Baltics UAB Delamode Estonia OÜ Delamode Bulgaria EOOD Delamode Service Financare IFN Delamode Distribution UK Limited 2017 20.0% 20.0% 10.0% 0.05% 49.0% 2016 30.0% 30.0% 10.0% 0.05% 49.0% On 4th January 2017, the Group acquired 10.0% of the non-controlling interest in Delamode Baltics and its subsidiary Delamode Estonia OU for £209,000. On the 28th December 2016, the Group acquired 24.3% of the non-controlling interest in Delamode Bulgaria EOOD for £630,446. On the 28th July 2016, the Group acquired 5.0% of the non-controlling interest in Affinity Transport Solutions Srl for £1,784. On the 15th January 2016, the Group acquired 50.0% of the non-controlling interest in Eshopwedrop Limited for £22,500. The summarised financial information in relation to Delamode Bulgaria and Delamode Baltics before intra- Group eliminations, is presented below together with amounts attributable to NCI: Share Capital Reserves Total NCI b/f 2016 Non-Controlling Interest in Results for the Year Non-Controlling Interest in Dividends for the Year Non-Controlling Interest in Translation adjustment on Opening reserves Non-Controlling Interest in Translation adjustment on Results for the Year Non-Controlling Interest Acquired reserves Non-Controlling Interest Acquired in Share Capital Minority Interest Acquired Reserve Total NCI c/f 2017 Delamode Bulgaria £’000 Delamode Baltics UAB £’000 1 75 76 71 (36) 5 2 – – – 118 6 270 276 134 (71) 9 2 5 (2) (96) 257 48 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 48 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 17 . NON–CONTROLLING INTERESTS CONTINUED Delamode Bulgaria Delamode Baltics UAB Revenue Cost of sales Gross profit Administrative expenses Other income Operating profit Finance (costs)/income Profit before tax Tax Expense Profit after tax Profit after tax attributable to non-controlling interests For the period to 31 December 2017 Assets: Non-Current Trade and receivables Property plant and equipment Inventories Trade and other debtors Cash and cash equivalents Liabilities: Trade and other payables Loans and other borrowings Total Net Assets 2017 £’000 13,991 (12,233) 1,758 (967) – 791 (1) 790 (79) 711 71 2016 £’000 10,876 (9,561) 1,315 (640) 5 680 (15) 665 (66) 599 205 2017 £’000 36,795 (32,770) 4,025 2016 £’000 18,966 (16,445) 2,521 (3,252) (1,892) 27 800 (9) 791 (122) 669 134 2 631 1 632 (97) 535 161 Delamode Bulgaria Delamode Baltics UAB 2017 £’000 – 53 8 2,996 588 3,645 2,446 23 2,469 1,176 2016 £’000 12 32 – 2,296 410 2,750 1,960 22 1,982 768 2017 £’000 103 84 – 7,823 23 8,033 6,748 – 6,748 1,285 2016 £’000 80 71 – 4,656 591 5,398 4,483 – 4,483 915 Accumulated non-controlling interests 118 77 257 275 The NCI of all the other shareholders, that are not 100% owned by the group are considered to be immaterial S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 49 04/06/2018 16:29 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 18 . INVESTMENTS COST At 1 January 2017 Disposals At 31 December 2017 NET BOOK VALUE At 31 December 2017 COST At 1 January 2016 Translation adjustment At 31 December 2016 NET BOOK VALUE At 31 December 2016 Investment £’000 16 (15) 1 1 £’000 16 – 16 16 Investments represent investments in shares in unlisted companies. The Group disposed of its unlisted investment in CWT Globelink on 4th August 2017 for cash consideration of £30,064. 19. INVENTORIES Group Raw materials 20. TRADE AND OTHER RECEIVABLES Group Current: Trade Receivables Less: provision for impairment of trade receivables Current Financial Assets Prepayments Other receivables Total Non Current Trade and other receivables 2017 £’000 50 2017 £’000 46,533 (1,4 98) 45,0 35 2,295 1,128 3,348 51, 80 6 2016 £’000 44 2016 £’000 26,746 (1,028) 25,718 1,180 390 1,309 28,597 149 222 Current Financial Assets relate to the security deposits held by DKV on behalf of the Group which are refundable on termination of the agreement which can be served giving three month’s notice hence they are classed as current assets. Included with trade debtors is a balance due from Simplu Romania of £263,000. This debt is guaranteed by the Directors of Delamode Holdings BV (which include Stephen Blyth and Shaun Godfrey), who are a related party to the Xpediator Group. 50 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 50 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 20. TRADE AND OTHER RECEIVABLES CONTINUED The movements in the impairment allowance for trade receivables are as follows: Group At 1 January Increase during the year Impairment losses reversed Receivable written off during the year as uncollectible At 31 December 2017 £’000 1,028 7 77 (178) (129) 1,4 98 2016 £’000 2,616 442 (153) (1,877) 1,028 As at 31 December 2017 trade receivables of £14,644,000 (201 6: £9,795,000) were past due but not impaired. They relate to the customers with no default history. The ageing analysis of these receivables is as follows: Up to 3 months Over 3 months 2017 £’000 13,833 811 14,644 2016 £’000 9,252 543 9,795 21 . CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Cash and cash equivalents are stated net of bank overdrafts in the cash flow statement Group Bank accounts Bank Overdrafts 22 . TRADE AND OTHER PAYABLES Group Current: Trade and other payables Social security and other taxes Other creditors Deferred Consideration Accruals and deferred income Total Trade and other payables Non Current Deferred Consideration 2017 £’000 7,385 (45) 7,340 2017 £’000 42, 446 1,650 5, 5 14 1, 840 1, 363 5 2, 813 2016 £’000 5,351 – 5,351 2016 £’000 24,673 573 3,378 – 543 29,167 1, 666 – S T N E M E T A T S L A C N A N F I I The deferred consideration of £1, 840,000 (2016 - £nil) due within one year relates to the deferred consideration on the acquisitions of Easy Managed Transport Limited, Benfleet Forwarding Limited , Regional Express Limited and UK Buy. Of this balance, £ 1,078,000 is contingent on performance related criteria. The deferred consideration of £ 1, 666,000 (2016 - £nil) due in more than one year relate s to the deferred consideration on the acquisitions of Easy Managed Transport Limited, Benfleet Forwarding Limited , Regional Express Limited and UK Buy. Of this balance, £9 52,000 is contingent on performance related criteria. 51 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 51 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 23 . LOANS AND BORROWINGS Group Current: Finance leases Bank loans Invoice discounting facility Non-current: Finance Leases Finance Leases 1-2 years Finance Leases 2-5 Years Loans - 1-2 years Loans - 2-5 years Loans due after 5 years repayable by instalments 2017 £’000 43 2 89 2,213 2,545 64 24 651 1,006 1,564 3,309 2016 £’000 39 358 1,077 1,474 69 – 942 971 1,896 3,878 The bank loan due after 5 years is due to be repaid by November 2026. Interest is being charged at a fixed rate of 6.4% and a variable rate of 1.1% above the Bank of England base rate The book value and fair value of loans and borrowings are as follows: Non-Current Finance leases and Bank borrowings - Secured - Unsecured Current Finance lease and Bank borrowings - Secured - Unsecured Total loans and borrowings Sterling Other 2017 £’000 2,874 435 3,309 2,502 43 2,545 5,854 5,396 458 5,854 2016 £’000 3,334 544 3,878 1,410 64 1,474 5,352 4,639 713 5,352 The Finance lease loans are secured against the assets on which the finance relates. Bank Borrowings and overdrafts are secured by a fixed and floating charge over the Group’s assets. The movements in the finance leases and borrowings are as follows: Group At 1 January New loans in the year Loans repaid during the year At 31 December 52 2017 £’000 5,352 1,198 (696) 5,854 2016 £’000 7,340 319 (2,307) 5,352 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 52 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 24 . FINANCIAL INSTRUMENTS - RISK MANAGEMENT The Group is exposed through its operations to the following financial risks: • Credit risk • Fair value or cash flow interest rate risk • Foreign exchange risk • Other market price risk, and • Liquidity risk. In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: • Trade receivables • Cash and cash equivalents • Trade and other payables • Bank overdrafts • Floating-rate bank loans • Fixed rate bank loans • Bank loan Financial instruments by category Financial Assets Cash and cash equivalents Trade and other receivables Total Financial Assets Loans and receivables 2017 £’000 7,385 50, 678 58, 063 2016 £’000 5,351 28,534 33,885 Financial Liabilities Fair value through profit and loss Loans and other payables Trade and other payables Loans and Borrowings Bank overdraft Deferred consideration Total Financial Liabilities 2017 £’000 – – – 1,476 1,476 2016 £’000 – – – - – 2017 £’000 50,973 5,854 45 2,030 5 8,902 2016 £’000 29,499 5,352 - - 34,851 Financial instruments not measured at fair value These include cash and cash equivalents, trade and other receivables, trade and other payables, and loans and borrowings. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, trade and other payables approximates their fair value. The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk and interest rate risk) credit risk and liquidity risk. The financial risks relate to the following financial instruments: debtors, cash and cash equivalents and trade and other creditors. The accounting policies with respect to these financial instruments are described above. Risk management is carried out by the directors under policies approved at the AGM. The directors identify and evaluates financials risks in close co-operation with the company’s operating units. The directors provide principles for overall risk management. The reports on the risk management are produced periodically to the key management personnel of the company. 53 S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 53 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 24 . FINANCIAL INSTRUMENTS - RISK MANAGEMENT CONTINUED (a) Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts. Such credit ratings are taken into account by local business practices. Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, the most suitable bank in the local territory is selected. A significant amount of cash is held with the following institutions: 2017* Rating A BBB+ BBB+ BBB- A BB BBB CCC+ A+ A + 2017 Rating BBB+ Cash at bank Barclays Bank Lloyds Bank Raiffeisenbank RBS HSBC Bank of Transylvania Unicredit Bulbank Alpha Bank SEB bankas AB DNB bankas AB Other Total *Based on Standard & Poor Rating Short term deposits Lloyds Bank Reconciliation of cash in bank and deposits to balance sheet Cash at bank Short term deposits (b) Market risk (i) Price risk 2017 £’000 2,656 182 1, 418 319 261 232 216 67 7 – 497 5,855 2017 £’000 1,485 2017 £’000 5,855 1,485 7,340 2016 £’000 – 516 1,802 – – 179 251 48 291 290 489 3,866 2016 £’000 1,485 2016 £’000 3,866 1,485 5,351 Certain aspects of the commercial terms relating to the Affinity division are, directly linked to the commodity costs of fuel purchased by their clients at roadside fuelling stations across Europe. As such there is a risk arising from price changes relating to the fuel prices offered at the respective fuelling stations. In order to manage this risk the Company partially hedges the way it charges its commissions. The table below shows the sensitivity analysis to possible changes in fuel prices to which the Group is exposed at the end of each year, with all other variables remaining constant. This arises due to the commercial arrangements the Affinity division has with its clients, whereby it will generate income in the form of commissions based on the value of fuel purchased by its clients. Petrol price risk effect on net profit sensitivity analysis: Price increased by 10% Price decreased by 10% 2017 £’000 130 (130) 2016 £’000 95 (95) The Group is exposed to the market risk with respect to its operating income which is subject to changes in performance, exchange fluctuations and other market influences both economic and political. The directors manage this risk by reviewing on a regular basis market fluctuations arising on the Group’s activities. 54 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 54 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 24 . FINANCIAL INSTRUMENTS - RISK MANAGEMENT CONTINUED (ii) Cash flow and fair value interest rate risk As the Company has no significant interest-bearing assets, its income and operating cash flows are substantially independent of changes in market interest rates. The risk associated with interest-bearing debts is mitigated by utilising a mix of fixed and variable interest rate loans. The Group’s cash flow and fair value interest rate risk is periodically monitored by the directors. The cash flow and fair value risk policy is approved by the directors. Receivables and trade and other payables are interest free and have settlement dates within one year. A sensitivity analysis is normally based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and change in some of the assumptions may be correlated – for example, change in exchange rates and change in market values. (iii) Foreign exchange risk Foreign exchange risk arises because the Group has operations located in various parts of the world whose functional currency is not the same as the presentational currency of the Group. Foreign exchange risk also arises when individual companies enter into transactions denominated in a currency other than their functional currency. Certain assets of the Group comprise amounts denominated in foreign currencies. Similarly, the company has financial liabilities denominated in foreign currency. In general, the company seeks to maintain the financial assets and financial liabilities in each of the foreign currencies at a reasonably comparable level, thereby providing a natural hedge against foreign exchange risk. GBP £’000 Euro £’000 RON £’000 MLD LEU £’000 BGN LEV £’000 RSD Dinar £’000 HUF Forints £’000 MKD Denar £’000 Total £’000 At 31 December 2017 Financial assets 15, 580 28,185 9,218 Financial Liabilities 20,036 28,678 6,054 131 33 3,413 2,363 1,337 1,461 At 31 December 2016 Financial assets 6,520 19,846 3,548 Financial liabilities 9,159 19,751 2,423 369 254 2,636 810 1,955 1,200 18 39 4 25 181 58, 0 63 238 5 8,902 102 33,835 84 34,851 An analysis of the Group’s exposure to foreign exchange risk, illustrating the impact on the net financial assets of a 10% movement in each of the key currencies to which the Group is exposed, is shown below Foreign currency risk sensitivity analysis: 2017 £’000 2016 £’000 Euro Strengthened by 10% Weakened by 10% Romanian Lei Strengthened by 10% Weakened by 10% Moldavian Leu Strengthened by 10% Weakened by 10% Serbian Dinar Strengthened by 10% Weakened by 10% Bulgarian Lev Strengthened by 10% Weakened by 10% Macedonian Denar Strengthened by 10% Weakened by 10% 4 9 (4 9) 316 ( 316) 10 (10) (12) 12 105 (105) 6 ( 6) 10 (10) 113 (113) 12 (12) (39) 39 68 (68) 2 (2) 55 S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 55 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 24 . FINANCIAL INSTRUMENTS - RISK MANAGEMENT CONTINUED (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash flow for operations. The Group manages its’ risk to shortage of funds by monitoring forecast and actual cash flows. The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets (e.g. accounts receivables, other financial assets) and projected cash flows from operations. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, invoice discounting and long term loan finance. At 31 December 2017 Trade and other payables Loans and borrowings Deferred Consideration Total At 31 December 2016 Trade and other payables Loans and borrowings Total Up to 12 months £’000 50, 9 73 2,545 569 54,087 Up to 12 months £’000 29,167 1,614 30,781 Between 1 and 2 years £’000 – 715 738 1,453 Between 1 and 2 years £’000 – 1,130 1,130 Between 2 and 5 years £’000 – 1,030 - 1,030 Between 2 and 5 years £’000 – 1,247 1,247 25 . CALLED UP SHARE CAPITAL Ordinary Shares of 5p each At the beginning of the year Issued During the Year At the end of the year 50,000 deferred shares of £1.00 each At the end of the year 2017 Number 80,000,000 37,431,144 117,431,144 50,000 117,481,144 2017 £000s 4,000 1,872 5,872 2016 Number 80,000,000 – 80,000,000 50 50,000 5,922 80,050,000 Over 5 years £’000 – 1,564 - 1,564 Over 5 years £’000 – 2,087 2,087 2016 £000s 4,000 – 4,000 50 4,050 The share capital at the 31 December 2016 represents the shares issued as consideration for Delamode Group Holdings Limited which under merger accounting is treated as if they had always been in issue. On 25 May 2017, the Company entered into a share swap agreement whereby the ultimate beneficiaries of Delamode Group Holding Limited swapped their shares in Delamode Group Holding Limited for shares in Xpediator Plc. This created 4,000,000 ordinary shares of £1.00 being issued to the shareholders of the Company. On the 7 August 2017 these shares were converted into 80,000,000 ordinary shares of 5 pence each. On the 11th August 2017, the company issued 20,833,333 of 5 pence shares following the listing on the Alternative Investment Market. The Company raised Gross Proceeds of £5,000,000 to assist with further acquisitions. Costs of £421,000 have been taken to the share premium reserve. On 25th October 2017, the Company issued 9,219,858 of 5 pence shares (market value of £2,600,000) shares to the shareholders’ of Benfleet Forwarding Limited as part of the consideration for the acquisition of the Company. On 3rd November 2017, the Company issued 377,953 of 5 pence shares (market value of £120,000) to the shareholders’ of Regional Express Limited as part of the consideration for the acquisition of the Company. On the 30th November 2017, the Company issued a further 7,000,000 5 pence shares following an addition round of funding. The Company raised gross proceeds of £2,800,000 to assist with further acquisitions and working capital requirements. Costs of £195,000 have been taken to the share premium reserve. The deferred shares are non-voting shares and have no rights to any distribution or dividend payments. 56 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 56 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 26 . RESERVE DESCRIPTION AND PURPOSE Retained earnings: All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. Translation reserve: represents the difference arising on the translation of the net assets and results of subsidiaries into the presentation currency. Merger Reserves: represents the difference between the nominal value of consideration paid for shares acquired in entities under common control and the nominal value of those shares. This arises as a result of the business combination falling outside the scope of IFRS 3 and merger accounting being applied in place of acquisition accounting. In addition, the premium on the fair value in excess of the nominal value of shares issued in consideration of business combinations is credited to the merger reserve. Share premium is the amount subscribed for share capital in excess of nominal value. Equity reserve represents the cost of the share options granted that have not yet been exercised. 27 . SHARE-BASED PAYMENTS The Company has granted Directors’ and key management share option plans. These are unapproved schemes so they do not satisfy the requirements of schedule 4, ITEPA. A summary of the options plans is shown below. All options will vest between 1 to less than 5 years. Name Alex Borrelli Geoff Gillo Dana Antohi SP Angel Share Option No Option Price £ Vesting Period Expiry Date 416,667 208,333 729,167 55,250 0.24 0.24 0.05 0. 24 May 2019 May 2019 May 2019* May 2019* July 2018 August 2018 July 2022 August 2022 *The expiry date is 10 days after approval of the Group’s consolidated audited accounts for the year ending 31 December 2018. All share options have been granted in the current year. The Company has granted share options to the non-executive directors over 416,667 Ordinary Shares (Alex Borrelli) and 208,333 Ordinary Shares (Geoff Gillo). The options may only be exercised in whole and not part and exercise of the options are conditional on the earnings per share of the Company in each of the two years ending 31 December 2017 and 31 December 2018 increasing by 10 per cent. or more on the previous year. For Alex Borrelli, the options are also conditional on him being a director of the Company on the date that the consolidated audited accounts of the Company for the year ending 31 December 2018 are published and for Geoff Gillo, on him being a non-executive director of the Company on such date. The exercise price of the options is the Placing Price (£0.24). The Company has granted options to Dana Antohi over 729,167 Ordinary Shares. The options are exercisable for a period of 30 days commencing on the first anniversary of the date of grant of the options, following which, if not exercised, the options will lapse. The options may only be exercised over all the options and not part. The exercise price of the options is £0.05. The Company has also granted to SP Angel warrants to subscribe for 55,250 Ordinary Shares at the Placing Price, £0.24 . E xercisable at any time during the period of five years from Admission. Options will normally lapse on cessation of employment. However, exercise is permitted for a limited period following cessation of employment for specified reasons, such as redundancy, retirement, ill-health, and , in other circumstances, at the discretion of the Remuneration Committee. The weighted average grant fair value during the year was £0.125 per option. The outstanding options have a weighted average contractual life of 11 months, and exercise price between £0.05 and £0.24 . S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 57 04/06/2018 16:29 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 27 . SHARE-BASED PAYMENTS CONTINUED Options were valued using the Black-Scholes option pricing model. No performance conditions were included in the fair value calculations. The fair value per option granted and the assumptions used in the calculations are as follows:- Risk Free Investment Expected Life Expected Volatility 2017 1.97% 18 months 43.63% 2016 – – – Weighted Average Share Price For 2017 options granted, a volatility of 43.63% has been used reflecting the historical based on share transactions since listing. The maximum vesting period was used as a basis to determine the expected life of the option. The risk-free rate was based on the Government Gilts rates in effect at the time of the grant. The Group recognised total expenses of £68,857 (2016 - £nil) relating to equity-settled share-based payments in 2017. 58 249388_Xpediator_AR_the_BackEnd_pp044-pp058.indd 58 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 28 . LEA SE S The Group utilises finance leases and hire purchase agreements to acquire property, plant and equipment. Future minimum amounts repayable are shown below: 2017 £’000 2016 £’000 Hire purchase contracts Gross obligations repayable: Within one year Between one and five years Finance charges repayable: Within one year Between one and five years Net obligations repayable: Within one year Between one and five years Net obligations included within: Current liabilities Non-current Liabilities 48 92 140 5 4 9 43 88 131 43 88 131 41 73 114 2 4 6 39 69 108 39 69 108 Operating leases - lessee In addition to finance leases the Group has various operating leases which are shown below. The ownership of the operating leases will not pass to the lessee at the end of the agreement. The total future value of minimum lease payments is due as follows: 2017 £’000 2016 £’000 Non-cancellable operating leases - Non Rent Payable Within one year Between one and five years In more than five years Non-cancellable operating leases - Rent Payable Within one year Between one and five years In more than five years Minimum lease payments Receivable Not later than one year Later than one year and not later than five years Later than five years 285 559 7 851 1,956 6,446 2,855 11,257 2017 £’000 37 43 – 80 124 257 - 381 811 2,628 2,512 5,951 2016 £’000 37 41 – 78 59 S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp059-pp067.indd 59 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 29 . RELATED PARTY TRANSACTIONS Delamode Holding BV, is indirectly owned by Shaun Godfrey, Sandu Grigore, and Cogels Investment BV, all of whom are shareholders of Xpediator PLC. Delamode International Kft, Delamode Hungary, Kft and Delamode Consulting Srl are all subsidiaries of Delamode Holding BV. Delamode Properitati Srl, a company owned by Delamode Holding BV, is the landlord of one of the Group’s leasehold properties in Romania. Rent payable under the current lease is at market rates. Shaun Godfrey, Richard Myson and Cogels Investment BV are shareholders of Xpediator PLC. On the 16th January 2016 the Group acquired 100% of the share capital of Pallet Express Srl for £2,058,000 these shares were owned by the current shareholders of the Group in the same proportion of their current group shareholding, the details of this acquisition is disclosed in note 3 2. During the year Group companies entered into the following transactions with related parties who are not members of the Group. Sales Purchases Amounts owed by Amounts owed to 2017 £’000 2016 £’000 2017 £’000 2016 £’000 2017 £’000 2016 £’000 2017 £’000 2016 £’000 Related Party Delamode Holding BV Delamode Propretati, Srl Delamode Hungary Kft Delamode Consulting 55 3 - - - 2 - - - 315 - - 8 397 - - 55 9 21 - - 8 21 - Companies in which directors or their immediate family have a significant controlling interest Affinity Group Limited COGELs Investment BV Directors Shaun Godfrey Richard Myson Sandu Grigore 2 - - 1 - 4 - - - - - - 14 - - - - - - - 45 235 43 243 - - - 31 - 2 The maximum amount owed to the Group by the directors at any time during 2017 was as follows; Affinity Group Limited COGELs Investment BV Shaun Godfrey Richard Myson Sandu Grigore Stephen Blyth 2017 £’000 45 243 31 1 2 - 646 330 2 15 - - - 14 1 - 85 15 29 7 60 58 1 - 2016 £’000 43 243 127 1 23 1,185 Details of directors’ remuneration and the remuneration of Key Management Personnel are given in note 7 . All related party transactions were made at an arm’s length basis. 60 249388_Xpediator_AR_the_BackEnd_pp059-pp067.indd 60 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 30. EXCEPTIONAL ITEMS As a result of the group’s decision to seek admission to the Alternative Investment Market in the UK, it incurred costs for legal and consultancy fees relating to this process in the year totalled £67 2,000. (2016: £654,000). These costs relate to external accountancy, legal support and corporate advisors and are non-recurring. In addition, the Group has incurred non-recurring costs of £240 ,000 (2016 - £nil) relating to the acquisitions of Easy Managed Transport Limited, Benfleet Forwarding Limited and Regional Express Limited. These costs relate to external accountancy, legal support, professional fees and stamp duty payable to local tax authorities. 31. SUBSEQUENT EVENTS In April 2018 the Group incorporated an new entity in Latvia, which is a wholly owned subsidiary of Delamode Baltics UAB. 32 . BUSINESS COMBINATIONS Easy Managed Transport On 10 March 2017 the Group acquired 100% of the voting equity of Easy Managed Transport Limited (EMT), a company whose principal activity is the provision of domestic distribution for garment consignment in the UK. The principal reason for this acquisition was to enable the Group to consolidate and enhance their distribution services for their fashion related clients. The total consideration paid for the entity is split into the following components: • Cash on completion • Plus Earn-Out payments payable over two years, The deferred earn out consideration is calculated as follows, both of which are subject to a maximum and minimum payment:- • 50% of the Company’s operating profit before tax multiplied by 2.5 in respect of the First Earn-Out Year • 50% of the Company’s operating profit before tax multiplied by 2.5 in respect of the Second Earn-Out year Fair Value assessment As part of the fair value assessment of the Intangible assets of EMT, it was identified that the only intangible asset category to apply, is the customer related intangible assets. The fair value calculation of customer related intangible asset was determined by using the income approach based on the expected future cash flows. This was then discounted to determine the present value. The weighted average cost of capital used in determining the present value, was 21.0%, which reflected the business and market risks factors. The outcome of the fair value calculation was to derive a customer related intangible asset with a value of £2,872,000. Economic useful life When determining the economic useful life of the customer relationships the historical length of relationships with existing customers and those reported by listed companies in the sector was considered as well as an annual attrition rate of 10.0%. Based on these factors, it was concluded that the useful economic life for customer relationships in relation to EMT would be up to 10 years. S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp059-pp067.indd 61 04/06/2018 16:29 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 32 . BUSINESS COMBINATIONS CONTINUED Deferred tax As a result of the creation of the customer related intangible asset, there is a deferred tax liability, which was calculated as the sum of the fair values of the intangible assets multiplied by the tax rate. An average long-term tax rate of 17.0% was used as to determine this. This resulted in a deferred tax liability of £488, 000. Deferred Consideration The deferred consideration consists of the • payment relating to the earn out period and; • amount by which the Completion Net Asset exceeds Target Net Assets In determining the present value of the earn out payment, the first payment which is due in July 2018 was calculated using a cost of capital equal to the long term debt of 6.8% and the second earn out payment, due to be paid in July 2019, was calculated by using the WACC of 21.0%. Using the forecasted results for the respective periods the initial present value of the deferred consideration relating to the earn out was calculated to be £2,1 88, 000. In relation to determining the present value of the amount by which the completion net asset exceeds the target, a cost of capital equal to the long term debt % of 6.8% was used given that this payment is due to be paid with the first earn out payment in July 2018. The present value of the excess net asset equated to £19 8,000 . Acquisition costs of £96,000 have been expensed to the income statement and are shown as part of the exceptional expenses. Goodwill When determining the goodwill arising on the acquisition the following provisional fair values were assessed . Purchase Consideration Initial Consideration – Cash P.V. of Net Assets Adjustment - to be settled in cash P.V. of Deferred Consideration - to be settled in ordinary shares Total Consideration for Equity Allocation of Assets and Liabilities Acquired Intangible Assets Customer-related Intangible Assets Other Assets Fixed Assets Current Assets (excluding Cash) Cash Liabilities Assumed Liabilities Deferred Tax Liability for Intangible Assets Goodwill The goodwill recognised will not be deductible for tax purposes. Since the acquisition date, EMT has contributed £2,903,000 to group revenues and £579,000 to group profit. £’000 5,128 198 2,188 7,514 2,872 23 645 2, 850 (646) (488) 2,258 62 249388_Xpediator_AR_the_BackEnd_pp059-pp067.indd 62 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 32 . BUSINESS COMBINATIONS CONTINUED Benfleet Forwarding Limited On 26 October 2017 the Group acquired 100% of the voting equity of Benfleet Forwarding Limited (Benfleet), a company whose specializes in the movement of flooring, machinery, household goods and garments. The principal reason for this acquisition was to enable the Group to consolidate and enhance their distribution services and to operate in these new markets. The total consideration paid for the entity is split into the following components: • Cash on completion • Shares issued on completion • Plus Earn-Out payments payable over two years, The deferred consideration earn out is calculated as follows, both of which are subject to a maximum and minimum payment:- • 50% of the Company’s operating profit before tax multiplied by 2.5 in respect of the First Earn-Out Year • 50% of the Company’s operating profit before tax multiplied by 2.5 in respect of the Second Earn-Out year Fair Value assessment As part of the fair value assessment of the Intangible assets of Benfleet forwarding, it was identified that the only intangible asset category to apply, is the customer related intangible assets. The fair value calculation of customer related intangible asset was determined by using the income approach based on the expected future cash flows. This was then discounted to determine the present value. The weighted average cost of capital used in determining the present value, was 19.0%, which reflected the business and market risks factors. The outcome of the fair value calculation was to derive a customer related intangible asset with a value of £ 1,838,000. Economic useful life When determining the economic useful life of the customer relationships the historical length of relationships with existing customers and those reported by listed companies in the sector was considered as well as an annual attrition rate of 10.0%. Based on these factors, it was concluded that the useful economic life for customer relationships in relation to Benfleet Forwarding would be up to 6 years. Deferred tax As a result of the creation of the customer related intangible asset, there is a deferred tax liability, which was calculated as the sum of the fair values of the intangible assets multiplied by the tax rate. An average long-term tax rate of 17.0% was used as to determine this. This resulted in a deferred tax liability of £ 312,000. Deferred Consideration The deferred consideration consists of the • payment relating to the earn out period and; • amount by which the Completion Net Asset exceeds Target Net Assets In determining the present value of the earn out payment, the first payment which is due in May 2018 was calculated using a cost of capital equal to the long term debt of 6.8% and the second earn out payment, due to be paid in May 2019, was calculated by using the WAC of 17.0%. Using the forecasted results for the respective periods the present value of the initial deferred consideration relating to the earn out was calculated to be £ 624,000. Acquisition costs of £109,000 have been expensed to the income statement and are shown as part of the exceptional expenses. S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp059-pp067.indd 63 04/06/2018 16:29 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 32 . BUSINESS COMBINATIONS CONTINUED Goodwill When determining the goodwill arising on the acquisition the following Purchase Consideration Initial Consideration - cash Initial Consideration – shares P.V. of Deferred Consideration - to be settled in cash Total Consideration for Equity Allocation of Assets and Liabilities Acquired Intangible Assets Customer-related Intangible Assets Other Assets Fixed Assets Current Assets (excluding cash) Cash Liabilities Assumed Liabilities Deferred Tax Liability for Intangible Assets Goodwill £’000 3,950 2,600 6 24 7, 174 1,838 5 4, 691 1, 565 (4,020) ( 3 12) 3, 407 The goodwill recognised will not be deductible for tax purposes. Since the acquisition date, Benfleet has contributed £5,513,000 to Group revenues and £402,000 to Group profit. Regional Express Limited On 3 November 2017 the Group acquired 100% of the voting equity of Regional Express Limited, a Company whose specializes in the road, sea and air freight services as well as organizing Amazon sellers VAT registration, customs clearances and transport of goods from the USA and the Far East . The principal reason for this acquisition was to enable the Group to consolidate and enhance their distribution services and to operate in these new markets. The total consideration paid for the entity is split into the following components: • Cash deferred on completion • Shares issued on completion • Plus Earn-Out payments payable over two years, The deferred Earn Out consideration is calculated as follows, both of which are subject to a maximum and minimum payment:- • 50% of the Company’s operating profit before tax multiplied by 2.5 in respect of the First Earn-Out Year • 50% of the Company’s operating profit before tax multiplied by 2.5 in respect of the Second Earn-Out year Fair Value assessment As part of the fair value assessment of the Intangible assets of Regional Express Limited it was identified that the only intangible asset category to apply, is the customer related intangible assets. The fair value calculation of customer related intangible asset was determined by using the income approach based on the expected future cash flows. This was then discounted to determine the present value. The weighted average cost of capital used in determining the present value, was 17.0%, which reflected the business and market risks factors. The outcome of the fair value calculation was to derive a customer related intangible asset with a value of £737,000. 64 249388_Xpediator_AR_the_BackEnd_pp059-pp067.indd 64 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 32. BUSINESS COMBINATIONS CONTINUED Economic useful life When determining the economic useful life of the customer relationships the historical length of relationships with existing customers and those reported by listed companies in the sector was considered as well as an annual attrition rate of 10.0%. Based on these factors, it was concluded that the useful economic life for customer relationships in relation to Regional Express Limited would be up to 8 years. Deferred tax As a result of the creation of the customer related intangible asset, there is a deferred tax liability, which was calculated as the sum of the fair values of the intangible assets multiplied by the tax rate. An average long-term tax rate of 17.0% was used as to determine this. This resulted in a deferred tax liability of £125,00 0. Deferred Consideration The deferred consideration consists of the • payment relating to the earn out period and; • amount by which the Completion Net Asset exceeds Target Net Assets In determining the present value of the earn out payment, the first payment which is due in November 2018 was calculated using a cost of capital equal to the long term debt of 6.8% and the second earn out payment, due to be paid in November 2019, was calculated by using the WACC of 17.0%. Using the forecasted results for the respective periods the present value of the initial deferred consideration relating to the earn out was calculated to be £ 368,000 . Acquisition costs of £35,000 have been expensed to the income statement and are shown as part of the exceptional expenses. Goodwill When determining the goodwill arising on the acquisition the following calculations were used. Purchase Consideration Initial Consideration – cash Initial Consideration – Shares Net Cash Adjustment P.V. of Deferred Consideration - to be settled in cash and shares Total Consideration for Equity Allocation of Assets and Liabilities Acquired Intangible Assets Customer-related Intangible Assets Other Assets Fixed Assets Current Assets (Excluding Cash) Cash Liabilities Assumed Liabilities Deferred Tax Liability for Intangible Assets Goodwill £’000 1, 080 120 123 368 1,691 737 52 593 319 (822 ) (125) 937 S T N E M E T A T S L A C N A N F I I The goodwill recognised will not be deductible for tax purposes. Since the acquisition date, Regional Express has contributed £1,541,000 to Group revenues and £62,000 to Group profit. 65 249388_Xpediator_AR_the_BackEnd_pp059-pp067.indd 65 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 32 . BUSINESS COMBINATIONS CONTINUED UK Buy On 6th January 2017, the Group agreed to purchase the intellectual property of UK Buy, which traded under the name of Gerviva UAB, an entity incorporated in Lithuania. Providing B2C distribution for clients in the Baltic region. UKbuy allows Lithuanian clients to purchase goods from UK e-retailers and arranges for delivery to their chosen address in Lithuania. They were a direct competitor to Eshopwedrop, “Eshop” in Lithuania and provided an identical service to those clients. Since its commencement the entity had grown to level which saw it deliver approximately 3,000 parcels per week, significantly higher than that of Eshop. As such in order to develop the business the Group decided it would acquire the intellectual property and intangible assets of the business and absorb the activity into the Eshop operations. As the transaction involved the purchase of a substantial part of the business, then this has been accounted for as a Business Combination under the definition of IFRS 3 “Business Combinations”. Goodwill When determining the goodwill arising on the acquisition the following calculations were used. Purchase Consideration Initial Consideration – cash P.V. of Deferred Consideration – to be settled in cash Total Consideration for Equity Allocation of Assets and Liabilities Acquired Intangible Assets Customer-related Intangible Assets Liabilities Deferred Tax Liability for Intangible Assets Goodwill £’000 91 326 417 223 (33) 227 The goodwill recognised will not be deductible for tax purposes. The maximum consideration payable for the business is £41 7,000, of which £91 ,000 has been paid at the balance sheet date. 66 249388_Xpediator_AR_the_BackEnd_pp059-pp067.indd 66 04/06/2018 16:29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 32 . BUSINESS COMBINATIONS CONTINUED Pallet Express Srl On 18 January 2016 the Group acquired 100% of the voting equity instruments of Pallet Express, a Company whose principal activity is the provision of a franchise network for domestic distribution in Romania. The consideration paid for this acquisition was £2,058,000. The principal reason for this acquisition was to enable the Group to consolidate and enhance their supply chain network in the CEE region. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows: Intangible Assets - Systems Intangible Assets - Licences Property, plant and equipment Other Inventories Trade Receivables Cash Trade Payables Loans Others Deferred tax liability Total net assets £’000 – 1,981 29 16 5 255 185 (255) (445) (5) (301) 1,465 S T N E M E T A T S L A C N A N F I I On acquisition of Pallet Express Srl the software was not considered to be appropriate for the business and as such the entire carrying value of this asset has been impaired. The company also held the Master Franchise license with Pallex Holding UK which had a carrying value of £103,000. This has been adjusted to reflect the fair value of this asset and as such the asset has been restated with a book value of £1,981,000. Fair value of consideration paid in cash Net asset acquired Exchange differences Goodwill recognised The goodwill recognized will not be deductible for tax purposes. Since the acquisition date, Pallex has contributed £4,302,000 (2016 -£2,658,000) to Group revenues and £507,000 (2016 -£449,000) to Group profit. 2,058 (1,465) 129 722 67 249388_Xpediator_AR_the_BackEnd_pp059-pp067.indd 67 04/06/2018 16:29 COMPANY STATEMENT OF FINANCIAL POSITION AS AT YEAR ENDED 31 DECEMBER 2017 ASSETS NON-CURRENT ASSET Property, plant and equipment Investments Trade and other receivables Deferred tax CURRENT ASSETS Trade and other receivables Cash and cash equivalents TOTAL ASSETS EQUITY SHAREHOLDERS’ EQUITY Called up share capital Share Premium Equity Reserve Merger Reserve Retained earnings LIABILITIES NON-CURRENT LIABILITIES Deferred Consideration Due After One Year CURRENT LIABILITIES Trade Creditors and Other Payables Total Liabilities TOTAL EQUITY AND LIABILITIES The Company made a profit in the year of £ 765,000 (2016 - £nil). Notes 2017 £’000 2016 £’000 3 4 5 5 8 9 9 9 9 7 6 3 38, 5 62 111 5 1 38, 727 288 962 1,250 39, 977 5,922 5,792 19 20,083 415 32, 231 1,503 6,246 7,74 6 39, 977 – – – – – 50 – 50 50 50 – – – – 50 – – – 50 Richard Myson CFO Stephen Blyth CEO 14 May 2018 68 249388_Xpediator_AR_the_BackEnd_pp068-end.indd 68 04/06/2018 16:30 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017 Notes Share Capital £’000s Share Premium £’000s Equity Reserve £’000s Merger Reserve £’000s Retained Earnings £’000s Total £’000s Equity as at 1st December 2016 Issue of Share Capital Equity as at 31st December 2016 Contributions by and distribution to owners Dividends Paid Issue of New Ordinary Shares Share Swap with Delamode Group Holdings Share Based Payment Charge Share Based Consideration on Acquisition s Total contribution by and distributions to owners Profit for the year Equity as at 31 December 2017 8 9 8 – 50 50 – – – – – 1,392 5,792 4,000 – 480 5,922 – – – – 5,792 – 5,922 5,792 – – – – – – 19 – 19 – 19 – – – – – 17,842 – 2,241 20,083 – – – – - 50 50 (350) (350) – – – – (350) 765 7,184 21,842 19 2,721 31,466 765 20,083 415 32, 231 S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp068-end.indd 69 04/06/2018 16:30 69 NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 1. ACCOUNTING POLICIES Basis of preparation These financial statements have been prepared in accordance with Financial Reporting Standard 101 “Reduced Disclosure Framework” and the Companies Act 2006. The financial statements have been prepared under the historical cost convention. The company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by FRS 101 “Reduced Disclosure Framework”: • • • • • • • • • • • • the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based Payment; the requirements of paragraphs 62, B64(d), B64(e), B64(g), B64(h), B64(j) to B64(m), B64(n)(ii), B64(o)(ii), B64(p), B64(q)(ii), B66 and B67 of IFRS 3 Business Combinations; the requirements of paragraph 33(c) of IFRS 5 Non Current Assets Held for Sale and Discontinued Operations; the requirements of IFRS 7 Financial Instruments: Disclosures; the requirements of paragraphs 91 to 99 of IFRS 13 Fair Value Measurement; the requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present comparative information in respect of: • paragraph 79(a)(iv) of IAS 1; • paragraph 73(e) of IAS 16 Property, Plant and Equipment; • paragraph 118(e) of IAS 38 Intangible Assets; the requirements of paragraphs 10(d), 10)(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D and 111 of IAS 1 Presentation of Financial Statements; the requirements of paragraphs 134 to 136 of IAS 1 Presentation of Financial Statements; the requirements of IAS 7 Statement of Cash Flows; the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors; the requirements of paragraphs 17 and 18A of IAS 24 Related Party Disclosures; the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a Group; • the requirements of paragraphs 134(d) to 134(f) and 135(c) to 135(e) of IAS 36 Impairments of Assets. Merger accounting On 25 May 2017 Xpediator PLC entered into a share swap agreement with the ultimate beneficiaries of Delamode Group Holdings Limited, whereby 4,000,000 new ordinary shares of £1.00 each were issued to the ultimate beneficiaries of the Delamode Group Holdings Limited in exchange for their shares in Delamode Group Holdings Limited in the same proportion as their shareholding in Delamode Group Holdings Limited. Going concern The directors have concluded that it is appropriate that the financial statements have been prepared on a going concern basis given the cash balances as at 31 December 2017, and funding facilities in place across the group, which it does not envisage will be withdrawn thus there are sufficient funds available to meet its liabilities as they fall due for a period of not less than 12 months from the date of approval of the financial statements.. The financial statements have therefore been prepared on a going concern basis. The directors believe that based on the current budgets and forecast cash flows, there is sufficient resources to meet its liabilities as they fall due. 70 249388_Xpediator_AR_the_BackEnd_pp068-end.indd 70 04/06/2018 16:30 NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 1. ACCOUNTING POLICIES CONTINUED Tangible fixed assets Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life or, if held under a finance lease, over the lease term, whichever is the shorter. Computer Equipment – 25% on reducing balance Fixed assets are stated at cost less depreciation and provision for impairment. Cost includes interest on the funding of major assets until the construction of the asset is complete. Taxation Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantially enacted by the balance sheet date. Foreign currencies Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of transaction. Exchange differences are taken into account in arriving at the operating result. Employee benefit costs The Company operates a defined contribution pension scheme. Contributions payable to the company’s pension scheme are charged to the income statement in the period to which they relate. Receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost. If payment of the receivable is postponed under an extended payment deadline fair value is measured on the basis of the discounted value of the expected revenues. Interest gains are recognised using the effective interest method. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Cash and cash equivalents Cash and cash equivalents include cash in hand, bank balances and deposits held at call with maturities of less than 3 months. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Cash and cash equivalents are stated at face value. Non-current liabilities Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, being the amount received taking account of any premium or discount, less transaction costs. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised as interest in the income statement over the period of the borrowings using the effective interest method. Investments Fixed Asset investments are stated at cost less provisions for diminution in value. Financial Instruments The Company does not hold or issue derivative financial instruments for trading purposes. Share-based Payments The Company Operates equity-settled share-based options plans. The fair value of the employee services received in exchange for the participation in the plan is recognised as an expense in the profit and loss account. The corresponding credit has been recognised in the profit and loss account reserve. The fair value of the employee is based on the fair value of the equity instrument granted. This expense is spread over the vesting period of the instrument. S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp068-end.indd 71 04/06/2018 16:30 71 NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 2. STAFF COSTS Compensation consists of 2 executive Directors, 2 non-executive Directors and 1 other employee. Employee benefit expenses (including directors) comprise: Salaries Short-term non-monetary benefits Share Based Payments Social security contributions and similar taxes 3. FIXED ASSETS COST At 1 January 2017 Additions At 31 December 2017 DEPRECIATION At 1 January 2017 & At 31 December 2017 Net Book Value at 31 December 2017 NET BOOK VALUE At 31 December 2017 4. FIXED ASSET INVESTMENTS At 1st January 2017 Additions During the Year At 31st December 2017 The fixed asset investments additions are as follows:- Delamode Group Holdings Limited Easy Managed Transport Limited Benfleet Forwarding Limited Regional Express Limited Total 2017 £’000 165 1 19 17 2 02 2016 £’000 – – – – – Computer Equipment £’000 – 3 3 Computer Equipment £’000 - 3 3 Subsidiary Undertakings £’000s – 38, 562 38, 562 £’000 21,842 7, 650 7, 337 1, 733 38, 562 Details on the registered office of the above companies is provided in note 16 to the Group accounts. 72 249388_Xpediator_AR_the_BackEnd_pp068-end.indd 72 04/06/2018 16:30 NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 5. DEBTORS Current: Trade Debtors Amounts owed by Group Undertakings Prepayments Other Debtors Total Trade and other payables Non Current Trade and other receivables 6. CREDITORS : AMOUNTS FALLING DUE WITHIN ONE YEAR Current: Trade Creditors Amounts owed by Group Undertakings Other Taxes and Social Security Accruals and Deferred Income Deferred Consideration Other Creditor Total Trade and other payables 2017 £’000 2016 £’000 55 144 22 67 288 111 2017 £’000 135 4,297 18 1 02 1,6 77 14 - 6,24 3 50 – – – 50 – 2016 £’000 - - - - – - - - The deferred consideration of £1,6 77,000 (2016 - £nil) due within one year relates to the deferred consideration on the acquisitions of Easy Managed Transport Limited, Benfleet Forwarding Limited and Regional Express Limited. Of this balance, £ 945,000 is contingent on performance related criteria. 7. CREDITORS : AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Deferred Consideration on Acquisitions 2017 £’000 1, 503 2016 £’000 - The deferred consideration of £1,503,000 (2016 - £nil) due in more than one year relates to the deferred consideration on the acquisitions of Easy Managed Transport Limited, Benfleet Forwarding Limited and Regional Express Limited. Of this balance, £ 789,000 is contingent on performance related criteria. 8. SHARE CAPITAL See Consolidated accounts note 25 for share capital section. S T N E M E T A T S L A C N A N F I I 249388_Xpediator_AR_the_BackEnd_pp068-end.indd 73 04/06/2018 16:30 73 NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2017 9. RESERVES Retained earnings: All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. Merger Reserves: represents the difference between the net asset value of Delamode Group Holdings Limited and the nominal value of the shares issued by Xpediator PLC in consideration for the acquisition of Delamode Group Holdings Limited. In addition the premium on the fair value in excess of the nominal value of shares issued in consideration for business combinations is credited to the merger reserve. Share premium is the amount subscribed for share capital in excess of nominal value, Equity reserve represents the cost of the share options granted that have not yet been exercised. 1 0. RELATED PARTY TRANSACTIONS The Company has taken advantage of the disclosure of related party transactions with wholly owned fellow Group Companies. Related party transactions with key management personnel (including Directors) are shown in note 2 9 of the consolidated financial statements. 1 1. SHARED-BASED PAYMENTS Share-based payments arrangements for employees are set out in the Directors Report (Remuneration note). Details of the share options in existence are shown in note 2 7 of the Consolidated Financial Statements. 74 249388_Xpediator_AR_the_BackEnd_pp068-end.indd 74 04/06/2018 16:30 CONTENTS HIGHLIGHTS 1 FINANCIAL STATEMENTS STRATEGIC REPORT CHAIRMAN’S STATEMENT CEO’S STATEMENT RISKS AND UNCERTAINTIES GOVERNANCE BOARD OF DIRECTORS CORPORATE GOVERNANCE STATEMENT DIRECTORS’ REPORT STATEMENT OF DIRECTORS’ RESPONSIBILITIES INDEPENDENT AUDITOR’S REPORT 3 5 9 11 12 16 17 18 CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS 23 24 25 27 29 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 COMPANY STATEMENT OF FINANCIAL POSITION COMPANY STATEMENT OF CHANGES IN EQUITY NOTES TO THE COMPANY FINANCIAL STATEMENTS 68 69 70 249388_Xpediator_AR_Cover Spread 5mm.indd 4-6 05/06/2018 10:49 Designed and Printed by Perivan ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2017 Xpediator PLC 700 Avenue West Skyline 120 CM77 7AA United Kingdom 249388_Xpediator_AR_Cover Spread 5mm.indd 1-3 05/06/2018 10:49 Company Registration Number: 10397171
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