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RNS
ZPG PLC  -  ZPG   

Full Year Results

Released 07:00 29-Nov-2017

RNS Number : 7876X
ZPG PLC
29 November 2017
 



 

 

 

29 November 2017

 

RECORD PERFORMANCE AND NEW MILESTONES ACROSS THE BUSINESS

Full-year results for the twelve months ended 30 September 2017

 

ZPG Plc (LSE:ZPG) ("ZPG" or the "Company"), which owns and operates some of the UK's most trusted home-related digital platforms, today announces its full-year results for the twelve months ended 30 September 2017 (the "Period").

 

Financial highlights

 

2017

2016

YoY %

Revenue (£m)

244.5

197.7

24

Adjusted EBITDA1,2 (£m)

96.4

77.1

25

Adjusted basic EPS1,3 (pence per share)

15.2

12.7

20

2017

2016

YoY %

Profit for the year4 (£m)

37.4

36.7

2

Basic EPS (pence per share)

8.8

8.9

(1)

Full Year dividend (pence per share)5

5.7

5.2

10

 

Business highlights

 

●     Revenue increase of 24% to £244.5 million & Adjusted EBITDA increase of 25% to £96.4 million

●     Record traffic of 648 million visits to platform generating record of over 56 million partner leads

●     Materially enhanced revenue diversification & cross-sell opportunities resulting from acquisitions

●     New Zoopla MovePlanner tool generating over 10,000 leads per month for Comparison partners

●     Continued marketing investment in new national campaigns resulting in record brand awareness

●     Net debt6 increased to £191.5m (FY16: £146.5m) as result of further strategic acquisitions in year

●     Continued to be highly cash generative with strong cash conversion ratio7 over 88% (FY16: 81%)

●     Statutory Profit for the year was up 2% after acquisition-related costs and share-based payments

 

Property

 

●     Revenue up 41% to £122.3 million driven by strong underlying performance and acquisitions

●     Total number of unique partners (including acquisitions) up 12% to 24,9628 as at end of Period

●     UK Agency partners & inventory up 6% and 5% respectively to 14,775 branches & 969k listings

●     ARPP9 (including acquisitions) up by 5% to £358 due to success of additional product cross-sell

●     Average number of products per partner now stands at 1.4, up 27% from same time last Period

●     £1m+ in additional referral fees generated for our partners so far through the MoveIT platform 

 

Comparison

 

●     Strong switching levels across all verticals with revenue up 10% to £122.2 million over Period

●     34.3 million leads generated helping consumers save over £400 million off their household bills

●     Account sign-ups up 60% to 1.9 million with average leads per consumer account up 6% to 1.3

●     Traffic to uSwitch up 14% YoY with unpaid traffic now accounting for the majority of site visits

●     Zoopla delivering >25% of mortgage traffic to uSwitch demonstrating the cross-sell opportunity

●     Significantly enhanced our proposition with the acquisition of Money, following end of the Period  

 

Commenting on today's announcement Alex Chesterman, Founder & CEO of ZPG Plc said:

 

"We are delighted to have delivered another year of record performance across the business as we continued to provide increased transparency to our consumers and efficiency to our partners. The combination of our underlying organic growth and further strategic acquisitions has made us stronger and more diversified than ever before, resulting in record revenues up 24% to £244.5 million and record Adjusted EBITDA up 25% to £96.4 million.

 

"Our Property division performed very well driven by strong demand for our additional products, further migration of our software partners to cloud-based products and a continuation of returning portal partners. We significantly enhanced the partner cross-sell opportunity with the successful integration of our acquisitions in website, software, data and print products and saw the average number of products per partner increase by 27% over the Period."

 

"Our Comparison division experienced strong levels of switching across all verticals, helping consumers save over £400 million off their household bills during the Period. Energy continued to benefit from returning switchers on fixed term deals and supplier price rises, resulting in a record of over a million energy switches over a twelve-month period. Our acquisition of Money, following the end of the Period, has further diversified our revenues and enhanced the consumer cross-sell opportunity with market-leading products now in Energy, Communications and Finance."


"We are also pleased to announce today the acquisition of Calcasa,
the leading provider of automated property valuations and statistical market analysis in the Netherlands, which further enhances our data capabilities, product portfolio and partner relationships."

 

"Looking ahead, we are very excited by both the underlying growth opportunities in each division and the unique and unrivalled cross-sell opportunities we have created as we continue on our mission to be the platform of choice for consumers and partners engaged in property and household decisions."

 

Outlook

 

ZPG has had a good start to the 2018 financial year across both divisions and Management remains comfortable with current market expectations10 for FY18. We are encouraged by the rate of progress on cross-selling products to our Property partners as well as the rate of returning UK agents to our portals which now stands at over 1,000 branches. Our Comparison business is trading well and we are pleased with the progress to date on the integration of Money where we have already seen some exciting wins. We look forward to the roll out of a number of new products in 2018 in addition to deeper product integration as we continue to capitalise on both our consumer and partner cross-sell opportunities.

 

-ENDS-

For further information, please contact:

Lawrence Hall, Head of Communications - lawrence.hall@zpg.co.uk / 07890 078 945

Rachael Malcolm, Head of Investor Relations - rachael.malcolm@zpg.co.uk / 0203 8725 648

James Isola, Maitland - 020 7379 5151

http://www.zpg.co.uk/

 

A webcast of the management team presentation to analysts and investors will be made available at www.zpg.co.uk at 09.00am this morning and registration can be accessed here. An audio dial-in will also be made available:
Standard International Access: +44 (0) 203 003 2666

UK Toll-Free Number: 0808 109 0700

United States Toll-Free Number: 1 866 966 5335

United States Toll Number: 1 646 843 4608

Participant password: ZPG

 

1.     When reviewing performance, the Directors use a combination of both statutory and adjusted performance measures. The adjusted performance measures, including Adjusted EBITDA and Adjusted basic EPS, provide additional information in line with how financial performance is measured by Management and reported to the Board. These measures are reconciled in the Summary Income Statement in the Finance Review below.

2.     Adjusted EBITDA is defined as operating profit after adding back depreciation and amortisation, share-based payments and exceptional items.

3.     Adjusted basic EPS is calculated as profit for the year excluding exceptional items and amortisation of intangible assets arising on acquisitions, adjusted for tax and divided by the weighted average number of shares in issue for the year.

4.     Profit for the year includes £27.6m (FY16: £15.7m) of exceptional items and amortisation of intangibles arising on acquisitions (adjusted for tax) recognised during the Period.

5.     Full Year dividend includes an interim dividend of 1.9 pence per share and ZPG's proposed final dividend of 3.8 pence per share

6.     Net debt is defined as loans and borrowings less cash and cash equivalents as per the consolidated statement of financial position.

7.     Cash conversion ratio is calculated as: Net cash flows from operating activities less deal related transaction costs of £3.4 million /EBITDA

8.     The total number of unique Property partners has been restated to exclude 788 legacy software customers of Property Software Group who are not paying for an active support contract and to include Zoopla Advertising and Data partners

9.     Average revenue per partner (ARPP) represents total revenue from ZPG's Property partners in a given month divided by the number of Property partners during the month, measured as a monthly average over the Period.

10.  As at 28 November 2017 Company collated consensus figures for FY18 Revenue and EBITDA were £302m and £118m, respectively. These figures include only those analysts who have published updated figures since 7 September 2017, the date of our last market update.

 

Cautionary Statement

 

This document contains forward-looking statements. These forward-looking statements include matters that are not historical facts. Statements containing the words "believe", "expect", "intend", "may", "estimate" or, in each case, their negative and words of similar meaning are forward-looking. By their nature, forward-looking statements involve risks and uncertainties because they relate to events that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that the Company's actual financial condition, results of operations and cash flows, and the development of the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this document. In addition, even if the Company's financial condition, results of operations and cash flows, and the development of the industry in which we operate are consistent with the forward-looking statements in this document, those results or developments may not be indicative of results or developments in subsequent periods. Important facts that could cause the Company's actual results of operations, financial condition or cash flows, or the development of the industry in which we operate, to differ from current expectations include those principal risks and uncertainties disclosed below. As a consequence, the Company's future financial condition, results of operations and cash flows, as well as the development of the industry in which we operate, may differ from those expressed in any forward-looking statements made by us or on the Company's behalf.

 

About ZPG Plc (www.zpg.co.uk)

ZPG Plc (LSE:ZPG) ("ZPG") owns and operates some of the UK's most trusted digital brands that help empower smarter property and household decisions including Zoopla, uSwitch, Money, PrimeLocation and SmartNewHomes. We are also one of the leading residential property data and software providers with a range of products including Hometrack, TechnicWeb, Ravensworth, Alto, Jupix, ExpertAgent, PropertyFile and MoveIT. Our websites and apps attract over 50 million visits per month and over 25,000 business partners use our services. ZPG was founded in 2007 and has a highly experienced management team, led by Founder & CEO, Alex Chesterman OBE.

 

Zoopla is the UK's most comprehensive property website, helping consumers to research the market and find their next home by combining hundreds of thousands of property listings with market data and local information.

 

uSwitch is the UK's leading comparison website for home services switching, helping consumers to find the best deal and save money on their gas, electricity, broadband, TV, phone and other products.

 

Money is one of the UK's leading financial services comparison websites, helping consumers compare products including mortgages, loans, credit cards, bank accounts and insurance from more than 600 providers.

 

PrimeLocation is one of the UK's leading property websites, helping house-hunters in the middle/upper tiers of the market find their dream home from the top estate agents, letting agents and property developers.

 

SmartNewHomes is the UK's leading website dedicated exclusively to new homes, helping buyers understand the market and search for new build homes from all the leading property developers across the country.   

 

Hometrack is a leading supplier of automated property valuations and property market insights in the UK and Australia to partners including mortgage lenders, developers, investors, housing associations and others.

 

TechnicWeb is the UK's leading estate agency website design and hosting business specialising in designing and operating fully-responsive websites for the property sector.

 

Ravensworth is the UK's leading provider of print solutions to estate agents and offers a comprehensive range of products and services for every stage of the property marketing journey from listing through to post-sale.

 

Alto, Jupix and ExpertAgent are some of the leading cloud-based estate agency and property management software systems used by thousands of property professionals across the UK for the day-to-day management of inventory, marketing and communications.

 

PropertyFile and MoveIT are innovative tools used by estate agents to improve communication and efficiency with their customers and to allow them to generate additional revenue streams via referrals. 

 

Business Review

 

Chief Executive Officer's statement and business review

 

We're stronger and more diversified than ever before

 

2017 has been another very exciting year for ZPG as we continued to help our consumers to make smarter property and household-related decisions and our partners to operate more effectively. The combination of our underlying organic growth and strategic acquisitions has made us stronger and more diversified than ever before, resulting in record revenues up 24% to £244.5 million and record Adjusted EBITDA up 25% to £96.4 million.

 

Delivering on our strategy & mission

 

We have made significant progress towards our mission of being the platform of choice for consumers and partners engaged in property and household decisions. During the Period, we announced five acquisitions, three further strategic investments and the launch of two new national marketing campaigns.

 

Our audience continued to grow and remains highly engaged with a new record of 648 million visits to our websites, of which 72% were via mobile devices. We launched new national advertising campaigns for both our Zoopla and uSwitch brands. Zoopla's new campaign highlighted how we can help simplify the process of moving home, through the eyes of hermit crabs, the world's most prolific home movers. uSwitch's new marketing campaign unveiled an updated logo identity and new brand slogan - 'Switching made simple'. Both campaigns resulted in record levels of national brand awareness. As a result we generated a record of over 56 million leads for our more than 25,000 partners during the Period.

 

Our cross-sell strategy to both consumers and partners is working. We are engaging our consumer audience effectively and are driving thousands of incremental leads across our platforms. In March we launched our innovative MovePlanner tool on Zoopla which helps consumers manage everything move-related in one place and allows us to generate leads for conveyancing, removals, insurance, energy, broadband and more. This tool is now generating over 10,000 incremental leads per month for our Comparison partners. Zoopla is also now driving over 25% of the overall mortgage traffic to uSwitch.

 

We continued to attract a focused, transaction-ready audience to our uSwitch website with account sign-ups increasing by 60% to 1.9m at the end of the Period. Consumers can now manage multiple products within their account and set reminders for contract end dates so that they never miss an opportunity to switch to a better deal. In addition, uSwitch's app won numerous awards during the Period including 'Most innovative use of mobile' and 'Best app' at the MOMA Awards and 'Best use of mobile' at the DADI Awards.

 

The cross-sell opportunity to our Property partners has been significantly enhanced through the acquisitions of TechnicWeb, Hometrack, ExpertAgent and Ravensworth. We are now able to offer best-in-class portal, software, websites, data and print services to our partners. Our MoveIT platform generated over £1m in referrals fees for our partners and has become a net revenue generator for a number of agents who are able to earn an additional £1,000+ per transaction by offering additional relevant services to consumers including conveyancing, mortgages and energy switching. As at the end of the Period the average number of products per partner was up 27% to 1.4. 

 

To reflect the evolution of the business, following the recent acquisitions ZPG will update its divisional key performance indicators ('KPIs') from FY2018 onwards. In Property, the Company will report revenue by Marketing, Software and Data and its total number of unique Property partners and Average Revenue Per Partner (ARPP) across the division. In Comparison, the Company will report revenue by Energy, Communications and Finance and its total number of Comparison leads and Average Revenue Per Lead (ARPL) across the division. Full details of the like-for-like performance under the new methodology (including acquisitions in both periods) can be found in the Appendix.

 

 

Acquisitions & partnerships

 

We completed four acquisitions during the Period and one following the end of the Period, enhancing our product propositions and cross-sell opportunities to both our consumers and partners.

 

November 2016: TechnicWeb is one of the UK's leading estate agency website design and hosting businesses. This acquisition has now been integrated into our wider business and gives our partners the ability to instantly refresh their online presence with a choice of different fully mobile-optimised website designs.

 

January 2017: Hometrack is the UK's leading provider of residential property market insights and analytics. This acquisition has helped us to further differentiate our products for both consumers and partners and has also introduced a new set of partners to ZPG including 18 of the top 25 mortgage lenders in the UK.

 

March 2017: ExpertAgent is a leading property software provider that provides essential systems for the day-to-day management of estate agent businesses. By integrating with existing ZPG products we are able to ensure all of our partners benefit from a choice of platforms suitable to their requirements.


September 2017: Ravensworth is the leading provider of integrated print solutions to over 4,500 UK estate agent branches. This deal further enhances ZPG's comprehensive product offering for its Property partners which now includes portal, software, websites, on-demand print and data services.

 

October 2017 (following the end of the Period): Money is one of the UK's leading finance comparison websites, helping consumers to compare thousands of deals in more than 60 product categories including mortgages, loans, credit cards, bank accounts and insurance.

 

We also made further strategic investments in Neos; the UK's first home insurance provider that provides the latest connected home technology and Zero Deposit; an exciting new insurance product that replaces the need for tenants to place a security deposit at the beginning of a tenancy. Additionally we took an equity stake in PropertyFinder Group, a Dubai-based business which owns the leading property portals across the Middle East and North Africa.

 

These new acquisitions and strategic partnerships help to further differentiate our products and services.

 

Property

 

Revenues in our Property division increased by 41% to £122.3 million for the Period, driven by strong demand for our additional upsell products, further migration of our software partners to cloud-based products and a continuation of returning portal partners. This figure includes a full twelve months of trading from Property Software Group, which was acquired on 28 April 2016, as well as the post-acquisition trading of TechnicWeb, Hometrack, ExpertAgent and Ravensworth which were acquired during the Period. On a like-for-like basis (including acquisitions in both periods) Property revenue increased by 9%.

 

We saw the total number of unique Property partners increase by 12% to 24,962 at the end of the Period. This figure has been restated to align portal and software partner count under the same methodology as previously announced at the half year1. The number of UK Agents advertising across our Property platform increased by 6% to 14,775 and our inventory grew by 5% to over 969k listings at the end of the Period. ARPP increased by 5% to £358 due to strong demand for premium portal products, the continued migration of software partners to cloud-based products and the inclusion of acquisitions.

 

The combination of strong organic growth and the integration of acquisitions enables ZPG to provide the UK's most comprehensive product offering to its Property partners including best-in-class portals, software, websites, data and print services to help our partners market, manage and maximise their business opportunities. Traffic to our Property platform has continued to grow to over 48 million visits per month, up 6% year-on-year (YoY), delivering over 22 million leads to our Property partners over the Period, with appraisal leads up 33% YoY.

 

We have substantially enhanced the breadth of our Property Marketing proposition to include the provision of cloud-based websites via TechnicWeb (acquired 1 December 2016) and on-demand print services solutions via Ravensworth (acquired 1 September 2017).

 

Our Property Software business is performing well with the continued migration of partners from desktop to cloud-based products, growing from 39% at the end of September 2016 to 46% at the end of September 2017. On 28 February 2017, we acquired ExpertAgent, one of the UK's leading cloud-based software providers, further enhancing our stable of software products and enabling us to offer even more partners the ability to generate additional revenues through the integration of our MoveIT and PropertyFile products into the ExpertAgent platform.

 

The acquisition of Hometrack, the UK's leading provider of residential property market insights, on 31 January 2017, formed the cornerstone of our Property Data business. Since the acquisition, Hometrack has signed new deals with TSB and Bank of Ireland and extended its relationship with HSBC, and now serves 18 of the top 25 mortgage lenders in the UK. We have also made good progress on the integration of Hometrack's valuation data into the overall business with the coverage of Zoopla's house price estimates increasing to over 80% of UK households.


Comparison

 

We experienced strong levels of switching across all Comparison verticals, helping our consumers to save over £400 million off their household bills during the Period. Revenues in our Comparison division increased 10% to £122.2 million and we generated 34.3 million leads for our Comparison partners during the Period, up 13% YoY. ARPL decreased by 3% to £3.57 reflecting a shift in product mix within the Communications vertical.

 

As a backdrop to this year, we saw exceptionally strong switching volumes in both the Energy and Communications verticals in 2016 from our market-leading collective switches, energy supplier price cuts and strong competition amongst communications suppliers. The Energy vertical particularly benefitted from returning switchers on fixed term deals and supplier price rises, enabling us to reach a new milestone of over one million energy switches in a twelve-month period.

 

Our Communications vertical performed in line with expectations. Mobile switching was boosted by increased competition amongst suppliers and ongoing optimisation of the consumer experience driving greater lead generation and broadband switching benefitted from strong consumer demand whilst fully absorbing the changes to the advertising standards which came into effect at the beginning of the year. We continued to develop our Finance offering and significantly enhanced our proposition with the acquisition of Money after the end of the Period. 

 

In September 2017, the CMA published its final report as part of its market study into Digital Comparison Tools (DCTs) which highlighted how comparison services are putting power into the hands of the consumer and driving increased competition, highlighting the ongoing regulatory support for the role of DCTs.

 

Our talent

 

We grew our team by 20% over the Period from 735 to 882 staff members as a result of both organic growth and strategic acquisitions. We remain passionate about being a market-leading employer and providing a world-class environment and continue to place significant emphasis on employee engagement and wellbeing by investing in market-leading benefits. Our London headquarters was recently named 'One of the coolest offices in Britain' by Glassdoor.

 

Looking ahead

 

We are very excited by both the underlying growth and unique cross-sell opportunities we have created in each division as we continue our mission of being the platform of choice for consumers and partners engaged in property and household decisions. We will continue to invest in the business for the long-term and look forward to launching more innovative products and services in the year ahead.

 

I would like to welcome all those who have joined the ZPG family this year and thank the entire team for their continued commitment.

 

Alex Chesterman

Founder & CEO

 

1 The total number of unique Property partners has been restated to exclude 788 legacy software customers of Property Software Group who are not paying for an active support contract and to include Zoopla Advertising and Data partners

 

 

Finance Review

 

Revenue increased by 24% to £244.5 million and Adjusted EBITDA increased by 25% to £96.4 million compared to the same twelve-month period last year. The increase was driven by a strong underlying performance across both divisions together with the inclusion of in-year acquisitions. These results include a full twelve months of trading from Property Software Group, which was acquired on 28 April 2016, as well as trading from the date of the acquisition of TechnicWeb, Hometrack, ExpertAgent and Ravensworth. Full details of the like-for-like performance (including acquisitions in both periods) can be found in the Appendix.

 

Statutory Profit for the year was up 2% to £37.4 million after the impact of increased deal-related exceptional costs, amortisation of intangibles assets arising on acquisitions and share-based payments. Statutory basic EPS marginally decreased to 8.8 pence per share as a result of the placing of 20.9 million shares to help fund strategic acquisitions.

When reviewing performance, the Directors use a combination of both statutory and adjusted performance measures. The adjusted performance measures, including Adjusted EBITDA and Adjusted basic EPS, provide additional information in line with how financial performance is measured by Management and reported to the Board. These measures are reconciled in the Summary Income Statement below.

 

During the Period, ZPG secured a £125.0 million extension to its credit facilities and raised £74.3 million (net of fees) through a share placing to help fund acquisitions. As at 30 September 2017, ZPG had a leverage of 2.0x with net debt of £191.5 million and headroom against its covenants.

 

The Company maintains a target dividend pay-out ratio of 35-45% of profits excluding share-based payments and exceptional items, and the Directors have proposed a final dividend of 3.8 pence per share. This brings total dividends for the 2017 financial year to 5.7 pence per share, up 10% on the same period last year, which represents a 40.4% pay-out ratio.

 

Summary Income Statement

 

£m

       2017

2016

  YoY %

Revenue

244.5

197.7

24

Operating costs

(148.1)

(120.6)

23

Adjusted EBITDA

96.4

77.1

25

Share-based payments

(7.6)

(4.8)

58

Depreciation

(1.2)

(1.7)

(29)

Amortisation of other intangible assets

(2.6)

(2.0)

30

Amortisation of intangible assets arising on acquisitions

(14.6)

(7.5)

95

Exceptional items

(16.7)

(11.4)

46

Operating profit

53.7

49.7

8

Net finance costs

(5.6)

(3.5)

60

Profit before tax

48.1

46.2

4

Income tax expense

(10.7)

(9.5)

13

Profit for the year

37.4

36.7

2

Amortisation of intangible assets arising on acquisitions

14.6

7.5

95

Exceptional items

16.7

11.4

46

Adjustment for tax

(3.7)

(3.2)

16

Adjusted Profit for the year

65.0

52.4

24

Adjusted earnings per share:




Adjusted basic earnings per share (pence per share)

15.2

12.7

20

Basic earnings per share (pence per share)

8.8

8.9

(1)



Revenue

 

£m

 2017

2016

YoY %

Property:




Agency1

87.1

               66.5

31

New Homes

13.1

  11.7

12

Other2

22.1

8.5

160

Property Revenue

122.3

86.7

41

 

Comparison:




Energy

60.1

52.7

14

Communications

44.0

44.1

-

Other

18.1

14.2

27

Comparison Revenue

122.2

111.0

10

Total Revenue

244.5

197.7

24


1
Agency includes twelve months of trading from Property Software Group, ten months of trading from TechnicWeb, seven months of 

trading from Expert Agent and one month of trading from Ravensworth

2Other includes eight months of trading from Hometrack

The Property division generated £122.3 million of revenue, up 41% on the same period last year. Agency revenue, which includes acquisitions, was up 31% at £87.1 million. Excluding acquisitions, revenue generated from UK estate and lettings agents advertising across ZPG's Property platform (UK Agency) was up 8% driven by returning partners and demand for depth products such as Valuation Booster, Premium Listings and AdReach. New Homes revenue increased 12% to £13.1 million, driven by demand for additional products like Area Sponsorship and targeted email marketing campaigns. Other Property revenue of £22.1 million was up 160% on the same period last year as a result of the inclusion of eight months of trading from Hometrack. Excluding Hometrack, Other Property revenue, which is made up largely from third party advertising, increased by 7%.

The Comparison division generated £122.2 million of revenue, up 10% against tough comparators last year as outlined in the Business Review. Energy generated £60.1 million of revenue, up 14% on the same period last year, driven by returning switchers on fixed term deals and supplier price rises driving increased awareness of the benefits of switching. Communications revenue was flat at £44.0 million after the vertical absorbed the impact of changes to the advertising standards for broadband as outlined in the Business Review. Other Comparison revenue, which is predominantly generated from financial products such as banking and credit cards, generated £18.1 million of revenue, up 27%.

Operating costs

Operating costs increased 23% to £148.1 million comprising Staff costs of £51.6 million, Marketing costs of £77.1 million and Other costs of £19.4 million. The increase in costs is largely attributable to the inclusion of acquisitions, above-the-line advertising costs associated with two national advertising campaigns for both Zoopla and uSwitch and costs associated with ZPG's new headquarters.

Adjusted EBITDA

Adjusted EBITDA increased by 25% to £96.4 million year-on-year. Property Adjusted EBITDA increased to £55.5 million driven by a strong underlying performance, the inclusion of twelve months of trading from Property Software Group and acquisitions during the Period. The Property margin increased from 44% to 45% during the Period as a result of the strong underlying performance across the Company's Property Marketing vertical and the inclusion of the eight months of trading from the higher margin Hometrack business.

Comparison Adjusted EBITDA increased to £40.9 million as a result of the strong switching performance across the division. The margin reduced slightly to 33% from 35% as a result of ZPG's additional strategic investment in brand advertising for uSwitch and the strong performance in the same period last year as outlined in the Business Review.

 

Share-based payments

The share-based payments charge increased as expected from £4.8 million to £7.6 million in line with 2017 grants for the LTIP and deferred bonus schemes.

Depreciation & Amortisation of other intangible assets

Depreciation decreased to £1.2 million due to the write-down of leasehold improvements at the Company's previous office headquarters recognised in the previous period. Amortisation of other intangible assets increased to £2.6 million reflecting the Company's ongoing capital expenditure on further development of its integrated products such as the MovePlanner.

 

Amortisation of acquired intangible assets

 

ZPG splits out amortisation of intangible assets arising on acquisitions and amortisation of other intangibles for the purposes of calculating Adjusted basic EPS. Amortisation of acquired intangible assets increased to £14.6 million as a result of the inclusion of amortisation arising on the acquisitions of TechnicWeb, Hometrack, ExpertAgent, Ravensworth and a full year of Property Software Group.

 

Exceptional items

 

Exceptional items include costs that Management believes to be exceptional in nature by virtue of their size or incidence. Total exceptional items were £16.7 million in 2017 which includes £14.7 million relating to continuing deferred consideration and Management shareholder bonuses resulting from acquisitions, £3.8 million of transaction costs relating to the Hometrack, ExpertAgent and Money acquisitions and an exceptional non-cash gain of £1.5 million on the disposal of the Propertyfinder.com domain name which was transferred during the period for 1% of the issued share capital of Property Finder International Limited.

 

Net finance costs

 

The Company incurred net finance costs of £5.6 million during the Period. The increased charge reflects the £125 million increase in the Company's credit facility since 30 September 2016 to £325 million to help fund strategic acquisitions.

 

Income tax expense

 

The Company's income tax charge was £10.7 million representing an effective income tax rate of 22%. This is higher than the statutory tax rate of 19.5% for the Period due to non-deductible transaction costs and management deferred and contingent consideration expenses arising on acquisitions.

 

Profit for the year

 

Adjusted Profit for the year, calculated as profit for the year after adding back exceptional items and amortisation of intangible assets arising on acquisitions, adjusted for tax, increased by 24% to £65.0 million. Statutory Profit for the year increased by 2% to £37.4 million after the impact of increased exceptional costs, amortisation of intangible assets arising on acquisitions and share-based payments.

 

Earnings per share (EPS)

 

Adjusted basic EPS, which strips out the impact of exceptional items and amortisation of intangible assets arising on acquisitions, increased by 20% to 15.2 pence per share. Statutory basic EPS decreased marginally to 8.8 pence per share after the placing of 20.9 million shares on 1 February 2017 to help fund strategic acquisitions.

 

Other comprehensive income

 

During the year the Company recognised a non-cash gain of £1.1 million on a revaluation of ZPG's investment partnerships with some of the UK's leading technology start-ups.

 

Summary statement of financial position

 

£m

2017

2016

Intangible assets

491.0

322.6

Available for sale financial assets

4.5

0.7

Property, plant and equipment

6.6

6.4

Cash and cash equivalents

75.4

3.4

Working capital 1

(12.8)

7.4

Loans and borrowings

(266.9)

(149.7)

Deferred and contingent consideration2

(38.4)

(30.7)

Provisions2

(1.7)

(2.7)

Tax assets and liabilities2

(17.8)

(15.2)

Net assets

239.9

142.2

 

1 Working capital is defined as both current and non-current, trade and other receivables less trade and other payables.

2 Includes both current and non-current balances

 

The Company was in a strong financial position as at 30   September 2017. Net assets were £239.9 million with intangible assets increasing to £493.4 million to reflect goodwill and acquired intangible assets resulting from the TechnicWeb, Hometrack, ExpertAgent and Ravensworth acquisitions. Available for sale financial assets of £4.5 million represents the Company's investment partnerships and the Company's 1% shareholding of Property Finder International Limited as outlined in the Business Review.

 

Cash and cash equivalents increased to £75.4 million as a result of the timing difference between the arrangement of funds to complete the Money acquisition that was announced on 7 September 2017 and completion on 1 October 2017. ZPG's liability for deferred and contingent consideration payable as a result of the Company's acquisitions was £38.4 million at 30 September 2017.

 

Net debt position

 

£m

2017

2016

Total loans and borrowings

(266.9)

(149.7)

Cash and cash equivalents

75.4

3.4

Net debt

(191.5)

(146.3)

 

As at 30 September 2017 the Company had net debt of £191.5 million including loans and borrowings of £266.9 million. The overall increase in net debt can be attributed to the funding of acquisitions during the Period and the payment of the deferred consideration relating to both the uSwitch and Property Software Group acquisitions, net of increases arising from the share placing and operating cash flows.

 

On 1 October 2017, the acquisition of Money completed and ZPG paid an initial consideration of £60 million increasing the Company's net debt to £251.5 million. The Company's net debt to EBITDA ratio remained comfortably within the updated covenant limits with a leverage of 2.7x.

 

Summary statement of cash flows3

 

£m

2017

2016

Net cash flows from operating activities

81.0

60.9

Cash flows (used in)/from investing activities:



Acquisitions and investments

(164.3)

(87.4)

Interest income received

0.1

0.1

Capital expenditure

(7.1)

(6.5)

Net cash used in investing activities

(171.3)

(93.8)

Proceeds from issue of share capital, net of fees

74.3

-

Proceeds on issue of debt, net of issue costs

215.0

89.4

Repayment of debt

(97.5)

(52.5)

Interest paid

(6.0)

(3.0)

Treasury shares purchased

-

(0.4)

Shares purchased by trusts

(0.1)

-

Shares released from trusts

0.2

0.2

Dividends paid

(23.6)

(16.6)

Net cash flows from financing activities

162.3

17.1

Net increase/(decrease) in cash and cash equivalents

72.0

(15.8)




Cash and cash equivalents at end of the period

75.4

3.4

3 The consolidated statement of cash flows has been represented in the prior year to move transaction costs on acquisitions of £1.3 million to operating cash flows. The impact was to reduce net cash flows from operating activities by £1.3 million to £60.9 million and to reduce the net cash flows used in investing activities to £93.8 million.

 

The Company continues to be highly cash generative with net cash inflows from operating activities of £81.0 million during the Period, up 33% on the same period last year. Capital expenditure increased to £7.1 million as a result of the development of new integrated projects such as the MovePlanner as outlined in the Business Review. The Company had an outflow of £164.3 million relating to the cash costs of the acquisitions of Hometrack, ExpertAgent and Ravensworth, deferred consideration relating to previous acquisitions and investment partnerships.

 

The investing activities were funded by a net increase in cash from financing activities including £74.3 million raised in equity and a net increase of £117.5 million in borrowings.

 

Dividends

The Company maintains a target dividend pay-out ratio of 35-45% of profits excluding share-based payments and exceptional items based on the strong cash generation and long-term earnings potential of the Company. The Directors have proposed a final dividend of 3.8p, bringing total dividends for the Period to 5.7 pence per share, up 10% year-on-year, equating to a 40.4% pay-out ratio. Subject to shareholder approval at the 2018 Annual General Meeting this will be paid on 8 February 2018 to those shareholders on the share register as at 8 December 2017.

 

Subsequent events

On 1 October 2017, ZPG completed the acquisition of Money, one of the UK's leading financial services comparison websites for £80 million on a cash-free, debt-free basis, plus a performance-based earn-out of up to £60 million. The acquisition was financed through a combination of existing cash resources and a £50m extension to ZPG's credit facilities with an opening net debt ratio of c.2.7x the enlarged Company's Adjusted EBITDA.

 

As at the date of this report the Company is well advanced in its acquisition of Calcasa B.V., a leading provider of automated property valuations and statistical market analysis in the Netherlands, for €30.0 million (£26.5 million4) on a cash-free, debt-free basis, with a performance-based earn-out of up to €50.0 million (£44.2 million4). The acquisition is expected to complete on 1 December 2017 and will be financed through a combination of cash resources and an extension to the Company's existing credit facilities with an opening net debt ratio of c.2.9x the enlarged Company's Adjusted EBITDA.  Exchange rate of GBP/EUR = 1.13

 

Andy Botha - CFO

 

Appendix 1: ZPG KPIs (unaudited)

 

The figures below are for the twelve-month periods to 30 September 2017 and 30 September 2016. To reflect the evolution of the business, ZPG will update its divisional key performance indicators ('KPIs') from FY2018 onwards. In Property, the Company will report revenue by Marketing, Software and Data and its total number of unique Property partners and Average Revenue Per Partner (ARPP) across the division. In Comparison, the Company will report revenue by Energy, Communications and Finance and its total number of Comparison leads and Average Revenue Per Lead (ARPL) across the division. Each period includes a full twelve month's trading from Property Software Group, TechnicWeb, Hometrack, ExpertAgent, Ravensworth and Money in order to give a more meaningful comparative. These figures are unaudited.

 

(£m)

   FY 17

FY 16

YoY%

Property Revenue

135.8

124.3

9

Comparison Revenue

146.7

135.5

8

Revenue

282.5

259.8

9

Staff costs

59.6

52.7

13

Marketing costs

87.2

83.7

4

Other costs1

26.5

24.4

8

Total Operating costs

173.3

160.8

8





Adjusted EBITDA2

109.2

99.0

10





KPIs




Visits3 (million)

676

630

7

FTEs4

942

937

1





Divisional KPIs

 

Property:




Marketing5 (£m)

91.6

85.6

7

Software6 (£m)

23.2

20.8

12

Data7 (£m)

21.0

17.9

17

Property Revenue (£m)

135.8

124.3

9





Property Operating costs (£m)

74.9

71.8

4

Property Adjusted EBITDA (£m)

60.9

52.5

16





Blended ARPP (average revenue per partner) 8 (£)

              454

432

5

Total unique number of Property partners9 (000s')

25,465

24,920

2

Comparison:




Energy10 (£m)

62.6

54.9

14

Communications11 (£m)

44.0

44.1

0

Finance12 (£m)

40.1

36.5

10

Comparison Revenue (£m)

146.7

135.5

8





Comparison Operating costs (£m)

98.4

89.0

11

Comparison Adjusted EBITDA (£m)

48.3

46.5

4





ARPL (average revenue per lead)13 (£)

Number of Comparison leads14 (million)

2.88

50.9

2.99

45.3

(4)

12

 

1 Other Costs represents technology, property and administrative costs

2 Adjusted EBITDA is defined as operating profit after adding back depreciation and amortisation, share-based payments and exceptional items.

3 Visits comprise individual sessions on the Company's websites or mobile applications by users for the Period indicated as measured by Google Analytics

4 FTEs is defined as the number of full time equivalent employees across the Company

5 Marketing represents revenue generated from the provision of marketing services including portal, websites and print revenues

6 Software represents revenue generated from the provision of software services 

7 Data represents revenue generated from the provision of data services

8 ARPP (average revenue per partner) is defined as total Property revenue generated divided by the total number of Property partners during the month, measured as a monthly average over the Period

9 Total unique number of Property partners is defined as the total number of unique businesses paying for ZPG Property services during the period (subscription or transactional)

10 Energy represents revenue generated from energy switching services, business energy and boiler cover

11 Communications represent revenue generated from mobile, broadband, pay TV and home phone switching services

12 Finance represents revenue generated from financial product switching services

13 ARPL (average revenue per lead) is defined as total Comparison revenue divided by the total number of Comparison leads during the Period

14 A Comparison lead is measured at the point when a consumer shows intent to switch via an application form hosted on the Company's website, clicks through to a specific offer or at the point in time when the customer leaves the Company's website having clicked through to a third-party website

 

 Principal risks and uncertainties

 

KEY RISK

DESCRIPTION AND IMPACT

MANAGEMENT AND MITIGATION

MOVEMENT

Changing market environment*

 

The Company participates in fast-moving marketplaces which are subject to rapid technological developments and changes in consumer trends which may impact the Company's ability to offer the best products and services to its partners and consumers.

 

 

The way in which consumers interact with businesses is evolving rapidly. The Company's partners are constantly developing their business models and the way in which they interact with consumers directly. Failure of the Company to adapt to meet the needs of its partners could lead to a fall in the number of partners and revenues.

 

The Company is also subject to changes in policies set by search engine providers. Failure to keep pace with these changes may lead to the Company's websites receiving less exposure to consumers and result in a fall in visitor numbers.

·      Increasing user engagement levels by continuing a consumer-centric approach to product development.

 

·      Regular open dialogue with our partners to ensure that we continually develop our products to meet their needs.

 

·      Continual optimisation of all our websites and products across all platforms and devices.

 

·      Maintaining organisational flexibility, allowing fast responses to new business opportunities or threats.

 

·      Monitoring and regular review of search engine optimisation and digital marketing spend.

 

·      Regular monitoring of changes in market environment and emerging trends.

Flat

Integration of acquisitions

 

The Company is highly acquisitive, which presents inherent operational, strategic and cultural challenges.

 

 

The challenges surrounding integrating different cultures, working practices and locations could impact team retention and performance.

 

The inability to successfully integrate our acquisitions may adversely affect consumer and/or partner experience with a resulting impact on strategic cross-sell opportunites and the Company's future revenues.

 

In addition, there is the possibility that the financial and operational control environments of acquired entities are not as established as those of the Company or those required when operating in a listed environment.

 

 

 

 

 

·      Oversight of the enlarged Company, by an Executive Management Team experienced in dealing with acquistions, to ensure harmonisation of strategy and objectives across the Company.

 

·      Clear communication of the Company vision and strategy to align the team.

 

·      Centralised shared service functions across finance, HR and legal.

 

·      Hometrack now based out of The Cooperage to encourage greater integration.

 

·      Communicating the benefits of acquisitions to both partners and consumers.

 

·      Forming functional teams across the Company where possible.

Up

 

The addition of four acquisitions during the year, and more recently Money, increases the likelihood of this risk materialising

IT systems and cyber security

 

A number of the Company's IT systems are interdependent and a failure in one system or a security breach may disrupt the efficiency and functioning of the Company's operations. The Company is also exposed to the increasing risk associated with cyber-attacks. The Company holds consumer and partner data which could be susceptible to loss or theft.

 

 

Any failure of the Company's IT infrastructure through error or attack could impair the operation of the Company's websites and services, the processing and storage of data and the day-to-day management of the Company's business.

 

In addition, any theft or misuse of data held within the Company's databases could have both reputational and financial implications for the Company.

·      Regularly testing the security of the IT systems and platforms, including penetration testing and testing of Distributed Denial of Service (DDoS) attack procedures.

 

·      Maintaining separate platforms for our portals, websites, software and data services.

 

·      Restricting access to data, systems and code and ensuring all systems are secure and up to date.

 

·      Providing training for staff on information security, data protection and compliance and operating a Company-wide data policy.

Flat

Retention and recruitment

 

Success depends on the continued retention and performance of the Company's valued employees. Skilled development, technical, operating, sales and marketing personnel are essential for the business to meet its strategic goals and the Company operates in markets with a high demand for high calibre personnel.

 

 

Competition for qualified talent is intense and an inability to attract highly skilled employees could adversely impact the Company's operations, financial condition or prospects.

 

Similarly, an inability to motivate, develop and retain key team members could adversely impact the Company's operations, financial condition and prospects.

 

The Company has a track record of growth through acquisition - an inability to retain key team members from these businesses could increase business risk in the event of reliance on their business-critical knowledge.

·      Building a strong employee brand in the recruitment market and building strong talent pipelines.

 

·      Operating a structured approach to recruitment using specialist teams to ensure timely recruitment of high quality employees.

 

·      Investing in succession planning and improving learning and development, giving opportunities for employees to upgrade skills.

 

·      Investment in our offices and team environments.

 

·      Providing competitive reward and compensation packages to all staff, comprising a blend of short and long-term incentives for managers.

 

·      Instilling the culture of the Company to build and maintain staff loyalty

 

 

 

 

 

 

 

 

 

 

 

 

 

Flat

Regulatory environment

 

The Company operates in a number of regulated environments. Certain revenue streams within the Comparison division are regulated by the FCA. The Comparison division also voluntarily complies with the Ofgem Confidence Code and is involved in regular communication with Ofcom.

 

 

 

There is a risk that changes to the regulatory environment could require the Company to revise its strategy, operations or business model.

 

Changes in regulation may also impact the Company's profitability via increased compliance costs or a fall in revenues as a result of subsequent changes in consumer or partner behaviour

Non-compliance with regulations set by a regulatory body may also have both reputational and financial implications

·      Maintaining regular open and constructive dialogue with all significant regulatory bodies.

 

·      Implementing processes to ensure compliance with all mandatory reporting obligations including a dedicated Regulation and Compliance team.

 

·      Regular monitoring of regulatory risks by the Board, the Audit Committee, the legal function and internal audit and throughout the business.

Up

 

Increased levels of Government policy review and proposals within markets we operate in have impacted our exposure to this risk.

Macroeconomic conditions

 

The Company derives a material share of its revenues from the UK and also now internationally, with operations in Australia. The Company is therefore largely dependent on the macroeconomic conditions in the UK as well as being exposed to changes in macroeconomic conditions internationally.

 

 

Brexit-specific considerations have been outlined below.

 

Changes in the UK, European and Australian economies have the potential to adversely impact the demand for our products and services in the markets we operate in. Such changes could affect the average property prices, the number of mortgage approvals and the volume of transactions in the UK housing market.

 

Subsequently, the marketing, data and software purchasing budgets of the Company's partners could decrease, which could reduce demand for the Company's services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·      Regularly reviewing market conditions and indicators.

 

·      Building consumer and partner brand loyalty.

 

·      Maintaining a flexible cost base that can respond to changing conditions.

 

·      Diversifying risk by maintaining a balance between different revenue streams, including diversification through the acquisitions of Hometrack and Money (1 October 2017), in order to provide protection against volatility within our markets.

 

·      Developing revenue streams in other related/ adjacent markets.

 

·      Promoting the benefit and potential savings for consumers of home (and now financial) services switching.

Flat

 

Competitive environment

 

The Company operates in marketplaces which are highly competitive. The actions of the Company's competitors, and/or our own inaction, can have a significant and adverse impact on the Company.

 

 

 

If competitors can provide, or are perceived to provide, an enhanced partner or consumer service then there is a risk to the Company's forecasted revenue and other KPIs.

 

The Company invests significantly in marketing to build brand awareness and drive traffic to its websites. Increased digital marketing expenditure by competitors, or general price increases, may cause the Company to incur additional marketing spend to ensure that it can continue to compete effectively.

 

There is a risk that competitors entering or targeting the Company's primary revenue markets may reduce the Company's relative market share in one or more of the markets we operate in.

·      Ensuring partners understand the unique value proposition that can be provided through our websites, products and services.

 

·      Offering attractive and competitive pricing packages to partners.

 

·      Continuing to develop and extend the Company's innovative product offering and improve the value provided for partners.

 

·      Developing and maintaining a number of strong consumer brands through marketing.

 

·      Diversifying risk through multiple revenue streams

Down

 

Our increasingly diversified position, including the addition of Hometrack and Money, has reduced our exposure to volatility in individual competitive markets.

Data governance

(Previously considered within regulatory "environment").

 

The Company's operations rely on the effective governance and appropriate use of data we control and process for the benefit of consumers and our customers.

 

 

The acquisition of additional brands allows us to control and process increasing levels of data which can be used to target product offerings, deliver synergies and, ultimately, provide the best consumer experience and partner value. Should we be unable to therefore maximise on this opportunity we will be unable to maximise our revenues.

 

In addition, insufficient understanding of what data we hold and how we can appropriately use it can have a significant effect on our reputation as well as the potential for financial penalties.

 

 

 

 

 

 

 

·      Established Data & Analytics function with newly appointed Data Director as of October 2017.

 

·      Legal function with specialist data governance expertise and Data Protection Manager.

 

·      Established ZPG Company-wide Data Working Group, which includes relevant individuals throughout all levels of the business.

 

·      Annual information security and data protection training compulsory for all staff.

 

·      Operational plan in place to ensure compliance with upcoming implementation of the General Data Protection Regulation (GDPR).

New for FY18 reporting.

Reputational and brand damage

 

The Company operates a number of identifiable and respected brands which could be damaged by factors such as unethical or unlawful activity, poor customer service or negative press.

 

 

Damage to any of the Company's brands could lead to a fall in consumer confidence, reducing traffic and leads for the Company's partners and in turn impacting the Company's revenue.

 

There is also a risk that the Company's partners may choose to terminate their existing relationship with the Company as a result of any reputational damage, which would directly impact the Company's revenues.

·      Embedding a culture of transparency, social awareness and ethical behaviour throughout the Company.

 

·      Regularly reviewing the Company's risks and reviewing and developing internal controls to mitigate the risk of error or fraud.

 

·      Executing the Company's strategy, which has both consumers and the Company's partners at its core.

 

·      Established dedicated public relations team.

 

·      Continually investing in the Company's brands.

Flat

Debt covenants and funding

 

The Company holds external debt and therefore must ensure compliance with its covenant ratios. The Company also needs to ensure that it has the funding required to deliver on its strategy and future growth plans and that it manages its debt and cash balances effectively.

 

 

 

Failure of the Company to comply with its existing debt covenants may lead to a default on the Company's borrowings and a requirement for the Company to repay any amounts outstanding or to renegotiate the terms of its facility.

 

The level of debt within the business and the covenants in place may also restrict the amount of funds available for future growth, including future M&A activity.

·      Negotiating sufficient headroom within the Company's existing facility, including renegotiation on the acquisition of Money.

 

·      Consideration of current debt covenants embedded into budgeting and forecasting processes.

 

·      Regularly monitoring compliance with current debt covenants and available headroom.

 

·      Proactive cash management.

 

·      Consideration of additional or alternative funding should significant opportunities for growth be identified.

Flat

 

We have increased our leverage as a result of recent acquisitions but consider there to be no material change in our ability to meet our debt covenants.

 

The EU referendum

The result of the UK's EU referendum in 2016 increased the level of macroeconomic uncertainty, increasing the likelihood of the impacts outlined under "macroeconomic conditions" above. In light of the continued macroeconomic uncertainty, and the mitigating factors set out below, there has been no material change to the severity of this risk for the Company throughout the year.

 

During the year, the Company has continued to consider the impact of this result on the business and its potential implications. The Directors believe that the Company's multi-channel, multi-brand strategy creates a diverse revenue base which means it is well placed to minimise any negative impacts. In particular:

 

• the increasingly diversified market position resulting from the Company's most recent acquisitions;

 

• the Property division is largely subscription based and is therefore less susceptible to short-term shocks or variations in the property market or wider economy;

 

• a large proportion of our Property partners are engaged in both sales and lettings, which reduces the risk of any downturn in the property market on their businesses;

 

• an economic downturn increases the propensity for consumers to search our Comparison platforms for the best deals to save money on their household expenses; and

 

• a weaker Pound may lead to higher price inflation in areas such as energy bills, which may benefit our Comparison division

 

Viability statement

 

The Directors have conducted a robust assessment of the principal risks facing the Company and believe that the Company is well placed to successfully manage these risks. Therefore, in accordance with the 2014 revisions to the UK Corporate Governance Code, the Directors confirm that they have a reasonable expectation that the Company will continue in operation and meet its liabilities as they fall due for the next three years. The Directors continue to believe that a three-year viability period is appropriate to ensure that forecasting is reasonable and that the Company can conduct a reasonable identification and assessment of its foreseeable principal risks. The following factors, which were identified in the prior year, continue to be relevant:

• the Company operates in markets which are subject to rapid technological, consumer and regulatory changes;

• the Company operates a three year planning cycle; and

• the Company has engaged in a high number of significant acquisitions, which are constantly evolving the business and changing future cash flows.

In arriving at their conclusion, the Directors considered the Company's forecast financial performance and cash flows over the three year viability period. The forecast has then been subject to sensitivity analysis, both based on across-the-board changes to revenue and expenditure, as well as scenario analysis to reflect the estimated impact of the principal risks identified above. The following list provides examples of the sensitivities performed:

• periodic increases to LIBOR, impacting the Company's finance costs;

• weaker UK GDP growth over the next three years than forecast by the OECD;

• changes in market conditions requiring responsive increases in costs;

• loss of certain material revenue contracts across each of the Company's revenue streams;

• underachievement of the Company's cross-sell strategy;

• changes in regulation set by regulators, such as Ofgem and Ofcom, leading to a reduction in consumer switching;

• financial penalties, as well as a reduction in revenue resulting from reputational damage, due to non-compliance with GDPR; and

• increase in IT security costs in response to external attack/data hack, as well as a reduction in revenue resulting from reputational damage.

Mitigations to address the materialisation of any significant challenge to forecasted cash flows include actions such as a reduction in brand marketing, a freeze in staff headcount and/or a reduction in dividend pay-out.

The Directors note that the Company's current debt facility requires renewal in April 2020, which is within the final year of the viability period. For this reason, it is not appropriate to consider a longer viability period. The Directors are comfortable that the Company has sufficient assets and future cash flows to successfully renegotiate or extend its current facility and therefore the assumption made by Management that the facility continues to be in place until at least November 2020 is considered reasonable.

The analysis considered the Company's ability to meet its operational and financial obligations throughout the Period, including compliance with the Company's existing debt covenants. Based on the analysis performed, the Directors confirm that they have a reasonable expectation that the Company will continue in operation and meet its liabilities as they fall due for the next three years.

 

Full year results

 

The financial information set out below has been taken from the consolidated financial statements of ZPG Plc for the year ended 30 September 2017 which were approved by the Board of Directors on 28 November 2017. The financial information does not constitute statutory accounts within the meaning of sections 435(1) and (2) of the Companies Act 2006. The consolidated financial statements will be filed with the Registrar of Companies, subject to their approval by the Company's shareholders at the Company's Annual General Meeting on 30 January 2018. The Company's Annual Report for the year ended 30 September 2017 will be posted to shareholders, and will be made available on the Company's website, in December 2017.

 

Independent Auditors' report

 

Deloitte LLP confirm that they have issued an unqualified opinion on the full financial statements of ZPG Plc.

 

Statement of Director's responsibilities

 

The responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ended 30 September 2017. Certain parts thereof are not included within this Announcement.

 

The Directors confirm to the best of their knowledge that:

 

a)    the consolidated financial statements from which the financial information within these preliminary consolidated financial results have been extracted, are prepared in accordance with IFRSs as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit of the Group and the undertakings included in the consolidation taken as a whole; and

 

b)    the Annual Report and the Business Review and Finance Review include a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole together with a description of the principal risks and uncertainties faced by the Group. The Directors of ZPG Plc and their respective responsibilities are listed in the Annual Report for 2017. This responsibility statement was approved by the Board of Directors and is signed on its behalf by:  

 

Alex Chesterman

 

Director

28 November 2017

 

Consolidated statement of comprehensive income

For the year ended 30 September 2017 from continuing operations

 

 

 

Notes

2017

£000

2016

£000

 

Revenue

 

244,538

197,728

 

Administrative expenses

 

(190,834)

(148,053)

 

Adjusted EBITDA

3

96,410

77,110

 

Share-based payments

24

(7,647)

(4,852)

 

Depreciation and amortisation

 

(18,348)

(11,179)

 

Exceptional items

3

(16,711)

(11,404)

 

Operating profit

4

53,704

49,675

 

Finance income

 

47

51

 

Finance costs

 

(5,664)

(3,564)

 

Profit before tax

 

48,087

46,162

 

Income tax expense

9

(10,678)

(9,484)

 

Profit for the year

 

37,409

36,678

 

Attributable to

 



 

Owners of the parent

 

37,409

36,678

 


 

 


 

Other Comprehensive Income

 

 


 

Fair value movements - Available for sale financial assets

16

1,139

-


Total comprehensive income for the period

 

38,548

36,678

 

 

 

 


 

Earnings per share

 

 


 

Basic (pence)

11

8.8

8.9

 

Diluted (pence)

11

8.6

8.8

 

Consolidated statement of financial position

As at 30 September 2017

 

 

Notes

2017

£000

2016

£000

Assets

 

 

 

Non-current assets

 

 

 

Intangible assets

14

491,020

322,621

Property, plant and equipment

15

6,560

6,413

Available for sale financial assets

16

4,461

724

Trade and other receivables

17

-

3,262

 

 

502,041

333,020

Current assets

 

 

 

Trade and other receivables

17

38,531

36,615

Cash and cash equivalents

 

75,368

3,367

 

 

113,899

39,982

Total assets

 

615,940

373,002

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

18

51,379

32,522

Current tax liabilities

 

2,948

6,146

Deferred and contingent consideration

19

16,799

28,143

Provisions

20

259

1,304

 

 

71,385

68,115

Non-current liabilities

 

 

 

Loans and borrowings

21

266,865

149,696

Deferred and contingent consideration

19

21,622

2,533

Provisions

20

1,440

1,410

Deferred tax liabilities

22

14,687

9,021

 

 

304,614

162,660

Total liabilities

 

375,999

230,775

Net assets

 

239,941

142,227

Equity attributable to owners of the parent

 

 

 

Share capital

23

439

418

Share premium reserve

 

74,304

50

Other reserves

23

85,603

86,007

Retained earnings

 

79,595

55,752

Total equity

 

239,941

142,227

 

The consolidated financial statements of ZPG Plc were approved by the Board of Directors and were signed on its behalf by:

A Chesterman

A Botha

Director

Director

28 November 2017

28 November 2017

 

Consolidated statement of cash flows

For the year ended 30 September 2017

 

 

2017

£000

2016

£000

Cash flows from operating activities

 

 

Profit before tax

48,087

46,162

Adjustments for:

 

 

Depreciation of property, plant and equipment

1,154

1,709

Amortisation of intangible assets

17,194

9,470

Finance income

(47)

(51)

Finance costs

5,664

3,564

Share-based payments

7,647

4,852

Gain on barter transaction

(1,540)

-

Movement in contingent and deferred consideration

11,334

7,075

Operating cash flow before changes in working capital

89,493

72,157

Increase in trade and other receivables

(1,563)

(4,991)

Increase in trade and other payables

9,152

3,862

(Decrease)/increase in provisions

(1,015)

505

Cash generated from operating activities

96,067

72,157

Income tax paid

(15,083)

(11,290)

Net cash flows from operating activities

80,984

60,867

Cash flows (used in)/from investing activities

 

 

Acquisition of subsidiaries, net of cash acquired

(136,884)

(47,125)

Settlement of deferred and contingent consideration

(32,722)

(37,042)

Amounts paid from/(into) escrow in relation to deferred and contingent consideration

6,341

(2,448)

Acquisition of available for sale financial assets

(1,058)

(979)

Disposal of available for sale financial assets

-

255

Interest received

47

51

Acquisition of property, plant and equipment

(1,215)

(3,980)

Acquisition and development of intangible assets

(5,885)

(2,561)

Net cash flows used in investing activities

(171,376)

(93,829)

Cash flows from/(used in) financing activities

 

 

Proceeds on issue of shares, net of issue costs

74,275

-

Proceeds on issue of debt, net of issue costs

215,000

89,358

Repayment of debt

(97,500)

(52,500)

Interest paid

(5,899)

(2,942)

Treasury shares purchased

-

(414)

Shares purchased by trusts

(112)

-

Shares released from trusts

238

182

Dividends paid

(23,609)

(16,554)

Net cash flows from financing activities

162,393

17,130

Net increase/(decrease) in cash and cash equivalents

72,001

(15,832)

Cash and cash equivalents at beginning of period

3,367

19,199

Cash and cash equivalents at end of period

75,368

3,367

 

Consolidated statement of changes in equity

For the year ended 30 September 2017

 

 

 

 

Share

premium

reserve

£000

Other reserves

 

 

 

Notes

Share

capital

£000

Shares in trust

£000

Merger

reserve

£000

Treasury

shares

£000

Retained

 earnings

£000

Total

equity

£000

At 1 October 2016

 

418

50

(768)

87,133

(358)

55,752

142,227

Profit for the period

 

-

-

-

-

-

37,409

37,409

Other Comprehensive Income:

 

 

 

 

 

 

 

 

Fair value movements

 

-

-

-

-

-

1,139

1,139

Transactions with owners recorded directly in equity:

 

 

 

 

 

 

 

 

Shares issued

 

21

74,254

-

-

-

-

74,275

Share-based payments

24

-

-

-

-

-

6,055

6,055

Treasury shares released

23

-

-

-

-

60

(60)

-

Current tax on share-based payments

9

-

-

-

-

-

309

309

Deferred tax on share-based payments

9

-

-

-

-

-

2,049

2,049

Shares purchased by trusts

 

-

-

(112)

-

-

-

(112)

Shares released from trusts

 

-

-

304

-

-

(66)

238

Other

 

-

-

-

-

-

(39)

(39)

Transfer between reserves1

 

-

-

-

(656)

-

656

-

Dividends paid

10

-

-

-

-

-

(23,609)

(23,609)

At 30 September 2017

 

439

74,304

(576)

86,477

(298)

79,595

239,941

 

1      The transfer from merger reserve to retained earnings in 2017 and 2016 represents an equalisation adjustment in respect of the amortisation charge on intangibles which arose on acquisition of The Digital Property Group Limited on 31 May 2012.  The intangible assets are now fully amortised

 

 

 

 

Share

premium

reserve

£000

Other reserves

 

 

 

Notes

Share

capital

£000

Shares in trust

£000

Merger

reserve

£000

Treasury

shares

£000

Retained

 earnings

£000

Total

equity

£000

At 1 October 2015

 

418

50

(1,017)

88,118

-

29,671

117,240

Profit and total comprehensive income for the period

 

-

-

-

-

-

36,678

36,678

Transactions with owners recorded directly in equity:

 

 

 

 

 

 

 

 

Share-based payments

24

-

-

-

-

-

3,990

3,990

Treasury shares purchased

23

-

-

-

-

(414)

-

(414)

Treasury shares released

23

-

-

-

-

56

(56)

-

Current tax on share-based payments

9

-

-

-

-

-

217

217

Deferred tax on share-based payments

9

-

-

-

-

-

888

888

Shares released from trust

 

-

-

249

-

-

(67)

182

Transfer between reserves1

 

-

-

-

(985)

-

985

-

Dividends paid

10

-

-

-

-

-

(16,554)

(16,554)

At 30 September 2016

 

418

50

(768)

87,133

(358)

55,752

142,227

 

1 The transfer from merger reserve to retained earnings in 2017 and 2016 represents an equalisation adjustment in respect of the amortisation charge on intangibles which arose on acquisition of The Digital Property Group Limited on 31 May 2012.

 

Notes to the consolidated financial statements

 

1. Accounting policies

ZPG Plc is a company domiciled and incorporated in the United Kingdom. The address of the registered office is The Cooperage, 5 Copper Row, London SE1 2LH.

1.1 Basis of preparation

The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below for the years ended 30 September 2017 and 30 September 2016. The policies have been consistently applied to all the periods presented, unless otherwise stated.

The consolidated statement of cash flows has been represented in the prior year to move transaction costs on acquisitions of £1.3 million to operating cash flows. The impact was to reduce net cash flows from operating activities by £1.3 million to £60.9 million and to reduce the net cash flows used in investing activities to £93.8 million.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and IFRIC Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRS"). They are prepared on the historical cost basis.

The preparation of consolidated financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Management to exercise judgement in applying the Group's accounting policies. Note 1.20 and 1.21 give further details relating to the Group's critical accounting estimates and judgements.

The presentational currency of the financial statements is Pound Sterling (£).  Amounts included in the consolidated financial statements are shown in round thousands unless otherwise indicated.

At the date of approval, the following standards and interpretations which have not been applied in these consolidated financial statements were in issue but are only effective for financial years beginning on or after 1 January 2017:

• Amendments to IAS 7 'Disclosure Initiative' (effective 1 January 2017)*

• Amendments to IAS 12 'Recognition of Deferred Tax Assets for Unrealised Losses' (effective 1 January 2017)*

• IFRS 9 'Financial Instruments' (effective 1 January 2018)

• IFRS 15 'Revenue from Contracts with Customers' (effective 1 January 2018)

• Amendments to IFRS 2 'Share-based Payments' (effective 1 January 2018)*

• IFRIC 22 'Foreign Currency Transactions and Advanced Consideration' (effective 1 January 2018)*

• Amendments to IFRS 4 'Insurance contracts' (effective 1 January 2018)*

• Amendments to IAS 40 'Investment Properties' (effective 1 January 2018)*

• IFRS 16 'Leases' (effective 1 January 2019)*

• IFRS 17 'Insurance Contracts' (effective 1 January 2021)*

 

* not yet endorsed for use in the EU

 

IFRS 9 - Financial Instruments is effective for the first time for the financial year commencing 1 October 2018. The implementation of IFRS 9 will require the reclassification of the Group's Available for sale financial assets.  From 1 October 2018 these assets will be measured as Fair value through other comprehensive income in accordance with IFRS 9.  As this treatment mirrors the Group's current policy, there is not expected to be any material impact on the Group's reported results; however, Management notes that any gain or loss arising on the sale of these assets may no longer be able to be recognised in the Consolidated income statement but will remain within Other Comprehensive Income.

IFRS 15 - Revenue from Contracts with Customers is effective for the first time for the financial year commencing 1 October 2018. An initial impact assessment was performed during 2017 by Management to identify potential implications for the business on its existing contracts and the recognition of revenue.  Management has identified a number of contract types which could result in a change in the profile of revenue recognition as currently drafted, including but not limited to: contracts for the provision of desktop software and contracts for advertising services.  Management also notes that the current recognition of sales commission across the Group will also change and will lead to these costs being spread over the expected life of the contract.   As the Group is still in the process of assessing the full impact of IFRS 15 it is not currently practicable to quantify the impact of this standard and therefore the standard could have a material impact on the future results of the Group, in particular revenue, administrative expenses and accrued and deferred revenue. Management intend to provide an indication of the expected impact of IFRS 15 in the interim announcement for the period to 31 March 2018.

The impact of IFRS 16 - Leases will require the Group to record its current property leases and fleet of motor vehicles on the statement of financial position. The leases impacted are currently treated as operating expenses. The change in recognition is expected to increase future depreciation charges and lead to a reduction in operating expenses.  Future commitments under current operating leases are outlined in Note 27 which gives some indication of the impact on the Group going forward, however, as IFRS 16 is effective for the first time for the financial year commencing 1 October 2019 a full assessment of the standard has not yet been made and therefore the standard could have a material impact on the future results of the Group.

All other standards identified above are not expected to have a material impact on the consolidated financial statements.

1.2 Adoption of new and revised standards

These consolidated financial statements have been prepared in accordance with the policies set out in the Group's Annual Report for the year ended 30 September 2016. No new or revised accounting standards were adopted in the period.

1.3 Basis of consolidation

The consolidated financial statements incorporate the accounts of ZPG Plc ("the Company") and entities controlled by the Company ("its subsidiaries") (together "the Group"). Control exists when the Group has existing rights to give it the ability to direct the relevant activities of an entity and has the ability to affect the returns the Group will receive as a result of its involvement with the entity. The results of subsidiaries are included in the consolidated financial statements from the date control commences until the date when control ceases.

Throughout the year the Group acquired a number of entities and their subsidiaries.  The results of each acquisition have been consolidated from the date of acquisition as set out in Note 13. The consolidated results for 2017 are therefore not a like for like comparison for 2016. Full details of the acquisitions are set out in Note 13.

Full details of acquisitions made in 2016 are set out in the Group's Annual Report 2016 and are summarised in Note 13.

The Company has one trading subsidiary that uses a functional currency which is different to the presentational currency of the Group.  Hometrack Australia Limited's functional currency is the Australian Dollar as it is the currency of the primary economic environment in which it operates.

Assets and liabilities for Hometrack Australia are translated into Pound Sterling using the exchange rate at the statement of financial position date and the consolidated statement of comprehensive income translated using the average exchange rate for the year.  Exchange differences on translation into the presentational currency are recognised within other comprehensive income.  The principal exchange rates for the Australian Dollar against Pound Sterling used in these consolidated  financial statements are: average: 1.66, closing: 1.71.

1.4 Going concern

The consolidated financial position shows a positive net asset position and the Group continues to generate net cash flows from operating activities and maintain its current dividend policy. The Group also has access to a £325 million debt facility of which £269 million was drawn down at 30 September 2017.  The facility includes required covenant ratios of Net Debt: EBITDA and interest cover.  The Group are comfortably within these limits. As a consequence, the Directors believe that the Group is well placed to manage its business and financial risks successfully.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, thus they continue to adopt the going concern basis of accounting in preparing the historical financial information.

1.5 Revenue

Revenue represents amounts due for services provided during the period, net of value added tax. The Group recognises revenue under two categories - Property and Comparison.

Revenue from Property derives principally from subscription to the Group's property websites and from the provision of property software to UK domestic, overseas and commercial estate agents ("UK Agency revenue"), home developers ("New Homes revenue") and overseas and commercial estate agents along with the provision of property data to financial and other institutions ("Other property revenue") . Subscription revenue, including fees for listing on the Group's property websites or the ongoing provision of property data, is recognised over the period of the subscription. Software revenue includes subscription to Software as a Service (SaaS), desktop software licensing, support and installation fees. Installation fees are recorded at fair value when the installation is complete. Ongoing SaaS revenue, support and licensing fees are recognised over the service period. Revenue from other property services is recognised in the month in which the service is provided.

The main sources of Comparison revenue are fees received for the comparison of gas and electricity services ("Energy revenue") and mobile, broadband, pay TV and home phone services ("Communications revenue"). Revenue is recognised at the point at which a lead is generated to an energy or communications provider, based on the historical conversion of such leads into completed switches. Revenue from other comparison services ("Other Comparison revenue") is recognised in the month in which the service is provided.

1.6 Leases

During 2016 the Group entered into a new 15 year lease agreement for its head office at The Cooperage, London.  During 2017 the Group's previous offices were sublet to a third party.

All of the Group's current lease and sub-lease arrangements are recognised as operating leases as the material risks and rewards incidental to ownership remain with the lessor.

Operating lease expenses are charged to the consolidated statement of comprehensive income on a straight-line basis over the period of the lease. Rent-free periods, lease arrangement fees and other direct costs are amortised through the consolidated statement of comprehensive income over the term of the lease.

Operating lease income is recorded in the consolidated statement of comprehensive income on a straight-line basis over the period of the lease and is classified as other income. Any rent-free or reduced rent periods are amortised through the consolidated statement of comprehensive income over the term of the lease.  

1.7 Finance income and costs

Finance income represents interest receivable on cash and deposit balances and gains recognised on foreign currency transactions. Interest receivable is recognised as it accrues using the effective interest method.

Finance costs represent interest charges and certain fees charged on the Group's revolving credit facility as well as losses recognised on foreign currency transactions. Finance costs are recognised as they accrue using the effective interest method.

Foreign exchange gains and losses are recognised monthly based on the translation of assets and liabilities held in foreign currencies to Pound Sterling and realised gains and losses on transactions recorded in the period.  The Group's principal exposure is to the Australian Dollar, through its Australian subsidiary, and the US Dollar, through agreements with of a number of suppliers based in the United States.  The Directors are comfortable that any sensitivity to fluctuations in exchange rates would not have a material impact on the results of the Group.

 

1.8 Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. This cost includes the purchase price, 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. Items of property, plant and equipment are subsequently measured at cost less accumulated depreciation and are not revalued.

Depreciation is recognised so as to write off the cost of assets less their residual values over their useful economic lives, using the straight-line method, as follows:

Fixtures and fittings

-over 2 to 5 years

Computer equipment

-over 2 to 5 years

Leasehold improvements

-over the lease term

Freehold property

- over 50 years

The Directors review the residual values and useful economic lives of assets on an annual basis.

1.9 Business combinations

The acquisition of subsidiaries and businesses is accounted for using the acquisition method in accordance with IFRS 3. The consideration for each acquisition is measured at the aggregate of fair values of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, net of cash acquired. Acquisition related costs, other than those associated with the issue of debt or equity securities, are recognised in the consolidated statement of comprehensive income as incurred.

At the acquisition date, the identifiable assets acquired and liabilities assumed are recognised at their fair value with the exception of deferred tax assets and liabilities, which are measured in accordance with IAS 12 - Income Taxes. Identifiable net assets include the recognition of any separately identifiable intangible assets. Further detail of the identifiable assets and liabilities recognised during the year on acquisitions are provided in Note 13.

Deferred and contingent consideration are measured at fair value at the date of acquisition. Where the amounts payable are classified as a financial liability any subsequent change in the fair value is charged/credited to the Group's consolidated statement of comprehensive income. Amounts classified as equity are not subsequently remeasured. Where consideration to Management shareholders is contingent on their continued employment the amount is recognised as a remuneration expense in the statement of comprehensive income over the deferral period when it coincides with the period of continued employment.

1.10 Goodwill

Goodwill arising on a business combination represents the difference between the fair value of the consideration paid and the fair value of assets and liabilities acquired and is recorded as an intangible asset. Goodwill is not subsequently subject to amortisation but is tested for impairment annually and whenever the Directors have an indication that it may be impaired. For the purposes of impairment testing, goodwill is allocated to the cash-generating units expected to benefit from the combination. Any impairment in carrying value is charged to the consolidated statement of comprehensive income.

1.11 Intangible assets

Purchased intangible assets with finite lives are initially recorded at cost. Intangibles arising on acquisition are recorded at fair value. All intangibles are subsequently stated at initial value less accumulated amortisation and accumulated impairment losses. Amortisation is charged to the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives of the intangible assets as follows:

Brand

- 5 -10 years

Domain names

-5 years

Database

-3 -10 years

Customer relationships

-5 -10 years

Website development and computer software

-3 -8 years

1.12 Impairment of tangible and intangible assets

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Where the asset does not generate cash flows that are independent from other assets, the recoverable amount of the cash-generating unit to which the asset belongs is estimated. Any impairment loss is recognised immediately in the consolidated statement of comprehensive income.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount to the extent that this increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised immediately in the consolidated statement of comprehensive income.

1.13 Research and development

The Group incurs expenditure on research and development in order to develop new products and enhance the existing websites. Research expenditure is expensed in the period in which it is incurred. Development costs are expensed when incurred unless they meet certain criteria for capitalisation. Development costs whereby research findings are applied to creating a substantially enhanced website or new product are only capitalised once the technical feasibility and the commercial viability of the project has been demonstrated and they can be reliably measured. Capitalised development costs are amortised on a straight-line basis over their expected useful economic life.

Once the new website enhancement or product is available for use, subsequent expenditure to maintain the website or product, or on small enhancements to the website or product, is recognised as an expense when it is incurred.

Research and Development tax credit claims made in the UK are recognised as a credit to administrative expenses in the financial year relevant to the claim.  Research and Development tax credits in Australia are recognised as a deduction to the tax expense.

1.14 Financial instruments

Financial assets and financial liabilities are recognised on the statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Full details of financial instruments are included in Note 26.

Investments in unlisted securities not meeting the definition of associates, joint ventures or subsidiaries are classified as available for sale financial assets and are initially recorded at fair value plus transaction costs. The investments are then remeasured at each subsequent reporting date to fair value. Changes in the fair value of the unlisted securities are recognised in other comprehensive income, with the exception of impairment losses. On disposal of the asset any gains and losses recorded within other comprehensive income are realised and are reclassified to the consolidated statement of comprehensive income.

Trade and other receivables are designated as loans and receivables. They are recognised at amortised cost, which is net of any allowance for impairment in relation to irrecoverable amounts. This is deemed to be a reasonable approximation of their fair value. The provision is reviewed regularly in conjunction with a detailed analysis of historical payment profiles and past default experience. When a trade receivable is deemed uncollectable, it is written off against the allowance account. The Group receives interest income on certain amounts held in escrow.

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Trade and other payables are not interest bearing and are designated as other financial liabilities. They are recognised at their carrying amount, which is deemed to be a reasonable approximation of their fair value.

Loans and borrowings are measured at amortised cost, net of direct costs. Direct costs are released through the consolidated statement of comprehensive income under the effective interest method, along with interest charged, over the life of the instrument.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The Company's Ordinary Shares are classified as equity instruments and are recognised at the proceeds received, net of any direct issue costs. Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.

Financial instruments are not used for speculative purposes.

The Group's cash and cash equivalents represent amounts held in the Group's current accounts and overnight deposits that are immediately available.

The information set out below provides information about how the Group determines fair values of various financial assets and financial liabilities that are measured subsequent to initial recognition at fair value:

·      Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

·      Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

·      Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Details of the type of fair value input used is included within the relevant note.

 

1.15 Net Debt

The Group defines Net Debt as loans and borrowings less cash and cash equivalents, both as per the statement of financial position.  The Group does not currently hold any financial derivatives, have any leases recorded as finance leases or operate a defined benefit pension plan and therefore these costs are not currently considered.  These, and any other financing costs, will be considered as they become applicable to the results of the Group.  The calculation of net debt is presented in Note 21.

 

1.16 Current tax

Current income tax comprises UK income tax and is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the statement of financial position date. Current tax is recognised in the consolidated statement of comprehensive income except to the extent that it is required to be recognised directly in equity.

1.17 Deferred tax

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

•    the initial recognition of goodwill;

•    the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

•    investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. Deferred tax is recognised in the consolidated statement of comprehensive income except to the extent that it is required to be recognised directly in equity.

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 assets are recovered.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle balances on a net basis.

1.18 Provisions

Provisions are recognised when the Group has a present obligation, legal or constructive, as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate of the amount of the obligation can be made. Provisions are measured at Management's best estimate of the expenditure required to settle the obligation at the statement of financial position date and are discounted to present value where the impact is material. The unwinding of any discount is recognised in finance costs.

Dilapidation provisions are recognised based on Management's best estimate of costs to make good the Group's leasehold properties at the end of the lease term.

Onerous lease provisions relate to contracts whereby the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it.

Restructuring provisions are recognised when a full restructuring plan has been developed and communicated.  The restructuring provisions represent expected costs incurred of completing the restructure including redundancy costs.

1.19 Employee benefits: defined contribution benefit scheme

The Group operates a defined contribution pension scheme which is a post-employment benefit plan under which the Group pays fixed contributions into a fund. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Contributions payable to the fund are charged to the statement of comprehensive income in the period to which they relate.

1.20 Share-based payments

The Group provides equity-settled share-based incentive plans whereby ZPG Plc grants shares or nil-cost options over its shares to employees of its subsidiaries for their employment services. The Group also issues warrants over shares in ZPG Plc to a number of the Group's estate agent partners, allowing them to acquire shares in exchange for making their property listings available for inclusion on the Group's property websites.

Equity-settled share-based payments to employees and partners are measured at the fair value of the equity instruments at the grant date. The fair value is measured using a suitable valuation model, including the Black-Scholes and Monte-Carlo valuation models where appropriate, and is charged to the consolidated statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each statement of financial position date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. The cumulative expense is not adjusted for failure to meet a market vesting condition. Details regarding the determination of the fair value of equity-settled share-based payment transactions are set out in Note 24.

Where the terms and conditions of options are modified before they vest, the increase in fair value of the options, measured immediately before and after the modification, is charged to the income statement over the remaining vesting period.

Within the company accounts of ZPG Plc equity-settled share options granted directly to employees or estate agent partners of a subsidiary are treated as a capital contribution to the subsidiary. The capital contribution is measured by reference to the fair value of the share-based payments charge for the period and is recognised as an increase in the cost of investment with a corresponding credit to equity.

A number of shares are held in trust in order to settle future exercises of the Group's share incentive schemes. Details of the trusts are included in Note 24. Shares held in trust are treated as a deduction from equity.

Employer's National Insurance Contributions are accrued, where applicable, at a rate of 13.8%. The amount accrued is based on the market value of the shares at 30 September 2017 after deducting the exercise price of the share option.

 

1.21 Sources of estimation uncertainty

Comparison revenue and accrued income

Revenue generated by the Comparison division is recognised at the point at which a transaction or interaction on the Group's website is completed and a lead is generated.  A Management estimate is required in calculating a revenue accrual to estimate the number of successful switches based upon leads provided for each partner in the period between the last date of billing and the latest partner data being made available.  The accrued income is estimated by considering the volume of leads that have passed from the Group's website to the partner, the historical conversion of such leads into completed switches and contracted revenue per switch.

 

Recognition of acquired intangibles on acquisition

During the period the Group completed its acquisition of Hometrack, ExpertAgent, TechnicWeb and Ravensworth.  The process of determining the fair value of intangible assets acquired in each acquisition requires an estimation of future cash flows arising from acquired intangibles and there is a risk that inaccurate estimation could lead to the valuation of acquired intangibles and goodwill being misstated.  The details of assets and liabilities recognised upon acquisition is set out in note 13.

The Group engaged third party valuation experts for Hometrack and ExpertAgent to mitigate the risk associated with the valuation of assets and liabilities upon acquisition; however, estimation uncertainty still exists in the preparation of forecasts that underpin the valuation models.  Intangibles recognised are subsequently amortised over their useful economic lives; as such, no future revaluation of the assets recognised will be made except for the purposes of impairment reviews.

 

Recognition of earn-out agreements

In consideration for the acquisition of Hometrack an earn-out agreement was entered which is contingent upon the future performance of a ten-year licence agreement also entered into at the point of acquisition.  The earn-out is measured at fair value at the point of acquisition using discounted future cashflows under a range of weighted scenarios requiring an estimation of the future performance of the currently nascent licence agreement. 

Deferred and contingent consideration on the acquisition of Hometrack was recognised at £13 million.  At each reporting period the earn-out will be measured at fair value with any revaluation being recognised in the statement of comprehensive income.  The initial fair value recognised upon acquisition was assessed to represent fair value as at 30 September 2017.

 

Impairment of goodwill and intangibles

The Group holds goodwill and intangibles on the statement of financial position in respect of business acquisitions made.  Acquired intangibles include acquired goodwill, brands, customer relationships, databases, websites and software of which £491.0 million has been recognised as at 30 September 2017 (2016 : £322.6 million). The Group is required to review these assets annually for impairment.  Determining whether goodwill and intangible assets are impaired requires an estimation of the recoverable value of the relevant cash-generating unit, which represents the higher of fair value and value in use. The value in use calculation requires an estimation of future cash flows expected to arise from the cash-generating unit, discounted using a suitable discount rate to determine if any impairment has occurred.  

The impairment review has concluded that the carrying value of the Group's intangible assets is supported by the value in use of the respective cash generating units.  Details of the impairment analysis are included in Note 14.

 

1.22 Key accounting judgements

PropertyFinder Group barter transaction

PropertyFinder Group is a Dubai-based business with leading property portals across the Middle East and North Africa.  During the period the propertyfinder.com domain name was transferred in exchange for 1% of the issued share capital of Property Finder International Limited, the PropertyFinder Group parent entity.

A key accounting judgement was made in recognising the fair value of the acquired asset as required by IAS 38.  Property Finder International Limited is a private company registered in the British Virgin Islands and as such is required to make only limited public financial disclosure.  Determining the fair value of the investment is therefore subject to inherent uncertainty.  Management used various sources of publicly available information, including the audited value of an investment in PropertyFinder Group disclosed by a listed investment company to determine the fair value at acquisition.

The investment in PropertyFinder is held as an available for sale financial asset and therefore is subsequently measured at fair value at each reporting date.  As at 30 September 2017 the asset is valued at £1.7 million on the statement of financial position.

 

1.23 Alternative performance measures

In the analysis of the Group's financial performance certain information disclosed in the consolidated financial statements may be prepared on a non-GAAP basis or has been derived from amounts calculated in accordance with IFRS but is not itself an expressly permitted GAAP measure. These measures are reported in line with how financial information is analysed by Management. When reviewing performance, the Directors use a combination of both statutory and adjusted performance measures. The adjusted performance measures, including Adjusted EBITDA and Adjusted basic EPS, provide additional information to help assess the underlying performance of the business as they strip out deal-related costs and give a closer approximation to ZPG's cash flows.

The non-GAAP measures are designed to increase comparability of the Group's financial performance year on year. However, these measures may not be comparable with non-GAAP measures adopted by other companies. The key non-GAAP measures presented by the Group are:

•    Adjusted EBITDA - which is defined as operating profit after adding back depreciation and amortisation, share-based payments and exceptional items (Note 3); and

•    Adjusted basic EPS - which is defined as profit for the year, excluding exceptional items and amortisation of intangible assets arising on acquisitions, adjusted for tax (adjusted profit for the year) and divided by the weighted average number of shares in issue for the year (Note 11).

Both of these measures are used in determining the remuneration of the Executive Directors and Management and are used by the Company's external debt providers to assess performance against covenants and determine the interest charge

 

2. Business segments

The Board of Directors has been identified as the Group's chief operating decision maker. The monthly reporting pack provided to the Board to enable assessment of the performance of the business has been used as the basis for determining the Group's operating segments.

Whilst the chief operating decision maker monitors the performance of the business at a revenue and Adjusted EBITDA level, depreciation and amortisation, share-based payments, exceptional items, finance income and costs and income tax are all monitored on a consolidated basis.

Assets and liabilities are also managed on a centralised basis and are not reported to the chief operating decision maker in a disaggregated format.

The chief operating decision maker monitors six individual revenue streams as set out below. The six revenue streams are grouped under two headings: Property and Comparison. Adjusted EBITDA is monitored on an aggregated basis under these two headings. Revenue and costs shown under the Agency heading include trading for 10 months of TechnicWeb, seven months of ExpertAgent and one month of Ravensworth, being the results of each entity from the date of acquisition.  Other property revenue includes eight months trading of Hometrack. The consolidated results for 2017 are therefore not a like for like comparative for 2016.

Property

•    Agency revenue, which represents property advertising services and the provision of property software, websites and other marketing materials to estate agents and lettings agents;

•    New Homes revenue, which represents property advertising services provided to new home developers; and

•    Other property revenue, which predominantly represents the provision of property data to large financial institutions and other third parties as well as display advertising and other data services.

Comparison

•    Energy revenue, which represents gas and electricity switching services;

•    Communications revenue, which represents mobile, broadband, pay TV and home phone switching services; and

•    Other Comparison revenue, which predominantly represents financial services switching, boiler cover, business energy and data insight services.

All material revenues in 2017 are generated in the UK and Australia (UK: £240.1 million, Australia: £4.4 million). In 2016 all material revenues were generated in the UK.

The following table analyses the Company's consolidated revenue streams as described above:

2017

Property

£000

Comparison

£000

Total

£000

Revenue

 

 

 

Agency

87,130

-

87,130

New Homes

13,123

-

13,123

Other Property

22,135

-

22,135

Energy

-

60,086

60,086

Communications

-

43,970

43,970

Other Comparison

-

18,094

18,094

Total revenue

122,388

122,150

244,538

Underlying costs1

(66,879)

(81,249)

(148,128)

Adjusted EBITDA

55,509

40,901

96,410

Share-based payments

 

 

(7,647)

Depreciation and amortisation

 

 

(18,348)

Exceptional items

 

 

(16,711)

Operating profit

 

 

53,704

Finance income

 

 

47

Finance costs

 

 

(5,664)

Profit before tax

 

 

48,087

Income tax expense

 

 

(10,678)

Profit for the year

 

 

37,409

 

 

2016

Property

£000

Comparison

£000

Total

£000

Revenue

 

 

 

Agency

66,498

-

66,498

New Homes

 11,736

 -

 11,736

Other Property

 8,516

 -

 8,516

Energy

-

52,659

52,659

Communications

 -

 44,137

 44,137

Other Comparison

-

14,182

14,182

Total revenue

86,750

110,978

197,728

Underlying costs1

(48,202)

(72,416)

(120,618)

Adjusted EBITDA

38,548

38,562

77,110

Share-based payments

 

 

(4,852)

Depreciation and amortisation

 

 

 (11,179)

Exceptional items

 

 

 (11,404)

Operating profit

 

 

49,675

Finance income

 

 

 51

Finance costs

 

 

(3,564)

Profit before tax

 

 

46,162

Income tax expense

 

 

(9,484)

Profit for the year

 

 

36,678

 

1 - Underlying costs represent administrative expenses before depreciation and amortisation, share-based payments and exceptional items.

 

3. Adjusted EBITDA

The performance measure Adjusted EBITDA provides additional information to help assess the underlying performance of the business as it strips out deal related costs and gives a closer approximation to ZPG's cash flows.  Adjusted EBITDA is used by Management to run the business, in determining the remuneration of the Executive Directors and Management and is used by the Company's external debt provider to assess performance against covenants and to determine the interest charge.

The Group defines Adjusted EBITDA as operating profit after adding back depreciation and amortisation, share-based payments and exceptional items. Exceptional items include costs and income which Management believes to be exceptional in nature by virtue of their size or incidence. Such items would include costs associated with business combinations, one-off gains and losses on disposal, and similar items of a non-recurring nature together with reorganisation costs and similar charges. In 2017 the majority of exceptional items relate to the acquisition of subsidiaries set out in Note 13.

This is adjusted for share-based payment expenses which are comprised of charges relating to: (i) warrants issued to certain of the Group's partners; and (ii) employee incentive plans which are aimed at retaining staff and aligning employee objectives with those of the Group. The Directors consider that excluding share-based payments and other non-cash charges such as depreciation and amortisation in arriving at Adjusted EBITDA gives an alternative measure of the consolidated underlying financial performance and a closer approximation to the consolidated operating cash flows.

The table below presents a reconciliation of profit for the period to Adjusted EBITDA for the periods shown:

 

2017

£000

2016

£000

Operating profit

53,704

49,675

Depreciation of property, plant and equipment

1,154

1,709

Amortisation of intangible assets arising on acquisitions

14,618

7,481

Amortisation of other intangible assets

2,576

1,989

Share-based payments (Note 24)

7,647

4,852

Exceptional items

16,711

11,404

Adjusted EBITDA

96,410

77,110

 

Exceptional items comprise:

 

2017

£000

2016

£000

Transaction costs incurred on acquisitions

3,788

1,256

Gain on disposal of domain name

(1,540)

-

Release of dilapidations provision

(519)

-

Management deferred consideration conditional on continued employment

10,542

4,412

Management earn-out consideration conditional on continued employment

792

2,663

Management deal related performance bonuses

3,334

3,073

Other

314

-

Exceptional items

16,711

11,404

 

The gain on disposal represents the fair value of the Propertyfinder.com domain name which was sold during the period in return for 1% of the issued share capital of Property Finder International Limited.

The dilapidations provision was released on the successful arrangement of a sub-lease for the Company's previous office space at the Harlequin Building, London.

Other principally represents a charge in the period in respect of restructuring provisions in relation to internal restructuring.

 

4. Operating profit

 

2017

£000

2016

£000

Operating profit is stated after charging/(crediting):

 

 

Depreciation of property, plant and equipment

1,154

1,709

Amortisation of intangible assets arising on acquisitions

14,618

7,481

Amortisation of other intangible assets

2,576

1,989

Research and Development tax credits

(559)

(472)

Operating lease rentals:

 

 

- Land and buildings

2,794

1,671

- Other

262

339

Operating lease income

(421)

-

Share-based payments (Note 24)

7,647

4,852

 

The total gross value of research and development expenditure in the period was £5.1 million. Research and development expenditure relates to staff costs incurred in the development of new products and features.

 

5. Auditor's remuneration

 

2017

£000

2016

£000

Fees payable to the Group's auditor and its associates:

 

 

- for the audit of ZPG Plc and the consolidated financial statements

180

85

- for the audit of subsidiaries of ZPG Plc

165

125

Total audit fees

345

210

Fees payable to the Group's auditor and its associates for other services to the Group:

 

 

- Audit related assurance services

40

28

Total non-audit fees

40

28

 

Audit related assurance services represent fees incurred in respect of the review of the Group's half-year results.

 

6. Employee costs

 

2017

£000

2016

£000

Staff costs (including Directors) comprise:

 

 

Wages and salaries

43,777

30,454

Social security costs

6,817

4,839

Defined contribution pension costs

1,011

770

Share-based payments (Note 24)

5,537

3,584

 

57,142

39,647

 

7. Remuneration of Key Management Personnel

 

2017

£000

2016

£000

Salary, benefits and bonus

2,840

2,550

Defined contribution pension cost

159

146

Share-based payments

2,045

1,772

 

5,044

4,468

 

Key Management Personnel comprises the Chairman, the Directors and the Managing Directors of Property, Comparison and Data.

Further information about the remuneration of the Directors is provided in the audited part of the Directors' Remuneration Report in the Annual Report 2017.

All of the key Management personnel excluding the Chairman and the Non-Executive Directors are members of the Group's defined contribution pension plans (2016: all).

8. Director and employee numbers

The average monthly number of Directors and employees in administration and Management during the period was:

 

2017

Number

2016

Number

Administration

830

580

Management

20

19

 

850

599

 

9. Income tax expense

 

2017

£000

2016

£000

Current tax

 

 

Current period

16,141

14,076

Adjustments in respect of pre-acquisition periods for acquired entities

(889)

-

Adjustment in respect of prior periods

(279)

(625)

Total current tax

14,973

13,451

Deferred tax

 

 

Origination and reversal of temporary differences

(4,229)

(3,282)

Adjustment in respect of prior periods

(66)

215

Effect of change in UK corporation tax rate

-

(900)

Total deferred tax

(4,295)

(3,967)

Total income tax expense

10,678

9,484

 

Corporation tax is calculated at 19.5% (2016: 20%) of the taxable profit for the year.

On 15 September 2016 the Finance act 2016 confirmed a reduction in the rate of corporation tax to 19% from 1 April 2017 and 17% from 1 April 2020. The Finance Bill was substantively enacted at the prior year end date and therefore the one-off impact of remeasuring the UK deferred tax assets and liabilities for the rate change was recognised at 30 September 2016.

The charge for the year can be reconciled to the profit in the statement of comprehensive income as follows:

 

2017

£000

2016

£000

Profit before tax

48,087

46,162

Current corporation tax rate of 19.5%% (2016: 20%)

9,377

9,232

Non-deductible expenses

2,612

1,562

Adjustments in respect of pre-acquisition periods for acquired entities

(889)

-

Adjustments in respect of prior periods

(345)

(410)

Enhanced relief for R&D expenditure - Australia

(77)

-

Effect of change in UK corporation tax rate

-

(900)

Total income tax expense

10,678

9,484

 

In addition to the amount charged to profit and loss, the following amounts relating to tax have been recognised directly in equity:

 

2017

£000

2016

£000

Current tax

 

 

Credit for current tax on share-based payments

(309)

(217)

Deferred tax

 

 

Credit for deferred tax on share-based payments

(2,049)

(888)

Total income tax recognised directly in equity

(2,358)

(1,105)

 

The Group's effective tax rate for the year ended 30 September 2017 is 22.2% (2016: 20.5%). The effective tax is higher than the statutory rate due to non-deductible transaction costs and management deferred and contingent consideration incurred on acquisitions. In 2016 the impact of non-deductible expenses was offset by the revaluation of deferred tax assets and liabilities as a result of the reduction in the corporation tax rate to 19% from 1 April 2017 and 17% from 1 April 2020.

 

10. Dividends

 

2017

£000

2016

£000

Interim dividend for 2017 of 1.9 pence per Ordinary Share paid on 2 June 2017

8,279

-

Final dividend for 2016 of 3.7 pence per Ordinary Share paid on 9 February 2017

15,330

-

Interim dividend for 2016 of 1.5 pence per Ordinary Share paid on 24 June 2016

-

6,210

Final dividend for 2015 of 2.5 pence per Ordinary Share paid on 3 March 2016

-

10,344

Total dividends paid in the year

23,609

16,554

 

During the year the Group paid £23.6 million in dividends to shareholders. Additionally, the Directors propose a final dividend for 2017 of 3.8 pence per share (2016: 3.7 pence per share) resulting in a final proposed dividend of £16.6 million (2016: £15.3 million). The dividend is subject to approval at the Company's AGM on 30 January 2018. The final dividend proposed has not been included as a liability at the statement of financial position date.

 

11. Earnings per share

 

2017

£000

2016

£000

Earnings for the purposes of basic and diluted earnings per share, being profit for the year

37,409

36,678

Exceptional items (Note 3)

16,711

11,404

Amortisation of intangible assets arising on the acquisition of subsidiaries

14,618

7,481

Adjustment for tax

(3,769)

(3,170)

Adjusted earnings for the year

64,969

52,393

Number of shares



Weighted average number of Ordinary Shares

426,813,751

413,262,135

Dilutive effect of share options and warrants

7,884,622

5,305,776

Dilutive effect of potentially issuable shares

2,397,839

-

Dilutive earnings per share denominator

437,096,213

418,567,911

Basic and diluted earnings per share



Basic earnings per share (pence)

8.8

8.9

Diluted earnings per share (pence)

8.6

8.8

Adjusted earnings per share



Adjusted basic earnings per share (pence)

15.2

12.7

Adjusted diluted earnings per share (pence)

14.9

12.5

 

Adjusted Earnings per share figures exclude exceptional items and the amortisation of intangible assets arising on acquisitions which arise only on consolidation. Management believes that excluding the amortisation of these intangibles better reflects the underlying performance of the Group and increases comparability of performance year on year.

The dilutive effect of share options and warrants arises from the various share schemes operated by the Company as set out in Note 24.  The 2.4 million potentially issuable shares relate to the Company's option to settle up to 50% of the deferred payment for the acquisition of ExpertAgent in shares.

 

12. Investment in subsidiaries and joint ventures

Details of the Company's direct and indirect subsidiaries and joint ventures at 30 September 2017 are shown below. All of the entities listed are consolidated in the consolidated accounts of ZPG Plc, the ultimate parent company of the Group.

The percentage of Ordinary Share capital of each subsidiary listed is owned entirely by the direct parent indicated other than in respect of Websky Limited where 75% of Ordinary Share capital is owned by W New Holdings Limited with Zoopla Limited owning the remaining 25%.

Zoopla Limited, uSwitch Limited, ZPG Property Services Limited, Property Software Holdings Limited and Hometrack.co.uk Limited are the only direct subsidiaries of ZPG Plc.  ZPG Comparison Services Limited was incorporated in September 2017, the company does not trade and is intended to be used as a holding company.

Ulysses Enterprises Limited, uSwitch Digital Limited and uSwitch Communications Limited are in the process of being struck off the register as all trading activity under the uSwitch brand is now conducted by uSwitch Limited.

All subsidiaries incorporated in the UK are registered at The Cooperage, 5 Copper Row, London SE1 2LH. Subsidiaries incorporated in Australia are registered at Suite 501, 92 Pitt Street, Sydney NSW, 2000.

HLIX Limited did not trade in the period.

Name

Direct parent

Country of incorporation

Ownership of Ordinary Shares and voting interest

at 30 September 2017

Active




Zoopla Limited

ZPG Plc

United Kingdom

100%

Ravensworth Printing Services Limited*

Zoopla Limited

United Kingdom

100%

W New Holdings Limited*

Zoopla Limited

United Kingdom

100%

Websky Limited

W New Holdings Limited/Zoopla Limited

United Kingdom

100%

Technicweb Limited*

Zoopla Limited

United Kingdom

100%

uSwitch Limited

ZPG Plc

United Kingdom

100%

ZPG Comparison Services Limited*

ZPG Plc

United Kingdom

100%

Property Software Holdings Limited*

ZPG Plc

United Kingdom

100%

Jupix Limited*

Property Software Holdings Limited

United Kingdom

100%

MoveIT Network Limited*

Jupix Limited

United Kingdom

100%

Property Software Limited*

Property Software Holdings Limited

United Kingdom

100%

Core Estates Limited*

Property Software Limited

United Kingdom

100%

CFP Software Limited*

Property Software Limited

United Kingdom

100%

Vebra Investments Limited*

Property Software Limited

United Kingdom

100%

Vebra Limited*

Vebra Investments Limited

United Kingdom

100%

Vebra Solutions Limited*

Vebra Limited

United Kingdom

100%

Hometrack.co.uk Limited*

ZPG Plc

United Kingdom

100%

Hometrack Data Systems Limited

Hometrack.co.uk Limited

United Kingdom

100%

Hometrack Australia Pty Limited

Hometrack Data Systems Limited

Australia

100%

Hometrack Nominees Pty Limited

Hometrack Australia Pty Limited

Australia

100%

Active - proposal to strike off

 

 

 

Ulysses Enterprises Limited

ZPG Plc

United Kingdom

100%

uSwitch Digital Limited

Ulysses Enterprises Limited

United Kingdom

100%

uSwitch Communications Limited

uSwitch Digital Limited

United Kingdom

100%

Dormant




PSG Web Services Limited*

Vebra Limited

United Kingdom

100%

Real Estate Technology Limited*

Vebra Limited

United Kingdom

100%

SIA Limited*

Hometrack Data Systems Limited

United Kingdom

100%

Joint ventures

 

 

 

HLIX Limited

Hometrack Data Systems Limited

United Kingdom

25%

 

*The Company will sign a statement of guarantee in respect of these subsidiary companies under section 479C of the Companies Act 2006. As a result, these subsidiaries are exempt from the requirements of the UK Companies Act 2006 in relation to the audit of individual accounts by virtue of section 479A of that Act.

13. Acquisitions

During 2017 ZPG acquired four new entities, the details of which are set out in Notes 13a-d. The acquisitions contributed revenue of £16.9 million and EBITDA of £7.4 million for the 2017 financial year.  If all acquisitions had occurred on 1 October 2016 Group revenue and EBITDA would have been £257.9 million and £101.7 million an increase of £13.4 million and £5.3 million respectively. The total impact of the acquisitions made in the period on the Group's consolidated statement of financial position is set out below:



2017

£000

Goodwill

116,552

Intangible assets

63,156

Deferred tax liability

(12,001)

Other net liabilities

(1,452)

Total net assets acquired

             166,255

Satisfied by:


Cash consideration, net of cash acquired

120,811

Debt assumed and discharged

16,073

Deferred and contingent consideration

29,371

Total consideration

166,255

 

The following table provides a reconciliation of amounts includes in the consolidated statement of cash flows.  

 


2017

£000

Cash consideration, net of cash acquired on acquisition

120,811

Debt assumed and discharged

16,073

Acquisition of subsidiaries, net of cash acquired

136,884

Cash expenses incurred on acquisitions made in the period

3,135

Cash expenses incurred on the acquisition of Money

229

Total cash outflow on acquisition of subsidiaries

140,248

 

Goodwill

The acquisitions set out below provide a number of benefits to the Group.  None of the goodwill is tax deductible (2016: none).  The goodwill recognised on acquisition represents the value arising from intangible assets that are not separately identifiable under IAS 38 including the skills and knowledge of the workforce.  Specific details on goodwill for each acquisition are included in the detail below.

 

13a. Hometrack

On 31 January 2017 ZPG Plc completed its acquisition of Hometrack through the purchase of 100% of the issued share capital of Hometrack.co.uk Limited for total consideration of £122.2 million as measured in accordance with IFRS 3. The primary reason for the acquisition is to increase the scale of the Group's current data business.

Hometrack was consolidated into the Group as of 31 January 2017.  In the period, Hometrack contributed revenue of £13.0 million and adjusted EBITDA of £6.2 million to the consolidated results of the Group. 

The purchase has been accounted for as a business combination under the acquisition method in accordance with IFRS 3. In calculating the goodwill arising on acquisition the fair value of net assets acquired was assessed and no material adjustments from book value were made to existing assets and liabilities. The Group has also recognised a number of separately identifiable intangibles as part of the acquisition, details of which are set out in the table below.  The Hometrack acquisition accounting has been finalised and updated compared to the preliminary figures presented in the 2017 ZPG Plc half year results.

 

The fair values of the assets and liabilities acquired are as follows:

 


Fair value

£000

Property, plant and equipment

42

Software

9

Trade and other receivables

3,553

Deferred tax asset

217

Corporation tax asset

2,268

Trade and other payables

(6,835)

Total net liabilities acquired

(746)

Intangible assets recognised on acquisition:


- Brand

2,122

- Customer relationships

25,224

- Software

18,522

Deferred tax liability arising on intangible assets

(9,171)

Goodwill on acquisition

86,274


122,225

Satisfied by:


Cash consideration, net of cash acquired

93,189

Debt assumed and discharged

16,005

Deferred and contingent consideration

13,031

Total consideration

122,225

 

13a.1 Intangible assets recognised on consolidation

 

Brand

£2.1 million has been recognised in respect of the Hometrack brand. Hometrack is the UK's leading provider of residential property market insights and analytics and has a strong position in the Australian market.  The brand is considered to be highly recognisable in both these markets. 

 

The brand has been valued using a relief from royalty approach.  A brand royalty rate of 1.4% and a post-tax discount rate 12.85% of have been used to determine the net present value of cash flows.  The useful economic life of the brand has been assessed at 10 years in line with current ZPG policy.

 

Customer relationships 

£25.2 million has been recognised in respect of Hometrack's Customer relationships. Hometrack provides residential property market insights, analytics valuations and data services to over 400 partners including mortgage lenders, new home developers, investors, housing associations and local authorities.  At the time of acquisition customers include 15 of the top 20 mortgage lenders in UK as well as all 4 leading Australian mortgage lenders.  Over 70% of Hometrack's revenues are subscription based and underpinned by long-term relationships. 

 

The customer relationships have been valued using a multi-period excess earnings approach.  A post-tax discount rate of 13.0% has been applied to forecast cash flows relating to existing customers.  The useful economic life of the customer relationships are assessed as 7-10 years reflecting the average life of the contracts and/or relationships.

 

Software

£18.5 million has been recognised in respect of Hometrack's software intellectual property. Hometrack's Automated Valuation Model ("AVM") technology underpins the market insights, analytics valuations and data services it provides to its customers.  The technology is recognised by all the major ratings agencies in the UK.

 

The IP has been valued using a relief from royalty approach.  A royalty rate of 13% and a post-tax discount rate 12.85% of have been used to determine the net present value of cash flows.  The useful economic life of the IP has been assessed at eight years which is determined to be its useful life.

 

13a.2 Goodwill

In addition to the skilled workforce acquired, goodwill of £86.3 million represents the significant value of combining Hometrack's property data and expertise with the existing property database of the Group and the benefit of incorporating Hometracks's products and data into the Group's existing product offering for UK estate agents.  Management believes there are significant benefits for both its consumers and partners of incorporating Hometrack into the Group to further improve the quality and depth of insight and analysis that it can provide into the UK property market, which in turn provides additional value for the Group.

 

13a.3 Debt assumed and discharged

Immediately prior to acquisition Hometrack had £16.0 million of outstanding debt due to third parties.  This debt was assumed and discharged by ZPG Plc on acquisition.

 

13a.4 Deferred and contingent consideration

On acquisition the Group recognised deferred and contingent consideration of £13.0 million of which £11.8 million represents the fair value of a commercial earn-out agreement with the sellers.  The settlement of the commercial earn-out will be in the range of £nil to £25.0 million payable up to 10 years' post-acquisition.  The recognised fair value was determined using unobservable inputs (Level 3) within a weighted average scenario analysis.  The inputs included a range of potential revenues generated by the underlying contract, which are unobservable, discounted at a discount rate of 13%. At each reporting period the earn-out liability will be considered in light of any additional information available with any adjustment being recognised in the consolidated statement of comprehensive income. The fair value is equal to the carrying value.

A further £10.2 million is payable to Management shareholders and is not contingent on performance but is conditional on the continued employment of Management up to and including the date of payment. In accordance with IFRS 3, this consideration will be recognised as a remuneration expense in the Group's consolidated statement of comprehensive income over the deferral period of between 12 months and 24 months from the date of acquisition. The Group is accruing the full £10.2 million over the deferral period, adjusted by an estimation of the number of leavers.

The following table sets out the amounts included in the consolidated statement of cash flows:

 


2017

£'000

Cash consideration, net of cash acquired on acquisition

93,189

Debt assumed and discharged

16,005

Acquisition of subsidiary, net of cash acquired

109,194

Cash expenses incurred on acquisition

              1,790

Total cash outflow on acquisition of subsidiary

110,984

 

13b. ExpertAgent

On 1 March 2017 Zoopla Limited, a subsidiary of ZPG Plc, completed its acquisition of ExpertAgent through the purchase of 100% of the issued share capital of Websky Limited for total consideration of £34.9 million as measured in accordance with IFRS 3.  The primary reason for the acquisition is to increase the Group's current product offering for UK estate agents.

ExpertAgent was consolidated into the Group as of 1 March 2017.  In the period ExpertAgent contributed revenue of £2.5 million and adjusted EBITDA of £1.4 million to the consolidated results of the Group. 

The purchase has been accounted for as a business combination under the acquisition method in accordance with IFRS 3. In calculating the goodwill arising on acquisition the fair value of net assets acquired was assessed and no material adjustments from book value were made to existing assets and liabilities. The Group has also recognised a number of separately identifiable intangibles as part of the acquisition, details of which are set out in the table below.

 

The fair values of the assets and liabilities acquired are as follows:


Fair value

£000

Intangible assets

56

Property, plant and equipment

24

Trade and other receivables

92

Trade and other payables

(484)

Corporation tax payable

(74)

Net liabilities acquired

(386)

Intangible assets recognised on acquisition:


- Brand

712

- Customer relationships

12,672

- Software

1,442

Deferred tax liability arising on intangible assets

(2,612)

Goodwill on acquisition

23,055


34,883

Satisfied by:


Cash consideration net of cash acquired

20,143

Deferred and contingent consideration

14,740

Total consideration

34,883

 

13b.1 Intangible assets recognised on consolidation

 

Brand

£0.7 million has been recognised in respect of the ExpertAgent brand.  The ExpertAgent brand has an established history within the property industry of over 13 years and Management believes that the brand continues to generate both value and brand loyalty.

 

The brand has been valued using a relief from royalty approach.  A brand royalty rate of 2.25% and a post-tax discount rate 13.5% of have been used to determine the net present value of cash flows.  The useful economic life of the brand has been assessed at 10 years in line with current ZPG policy.

 

Customer relationships

£12.7 million has been recognised in respect of customer relationships.  There is an inherent value deriving from the future cash flows of ExpertAgent's existing customer contracts as a result of the subscription nature of the service.  Furthermore, ExpertAgent has historically seen a significantly high customer retention rate, a trend that is expected to continue and further increases the value of the existing contracts.

 

The customer relationships have been valued using a multi-period excess earnings approach.  A post-tax discount rate of 13.5% has been applied to forecast cash flows relating to existing customers.  The useful economic life of the customer relationships are assessed as 10 years reflecting ExpertAgent's high customer retention rate.

 

Software

£1.4 million has been recognised as an uplift to the value of the ExpertAgent product.  The software was valued using a relief from royalty approach with a royalty rate of 7.0% and a post-tax discount rate of 13.5%.  The software is amortised over a useful economic life of five years.

 

13b.2 Goodwill

Goodwill represents the opportunity of the Group to integrate the ExpertAgent product into its existing suite of property software services, as well as the revenue synergies available from the cross sell of estate agency software products to the Group's existing portal customers and vice versa, allowing the Group to offer an enhanced bundle of services to estate agents across the UK.  Cross-sell opportunities also exist with the Group's Comparison division and the potential integration of products such as Moveit, which allow consumers to select from a large list of suppliers across home services, communications, surveyors and other property professionals during the home buying process, generating revenue for both the Group and, via MoveIt, commissions for estate agents.

 

13b.3 Deferred and contingent consideration

On acquisition the Group recognised deferred consideration of £14.7 million due to sellers over a period of 12 to 36 months post acquisition.

 

The following table sets out the amounts included in the consolidated statement of cash flows:

 


2017

£000

Cash consideration, net of cash acquired on acquisition

20,143

Acquisition of subsidiary, net of cash acquired

20,143

Cash expenses incurred on acquisition

1,260

Total cash outflow on acquisition of subsidiary

21,403

 

13c. Ravensworth

On 1 September 2017 Zoopla Limited, a subsidiary of ZPG Plc, completed its acquisition of Ravensworth through the purchase of 100% of the issued share capital of Ravensworth Printing Services Limited for total consideration of £7.0 million as measured in accordance with IFRS 3. The primary reason for the acquisition is to increase the Group's current product offering for UK estate agents.

Ravensworth was consolidated into the Group as of 1 September 2017.  In the period, Ravensworth contributed revenue of £0.6 million and adjusted EBITDA of £0.1 million to the consolidated results of the Group.

The purchase has been accounted for as a business combination under the acquisition method in accordance with IFRS 3. In calculating the goodwill arising on acquisition the fair value of net assets acquired was assessed and no material adjustments from book value were made to existing assets and liabilities. The Group has also recognised a number of separately identifiable intangibles as part of the acquisition, details of which are set out in the table below.

The preliminary fair values of the assets and liabilities acquired are as follows:

 


Fair value

£000

Property, plant and equipment

14

Trade and other payables

(14)

Total net liabilities acquired

-

Intangible assets recognised on acquisition:


- Brand

1,397

Deferred tax liability arising on intangibles

(251)

Goodwill on acquisition

5,840


6,986

Satisfied by:


Cash consideration, net of cash acquired

5,986

Deferred and contingent consideration

1,000

Total consideration

6,986

 

13c.1 Intangible assets recognised on consolidation

 

Brand

£1.4 million has been recognised in respect of the Ravensworth brand.  The brand is known and recognised throughout the property industry and its value is supported by the significant number of repeat customers. The useful economic life of the brand has been assessed at 5 years in line with current ZPG policy.

 

13c.2 Goodwill

Goodwill represents the skills of the acquired workforce and the revenue synergies available from the cross sell of Ravensworth's products to the Group's existing customer base and from the integration of Ravensworth's products into ZPG's combined offering.

 

13c.3 Deferred and contingent consideration

A total of £1.0 million has been recognised in respect of deferred consideration of £250,000 payable on each anniversary of the acquisition over the next four years.

 

The following table sets out the amounts included in the consolidated statement of cash flows:

 

 


2017


£000

Cash consideration, net of cash acquired on acquisition

5,986

Acquisition of subsidiary, net of cash acquired

5,986

Cash expenses incurred on acquisition

                      76

Total cash outflow on acquisition of subsidiary

6,062

 

 

13d. TechnicWeb

On 30 November 2016 Zoopla Limited, a subsidiary of ZPG Plc, completed its acquisition of TechnicWeb through the purchase of 100% of the issued share capital of TechnicWeb Limited for total consideration of £2.2 million as measured in accordance with IFRS 3. The primary reason for the acquisition is to increase the Group's current product offering for UK estate agents.

TechnicWeb was consolidated into the Group as of 30 November 2016.  In the period, TechnicWeb contributed revenue of £0.8 million and adjusted EBITDA of £(0.3) million to the consolidated results of the Group.

The purchase has been accounted for as a business combination under the acquisition method in accordance with IFRS 3. In calculating the goodwill arising on acquisition the fair value of net assets acquired was assessed and no material adjustments from book value were made to existing assets and liabilities. The Group has also recognised a number of separately identifiable intangibles as part of the acquisition, details of which are set out in the table below.

The fair values of the assets and liabilities acquired are as follows:


Fair value

£000

Property, plant and equipment

6

Trade and other receivables

25

Corporation tax asset

26

Trade and other payables

(95)

Total net liabilities acquired

(38)

Intangible assets recognised on acquisition:


- Software

1,000

Deferred tax liability arising on intangibles

(184)

Goodwill on acquisition

1,383


2,161

Satisfied by:


Cash consideration, net of cash acquired

1,493

Debt assumed and discharged

68

Deferred and contingent consideration

600

Total consideration

2,161

 

13d.1 Intangible assets recognised on consolidation

Software

TechnicWeb specialises in designing custom built, fully responsive websites for the property sector.  TechnicWeb owns and develops software to streamline the process of producing a bespoke fully responsive website for its estate agent partners.

 

13d.2 Goodwill

As with Ravensworth, goodwill represents the inherent value in the workforce acquired and the revenue synergies available from the cross sell of TechnicWeb's products to the Group's existing customer base and from the integration of TechnicWeb's products into ZPG's combined offering.

 

13d.3 Deferred and contingent consideration

On acquisition the Group recognised £0.6 million of deferred consideration which represents the fair value of a commercial earn-out agreement with the sellers.

 

The following table sets out the amounts included in the consolidated statement of cash flows:


2017

£'000

Cash consideration, net of cash acquired on acquisition

1,493

Debt assumed and discharged

68

Acquisition of subsidiary, net of cash acquired

1,561

Cash expenses incurred on acquisition

              9

Total cash outflow on acquisition of subsidiary

1,570

 

13e.  Property Software Group

On 28 April 2016 ZPG Plc completed its acquisition of Property Software Group through the purchase of 100% of the issued share capital of Property Software Holdings Limited for total consideration of £69.6 million as measured in accordance with IFRS 3.  Full details of the acquisition are included in the Annual Report 2016.

 

The fair values of the assets and liabilities acquired are as follows:

 

 

Fair value

£000

Property, plant and equipment

463

Intangible assets - software (Note 14)

5,904

Trade receivables

1,543

Prepayments and other receivables

669

Corporation tax asset

66

Trade payables

(188)

Accruals and other payables

(1,707)

Deferred income

(2,385)

Provisions

(35)

Total net assets acquired

4,330

Intangible assets recognised on acquisition:

 

- Brand

2,222

- Customer relationships

20,484

Deferred tax liability arising on intangibles

(4,646)

Goodwill on acquisition

47,246

 

69,636

Satisfied by:

 

Cash consideration, net of cash acquired

22,263

Debt assumed and discharged

24,862

Deferred and contingent consideration

22,511

Total consideration

69,636

 

The following table provides a reconciliation of the amounts included in the consolidated statement of cash flows:


2017

£000

Cash consideration, net of cash acquired on acquisition

22,263

Debt assumed and discharged

24,862

Acquisition of subsidiary, net of cash acquired

47,125

Cash expenses incurred on acquisition

1,256

Cash outflow on acquisition of subsidiaries

48,381

 

14. Intangible assets

 

Goodwill

£000

Brand

£000

Customer

relationships

£000

Domain

names

£000

Websites

and 

software

£000

Database

£000

Total

£000

Cost

 

 

 

 

 

 

 

At 1 October 2016

246,821

50,992

26,575

1,451

12,312

1,129

339,280

On acquisition (Note 13)

 116,552

     4,231

   37,896

-

   21,029

-

   179,708

Additions

-

-

-

           26

     5,859

-

5,885

At 30 September 2017

 363,373

   55,223

   64,471

     1,477

   39,200

     1,129

   524,873

At 1 October 2015

199,575

48,770

6,091

1,451

3,847

1,129

260,863

On acquisition (Note 13)

47,246

2,222

20,484

-

5,904

-

75,856

Additions

-

-

-

-

2,561

-

2,561

At 30 September 2016

246,821

50,992

26,575

1,451

12,312

1,129

339,280

Amortisation

 

 

 

 

 

 

 

At 1 October 2016

-

6,605

5,908

1,296

2,225

625

16,659

Charge for the year

-

     5,345

     6,380

         131

     5,035

         303

17,194

At 30 September 2017

-

   11,950

   12,288

     1,427

     7,260

         928

     33,853

At 1 October 2015

-

1,626

3,696

1,109

440

318

7,189

Charge for the year

-

4,979

2,212

187

1,785

307

9,470

At 30 September 2016

-

6,605

5,908

1,296

2,225

625

16,659

Net book value

 

 

 

 

 

 

 

At 30 September 2017

 363,373

   43,273

   52,183

           50

   31,940

         201

   491,020

At 30 September 2016

246,821

44,387

20,667

155

10,087

504

322,621

 

Goodwill and intangibles are tested for impairment by comparing the carrying amount of the cash-generating unit (CGU) with its recoverable amount, which represents the higher of its estimated fair value and value in use. An impairment loss is recognised when the carrying value of the asset exceeds its recoverable amount.

The intangible assets relate to five separate CGUs: Comparison - uSwitch, Property marketing (which includes Zoopla, TechnicWeb and Ravensworth), Hometrack, Property Software Group and ExpertAgent. Intangible assets include £5.2 million (2016 : £1.3 million) of internally generated assets.  Goodwill and intangibles are allocated to each CGU per the table below.

 

 

Goodwill

 

£000

Other Intangibles

£000

Total

 

£000

Comparison - uSwitch

128,780

38,756

167,536

Property marketing

78,017

6,582

84,599

Hometrack

86,274

42,051

128,325

Property Software Group

47,247

26,317

73,564

ExpertAgent

23,055

13,941

36,996

At 30 September 2017

363,373

127,647

491,020

 

The recoverable amounts of intangible assets and goodwill are based on their value in use, which is determined using cash flow projections derived from financial plans approved by the Board covering a three year period. They reflect Management's expectations of revenue, EBITDA growth, capital expenditure, working capital and operating cash flows, based on past experience and future expectations of business performance.  Cash flows for ExpertAgent and Hometrack after the three year period are based on forecasts used for the recent fair value exercise at acquisition, tending down towards the perpetuity growth rate. Cash flows for other CGUs beyond the three year period have been extrapolated using a perpetuity growth rate.

A growth rate of 2% has been applied to extrapolate the cash flows into perpetuity. Growth has been capped at 2% across all CGUs so as not to exceed the long-term expected growth rate of the industry and country the Group operates in, in accordance with IAS 36. The pre-tax discount rate used for each CGU was in the range of 13.2% to 15.5%.

The analysis performed calculates that the recoverable amount of each CGU's assets exceeds their carrying value, as such no impairment was identified. Amending the analysis such that a growth rate into perpetuity of negative 1%, or a reasonable increase in discount rate, is applied across all CGUs whilst holding all other variables constant would not give rise to an impairment.

The Directors note that the three year forecast for the Property Software Group CGU includes revenue and margin growth resulting from new and recently launched products.  Failure to achieve the forecasted cash flows could indicate an impairment.  Headroom currently stands at £20.0 million for this CGU.  2020 cash flows would need to fall by 26% from current forecasts to eliminate this headroom.

Indicators of impairment for all CGUs, including Property Software Group, will continue to be assessed throughout the 2018 financial year.

15. Property, plant and equipment

 

Fixtures

and fittings

£000

Freehold

property

£000

Computer

equipment

£000

Leasehold

improvements

£000

Total

£000

Cost

 

 

 

 

 

At 1 October 2016

944

209

1,962

5,640

8,755

Acquired on acquisitions

28

-

48

10

86

Additions

313

             5

         711

         186

1,215

At 30 September 2017

1,285

214

2,721

5,836

10,056

At 1 October 2015

340

-

983

1,240

2,563

Acquired on acquisitions

34

209

150

70

463

Additions

570

-

829

4,330

5,729

At 30 September 2016

944

209

1,962

5,640

8,755

Accumulated depreciation

 

 

 

 

 

At 1 October 2016

373

2

721

1,246

2,342

Charge for the year

214

6

592

342

1,154

At 30 September 2017

587

8

1,313

1,588

3,496

At 1 October 2015

120

-

310

203

633

Charge for the year

253

2

411

1,043

1,709

At 30 September 2016

373

2

721

1,246

2,342

Net book value

 

 

 

 

 

At 30 September 2017

698

206

1,408

4,248

6,560

At 30 September 2016

571

207

1,241

4,394

6,413

 

16. Available for sale financial assets

 

2017

£000

2016

£000

At 1 October 2016

724

-

Additions

2,598

979

Fair value movements

1,139

-

Disposals

-

(255)

At 30 September 2017

4,461

724

 

Available for sale financial assets represent the Group's strategic partnerships with a number of UK Proptech and Fintech companies and other equity investments which do not give the Group significant influence over that entity.  Key judgements that have been used in determining fair value of available for sale financial assets are set out in Note 1.22.

 

17. Trade and other receivables

 

2017

£000

2016

£000

Trade receivables

15,000

8,896

Accrued income

16,355

17,228

Prepayments

2,962

3,160

Amounts held in escrow

3,543

9,884

Other receivables

671

709

 

38,531

39,877

Non-current

-

3,262

Current

38,531

36,615

 

38,531

39,877

 

The Directors consider that the carrying value of trade and other receivables is approximate to their fair value. The carrying value also represents the maximum credit exposure.

Amounts held in escrow has decreased from £9.9 million to £3.5 million through the settlement of uSwitch deferred consideration in June 2017 as detailed in Note 19.

Details of the Group's exposure to credit risk are given in Note 26.

 

18. Trade and other payables

 

2017

£000

2016

£000

Trade payables

10,425

7,618

Accruals

24,137

16,955

Other taxation and social security payments

11,715

5,865

Deferred income

3,981

1,813

Other payables

1,121

271

 

51,379

32,522

 

The Directors consider that the carrying value of trade and other payables is approximate to their fair value. Details of the Group's exposure to liquidity risk are given in Note 26.  All trade and other payables are considered current liabilities.

19. Deferred and contingent consideration

The Group recognised a total of £29.4 million in respect of deferred payments due on acquisitions made in the period, as set out below and detailed in Note 13.

A further £11.3 million was recognised through the income statement in relation to payments to continuing Management shareholders.  £2.8 million was recognised in respect of uSwitch, £5.3 million of Hometrack, £3.0 million for Property Software Group and £0.2 million for TechnicWeb.

During the year the Group also settled £33.0 million due in respect of uSwitch, Property Software Group and Hometrack.  Amounts paid and due to be paid to Management shareholders of uSwitch are held in escrow. Of the £32.7 million recorded on the statement of cash flows, £9.7 million of deferred and contingent consideration settled during the year was conditional on continued employment of Management (2016: £2.9 million).

 

There have been no changes to the expected outcome of ongoing contingent consideration requirements made during the period outside of the finalisation of the acquisition accounting for entities acquired in the year as set out in Note 13. The fair value of deferred and contingent consideration is therefore considered equal to its carrying value. The Group's liabilities in respect of deferred and contingent consideration arising on acquisitions are set out below:

 

Deferred

 consideration

£000

Contingent

consideration -

earn-out

£000

Total

£000

At 1 October 2016

28,859

1,817

30,676

Recognised on acquisition of TechnicWeb

-

600

600

Recognised on acquisition of Hometrack

1,218

11,813

13,031

Recognised on acquisition of ExpertAgent

14,740

-

14,740

Recognised on acquisition of Ravensworth

1,000

-

1,000

Charge in the period for amounts conditional on the continued employment of Management

10,542

792

11,334

uSwitch settlement

(4,710)

(1,870)

(6,580)

Property Software Group settlement

(25,097)

-

(25,097)

Hometrack settlement

(1,283)

-

(1,283)

At 30 September 2017

25,269

13,152

38,421

Current

15,624

1,175

16,799

Non-current

9,645

11,977

21,622

At 1 October 2015

11,976

26,156

38,132

Recognised on acquisition of Property Software Group

22,511

-

22,511

Charge in the period for amounts conditional on the continued employment of Management

4,412

2,663

7,075

uSwitch settlement

(10,040)

(27,002)

(37,042)

At 30 September 2016

28,859

1,817

30,676

Current

26,813

1,330

28,143

Non-current

2,046

487

2,533

 

20. Provisions

The movement in provisions can be analysed as follows:

 

Dilapidation

provisions

£000

Onerous

lease

£000

Restructuring provisions

£000

Total

£000

At 1 October 2016

1,985

729

-

2,714

Recognised in the period

30

130

259

419

Utilised in the period

(56)

(486)

(130)

(672)

Released in the period

(519)

(243)

-

(762)

At 30 September 2017

1,440

130

129

1,699

Current

-

130

129

259

Non-current

1,440

-

-

1,440

At 1 October 2015

799

-

-

799

Acquired on acquisition of Property Software Group

35

-

-

35

Recognised in the period

1,375

729

-

2,104

Utilised in the period

(224)

-

-

(224)

At 30 September 2016

1,985

729

-

2,714

Current

575

729

-

1,304

Non-current

1,410

-

-

1,410

                                                                                                                                                                                        

The dilapidation provisions relate to Management's best estimate of costs to make good the Group's leasehold properties at the end of the lease term. The release in the period represents the completion of a sub-lease on the  Company's previous head office location which transferred the Company's exit obligations. £0.1 million of the provision was utilised prior to the sub-lease.

The utilisation and release of onerous lease provisions in the period relates to the successful sub-lease of the Company's previous head office as mentioned above, which had previously been provided for. The onerous lease provision recognised during the year and held at 30 September 2017 relates to Management's best estimate of the fair value of future lease payments falling due prior to the expiry of a legacy lease agreement on computer servers relating to one of the Group's acquired entities. This onerous lease provision will be fully utilised in the 2018 financial year.

Restructuring provisions are recognised in respect of redundancy and other costs in relation to internal restructuring.

 

21. Loans and borrowings

On 30 April 2015 the Group entered into an agreement for the provision of a five year, £150 million revolving credit facility. On 18 April 2016 a £50 million extension to the revolving credit facility was agreed to finance the acquisition of Property Software Group, this was increased by a term loan of £75 million in January 2017 to finance the acquisition of Hometrack and ExpertAgent and a further £50 million in September 2017 to fund the acquisition of Money.  The Group's total facility at 30 September 2017 is therefore £325 million.The drawn portion of the facility incurs interest at UK Libor plus a margin. The margin is variable based on the Group's net debt to Adjusted EBITDA ratio. The effective interest rate for the period is set out in Note 26.

 


2017

£000

2016

£000

Opening gross borrowings


151,500

114,000

Repayment of borrowings

 

(97,500)

(46,500)

Drawdown of borrowings

 

215,000

84,000

Gross borrowings

 

269,000

151,500

Capitalised arrangement fees

 

(2,135)

(1,804)

Total loans and borrowings

 

266,865

149,696

 

The Group has no other loans or borrowings.  Further detail on borrowings is provided in Note 26,

The Company defines Net Debt as Loans and borrowings less cash and cash equivalents as reconciled below; see also note 1.15.

 

2017

£000

2016

£000

Loans and borrowings

266,865

149,696

Cash and cash equivalents

(75,368)

(3,367)

Net Debt

191,497

146,329

 

 

22. Deferred tax

 

Property, plant

and equipment

and computer

software

£000

 

Intangible

assets

£000

Share-based

payments

£000

Other

 £000

Total

£000

Deferred tax asset/(liability) at 1 October 2016

26

(12,475)

2,532

896

(9,021)

On acquisitions

-

(12,217)

-

216

(12,001)

(Charge)/credit to profit or loss

(575)

3,046

1,206

552

4,229

Credit to equity

-

-

2,049

-

2,049

Foreign translation loss

-

-

-

(9)

(9)

Prior year adjustment

-

92

-

(26)

66

Deferred tax (liability)/asset at 30 September 2017

(549)

(21,554)

5,787

1,629

(14,687)

Deferred tax asset/(liability) at 1 October 2015

136

(10,623)

866

436

(9,185)

On acquisition of Property Software Group

(45)

(4,646)

-

-

(4,691)

(Charge)/credit to profit or loss

(103)

2,794

778

713

4,182

Credit to equity

-

-

888

-

888

Prior year adjustment

38

-

-

(253)

(215)

Deferred tax (liability)/asset at 30 September 2016

26

(12,475)

2,532

896

(9,021)

 

Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. Deferred tax assets have been recognised in respect of all temporary differences giving rise to income tax assets because it is probable that these assets will be recoverable.

The following is an analysis of the deferred tax balances (after offset) for financial reporting purposes:

 

2017

£000

2016

£000

Deferred tax liabilities

(22,103)

(12,475)

Deferred tax assets

7,416

3,454

 

(14,687)

(9,021)

 

23. Equity

Share capital

 

2017

£000

2016

£000

Shares classified as capital

 

 

Authorised

 

 

439,014,156 (2016: 418,116,472) shares of £0.001 (2016: £0.001) each

439

418

Called-up share capital - allotted and fully paid

 

 

 439,014,156  (2016: 418,116,472) Ordinary Shares of £0.001 (2016: £0.001) each

439

418

 

Ordinary Shares

The Ordinary Shares carry one vote per share and rights to dividends, except when they are held as Treasury shares by the Company.

On 31 January 2017 the Company placed a total of 20,897,684 new ordinary shares in the Company raising gross total proceeds of £76.3 million.  The new shares are credited as fully paid and rank pari passu in all respects with the existing ordinary shares of 0.1 pence each in the capital of the Company, including in respect of the right to receive all dividends and other distributions declared, made or paid after the date of issue.

Other reserves - Merger reserve

The merger reserve was created in May 2012 from the premium on shares issued for the acquisition of The Digital Property Group Limited. In 2014 the merger reserve increased as a result of the Group's reorganisation prior to the initial public offering.  The intangible assets are now fully amortised.

Other reserves - shares in trust

Shares in trust represents shares in issue that are held by the Employee Benefit Trust and the Share Incentive Plan Trust for the purpose of settling the Group's obligations under the Group's employee share plans, set out in Note 24.

Other reserves - Treasury shares

Between 11 February 2016 and 17 February 2016 the Group acquired 188,340 of its own shares at a weighted average price of 220.0 pence in order to settle the exercise of outstanding warrants. As at 30 September 2017 53,023 of the shares had been released from treasury to satisfy warrant exercises (2016: 25,551) leaving 135,317 shares in treasury (2016: 162,789) with a weighted average price of 220.0 pence and a total cost of £298,000 as at 30 September 2017.  The fair value of shares in treasury as at 30 September 2017 is £489,000.

24. Share-based payments

The Group operates a number of share-based incentive schemes for both its employees and certain estate agent partners. The Group recognised a total share-based payments charge of £7.6 million for 2017 (2016: £4.9 million) as set out below:

 

2017

£000

2016

£000

Employee Share Option Scheme (i)

572

486

Long Term Incentive Plan (ii)

1,826

881

Share Incentive Plan (iii)

323

276

Deferred Bonus Plan (iv)

692

427

Value Creation Plan (v)

1,156

1,156

Management deal related performance bonus (vi)

592

358

Big Goals (vii)

376

-

Warrant charges (viii)

518

406

National Insurance Contributions payable in respect of eligible share-based payment schemes (ix)

1,592

862


7,647

4,852

 

i) Employee Share Option Scheme

The Company operates an equity-settled share-based incentive scheme which was in place prior to the Company's listing on the London Stock Exchange for all employees under an approved plan up to 31 May 2012 and an unapproved plan thereafter. The options vest in instalments over four years. Options are forfeited if the employee leaves employment before the options vest. The Group recognised a charge of £0.6 million (2016: £0.5 million) in respect of options under this scheme.

The Employee Share Option Scheme will continue to operate until all shares vest or lapse, or the scheme is otherwise cancelled. There will be no future grants under this scheme.

Details of options under the scheme outstanding at 30 September 2017 are set out below:

 

2017

 

2016

 

Number

'000

Weighted average

exercise price

£

 

Number

'000

Weighted average

exercise price

£

Outstanding options at the beginning of the year

2,889

0.27


3,739

0.27

Exercised during the year

(1,135)

0.22


(653)

0.28

Forfeited during the year

(28)

0.35


(197)

0.34

Outstanding options at the end of the year

1,726

0.29

2,889

0.27

 

The options outstanding at 30 September 2017 had a weighted average exercise price of £0.29 (2016: £0.27) and a weighted average remaining contractual life of 5.5 years (2016: 6.7 years). The range of exercise prices for outstanding options is £0.06 to £0.35 (2016: £0.06 to £0.35).

The number of options exercisable as at 30 September 2017 was 1,532,000 (2016: 2,100,000).

 

ii) Long Term Incentive Plan

The Company operates an equity-settled Long Term Incentive Plan that grants nil-cost options to eligible employees which vest at the end of a three year vesting period. The vesting of the options is subject to both Adjusted Earnings Per Share (EPS) and Total Shareholder Return (TSR) performance criteria. The Group recognised a charge of £1.8 million (2016: £0.9 million) in respect of this scheme.

A total of 1,291,686 options have been granted in respect of the 2017 financial year. None of the options granted are exercisable as at 30 September 2017. The following information is relevant in the determination of the fair value of the LTIP options granted on 6 December 2016. There were no other material grants in 2017. The total outstanding number of LTIP options granted to date is 3,210,159 (2016: 2,866,354).

 

6 December 2016

grant

Valuation method - TSR

Monte-Carlo

Valuation method - EPS

Black-Scholes

Share price at grant date

£3.14

Exercise price

£nil

Expected volatility

36.8%

Expected life

3 years

Expected dividend yield

n/a

Risk-free interest rate

0.21%

Fair value per share - TSR

£1.93

Fair value per share - EPS

£3.14

 

The volatility assumption, measured at the standard deviation of expected share price returns, has been calculated using historical daily data of six comparator companies over a term commensurate with the expected life of each option. Dividend equivalent payments will be made in respect of vested options in the form of additional shares.

Following the announcement of these results the LTIP award which was granted in August 2014 will vest subject to fulfilment of the performance criteria. 

 

iii) Share Incentive Plan (SIP)

The SIP is an all-employee share ownership plan which has been designed to meet the requirements of Schedule 2 of the Income Tax (Earnings and Pensions) Act 2003 so that shares can be provided to UK employees under the SIP in a tax-efficient manner. Under the scheme employees may be awarded Free Shares and/or offered the opportunity to purchase Partnership Shares with one Free Matching Share for each Partnership Share purchased. During the period the Company granted a total of 90,841 (2016: 92,581) Matching Shares all of which are still subject to forfeiture should the employee leave within 12 months of the grant date. The Group recognised a charge of £0.3 million (2016: £0.3 million) in respect of shares under this scheme.

iv) Deferred Bonus Plan

The Company operates a Deferred Bonus Plan (DBP) which defers a proportion of eligible employees' annual bonuses into nil-cost options. The options vest over a period of between one and three years from the end of the performance period. The performance period for the 2017 DBP runs from 1 October 2016 until 30 September 2017. The Group recognised a charge of £0.7 million (2016: £0.4 million) in respect of this scheme.

 

 

 

2017

Number

'000

 

 2016

Number

'000

Outstanding options at the beginning of the year

313


-

Granted during the year

301


317

Exercised during the year

(13)


-

Lapsed during the year

(4)


(4)

Outstanding options at the end of the year

597

313

 

In December 2016 a total of 301,395 options were granted in respect of the 2016 financial year. As at 30 September 2017 22,965 of the vested options remain unexercised (2016 : Nil)

v) Value Creation Plan

On 1 October 2015 the Company launched the VCP. The VCP grants nil-cost options to the Company's CEO based on Total Shareholder Return over a three and four year period. The fair value of the scheme is £4.3 million spread over the four year period. A charge of £1.2 million (2016: £1.2 million) was recognised in the 2017 financial year.

On 3 January 2017 3,233,127 nil cost options were granted under the Value Creation Plan.  The nil cost options are subject to the rules of the Value Creation Plan and will vest depending on performance against Total Shareholder Return targets. 

vi) Management deal related performance bonus

On 1 May 2016 an amendment was made to the uSwitch deal related management performance bonus such that the employee can elect to receive the bonus in the form of shares in ZPG Plc instead of a fixed cash element.   The Group recognised a charge of £0.6 million (2016: 0.4 million) in respect of this scheme. As at 30 September 2017 2,533,646 options remain outstanding with settlement expected, in either cash or ZPG shares, on 1 June 2018.

vii) Big Goals

On 28 February 2017 an amendment was made to the Group's Big Goal Incentive Plan. The scheme grants nil-cost options to all employees on achievement of Group-wide targets.  The scheme was previously settled in cash. The Group has recognised a charge of £0.4 million (2016: £nil) in respect of this scheme in the 2017 financial year.

viii) Warrants

Zoopla Limited has entered into agreements with a number of estate agent partners whereby the partners agree to pay annual fees for advertising on ZPG's property websites over a five year period in exchange for a fixed number of warrants over Ordinary Shares. The warrants are issued annually over the five year term of the agreements at an exercise price equal to the nominal value of each share (£0.001). Some or all of the warrants are forfeited if service agreements are terminated before the end of the term.

The Group holds shares in treasury to settle future warrant exercises.  At 30 September 2017 135,317 shares were held in treasury (2016: 162,789).

 

The total charge recognised for the year ended 30 September 2017 in respect of warrants was £0.5 million (2016: £0.4 million).

 

2017

 

2016

 

Number

 

Weighted

average

exercise price

£

 

Number

 

Weighted

average

exercise price

£

Outstanding warrants at the beginning of the year

231,319

0.001

 

114,009

0.001

Issued during the year

334,677

0.001

 

142,861

0.001

Exercised during the year

(27,472)

0.001

 

(25,551)

0.001

Outstanding warrants at the end of the year

538,524

0.001

 

231,319

0.001

 

The number of warrants outstanding at 30 September 2017 was 538,524 (2016: 231,319). The warrants had a weighted average exercise price of £0.001 and a weighted average remaining contractual life of 4.5 years (2016: 3.9 years).

The number of warrants issuable over shares in ZPG Plc under existing partner contracts is 721,000 (2016: 1,055,000). The warrants will be issued with an exercise price of £0.001 over the lives of the contracts.

 

ix) National Insurance Contributions (NIC)

National Insurance Contributions are payable in respect of certain share-based payment schemes. These contributions are treated as cash-settled transactions and are accrued at a rate of 13.8%. The total NIC charge relating to share-based payment schemes was £1.6 million (2016: £0.9 million).

x) The Employee Benefit Trust and Share Incentive Plan Trust

Employee Benefit Trust (EBT)

The Group has established an Employee Benefit Trust which is constituted by a trust deed entered into between the Company and Equiniti Trust (Jersey) Limited. The Trust held 2,690,159 Ordinary Shares in ZPG Plc at 30 September 2017 (2016: 3,838,636). These shares are held to satisfy future exercises under the Group's share-based payment schemes. Shares are allocated by the Trust when the awards are exercised. The Trust waives its right to any dividends. The market value of the shares held in the Trust at 30 September 2017 was £9.7 million (2016: £14.6 million). The cost of the shares has been deducted from equity.

Share Incentive Plan Trust (SIP Trust)

The Group has established a Share Incentive Plan Trust which is constituted by a trust deed which was entered into between the Company and Equiniti Share Plan Trustees Limited.  The Trust held 625,853 Ordinary Shares in ZPG Plc at 30 September 2017 (2016: 602,817). These shares are held to satisfy future Free Share and Partnership and Matching Share exercises. Shares are allocated by the Trust when the awards are exercised. Dividends paid on shares held in the Trust are passed to the employees when the shares are allocated. The market value of the shares held in the Trust at 30 September 2017 was £2.3 million (2016: £2.0 million). The cost of the shares has been deducted from equity.

 

25. Related party transactions

a) Key Management personnel

The Chairman and the Directors are considered to be the Key Management Personnel of the Group along with the Managing Directors of Property and Comparison. Details of remuneration for Key Management Personnel are shown in Note 7.

No share options were exercised by key Management personnel in the period.

Further information on the remuneration of the Chairman and the Directors can be found in the Directors' remuneration report in Annual Report 2017

b) Other Group companies

Details of transactions with subsidiaries are outlined in the Company financial statements. Transactions with other Group companies have been eliminated on consolidation.

c) Other related parties

At 30 September 2017 Daily Mail & General Trust Plc owned 29.8% of the share capital of ZPG Plc through its subsidiary DMGZ Limited (2016: 31.3%)

There are no other material related party transactions.

 

26. Financial instruments

Carrying amount and fair value of financial assets and liabilities

The Group has shareholdings and commercial arrangements with a number of other entities.  Where these holdings do not give the Group significant influence over the entity the holdings are classified as Available for sale financial assets.  Details for available for sale financial assets are included in Note 16.  The valuation of all available for sale financial assets are based on level 2 inputs. The Group uses publicly available financial information to determine the fair value of its shareholding and any warrants held. The fair value of these assets is equal to their carrying value.

All other financial assets, including cash and cash equivalents, are designated as "Loans and receivables" and are held at amortised cost. All financial liabilities are classified as "Other liabilities" and are measured at amortised cost. The Directors consider that the carrying amounts of financial assets and liabilities recorded at amortised cost in the consolidated financial statements are approximate to their fair values.

Financial risk management

The Group is exposed to the following risks from financial instruments:

•    credit risk;

•    market risk; and

•    liquidity risk.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or bank ("counterparty") fails to meet its contractual obligations resulting in financial loss to the Group. The Group's maximum exposure to credit risk at the end of each period was equal to the carrying amount of financial assets recorded in the consolidated financial statements. The exposure to credit risk is influenced by the individual characteristics of each counterparty.

The potential for customer default varies between the Group's two divisions. The customer base of the Property  division is large, so there is no significant concentration of credit risk. The Comparison division operates in a market with a small number of customers, which creates a concentration of debtor balances, and from time to time the amounts due from one or a number of suppliers may be material. However, customers within this market are often large energy and telecommunications organisations with high credit ratings and access to significant funds. The Group's largest customer contributed to 10% (2016: 18%) of the Group's trade receivables balance.

The Group manages counterparty risk on its trade receivables through strict credit control quality measures and regular aged debt monitoring procedures. The Group reserves the right to charge interest on overdue receivables, although it does not hold collateral over any trade receivable balances. Overdue amounts are regularly reviewed and impairment provisions are created where necessary. This provision is reviewed regularly in conjunction with a detailed analysis of ageing profile, historical payment profiles and past default experience. The Group has long-standing relationships with its key customers and extremely low historical levels of customer credit defaults.

The ageing of trade receivables at the period end is as follows:

 

2017

 

2016

 

Gross

£000

Provision

£000

 

Gross

£000

Provision

£000

0-30 days

12,926

-

 

4,634

-

31-60 days

1,760

(37)

 

3,154

(104)

61-90 days

805

(519)

 

721

(151)

91+ days

419

(354)

 

767

(125)

Total

15,910

(910)

 

9,276

(380)

 

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was granted up to the period end date.

Receivables written off during the year to 30 September 2017 was £415,000 (2016: £470,000). As at 30 September 2017 receivables of £1,447,000 were past due but not impaired (2016: £1,386,000).

The credit risk associated with bank and deposit balances is mitigated by the use of banks with good credit ratings.

Market risk

Market risk is the risk that changes in foreign exchange and interest rates will affect the income and financial management of the Group. The Group is not exposed to any significant currency risk and there is a minimal interest rate risk on cash and bank balances. However, the Group has borrowings subject to an interest rate calculated with reference to Libor. Changes in interest rates therefore impact the financial results of the Group. The Directors actively monitor interest rate risk and note that interest rates remain at a historical low. The Directors believe that any reasonable increase in the Libor rate would not significantly impact the Group. Therefore, the Group does not hedge its interest rate risk at this time. At 30 September 2017 borrowings of £269 million were subject to floating interest rates (2016: £151.5 million).

At 30 September 2017 if Libor were to have increased by 1% throughout the year with all other variables held constant profit before tax would decrease by £2.0 million (2016: £1.2 million) as a result of additional interest incurred. Therefore, the Directors are comfortable that any sensitivity to fluctuations in interest or exchange rates would not have a material impact on the results of the Group.

 

Liquidity risk

Liquidity risk refers to the ability of the Group to meet the obligations associated with its financial liabilities that are settled in cash as they fall due. Management regularly reviews performance against budgets and forecasts to ensure sufficient cash funds are available to meet its contractual obligations.

The Group's activities are highly cash generative allowing it to effectively service working capital requirements. At 30 September 2017 the Group held total cash and cash equivalents of £75.4 million (2016: £3.4 million) and net debt of £191.5 million (2016: £146.3 million).

The Group has access to a £200.0 million revolving credit facility (RCF), of which £144 million was drawn down at 30 September 2017. The remaining £56 million undrawn facility allows the Group to secure additional external financing should it be required. The total facility requires the Group to meet certain covenants based on the Group's interest cover and net debt to Adjusted EBITDA ratio. Exceeding the covenants would result in the Group being in breach of the facility, which may lead to the facility being withdrawn. Management regularly monitors and models covenant compliance and prepares detailed forecasts to ensure that sufficient headroom is available. The Directors are satisfied that there is reasonable headroom on each of the Group's debt covenant ratios.

In addition to the £200 million RCF the Company increased its total facility in the period by £125 million with the draw down of two term loans of £75 million and £50 million to fund the acquisitions of Hometrack and Money respectively.  The £75 million is subject to two bullet payments of £10 million in March 2018 and March 2019 with the remaining balance falling due on April 2020 at the end of the term facility.

The following tables detail the Group's remaining contractual maturities for undiscounted financial liabilities, including interest. The contractual maturity is based on the earliest date on which the Group may be required to settle. Where interest rates are variable the undiscounted amount is derived from interest rate curves at 30 September 2017.

 

Effective

interest rate

Within 1 year

£000

1 to 2 years

£000

2 to 5 years

£000

More than

5 years

£000

Total

contractual

amount

£000

At 30 September 2017

 

 

 

 

 

 

Revolving Credit Facility

 

 

 

 

 

 

Trade payables

 

10,425

-

-

-

10,425

Borrowings1

3.00%

4,023

4,375

146,653

-

155,051

Term Debt Facility

 

 

 

 

 

 

Borrowings2

2.74%

13,164

13,469

107,121

-

133,754

Total

 

27,612

17,844

253,774

-

299,230

At 30 September 2016

 

 

 

 

 

 

Revolving Credit Facility

 

 

 

 

 

 

Trade payables

 

7,618

-

-

-

7,618

Borrowings1

2.90%

4,096

4,535

158,927

-

167,558

Total

 

11,714

4,535

158,927

-

175,176

 

1     Interest on the revolving credit facility assumes that the Group makes no further capital repayments until maturity in 2020.

2     Term repayments of £10 million are due in 2018 and 2019 with no further repayments due until maturity of the term facility in 2020.

 

Treasury and capital risk management

The Group's policy is to actively manage its cash and capital structure to ensure that it complies with its current debt covenant ratios, maintains its current dividend policy and minimises the Group's interest payments by paying down its debt where possible. The Group is not subject to any externally imposed capital requirements

Management will consider the use of excess cash, including the payment of special dividends to shareholders and M&A activity, based on the risks and opportunities of the Group at that time.  

The Directors can manage the Group's capital structure through the issue or redemption of either debt or equity instruments and by adjustment of the Group's dividend paid to equity holders. The Directors believe that the current debt to equity ratio remains appropriate but continue to monitor the efficiency of the capital structure on an ongoing basis.

27. Operating lease commitments

At the statement of financial position date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 

2017

£000

2016

£000

Within one year

4,094

3,267

In the second to fifth year inclusive

13,420

13,067

After five years

23,791

27,214


41,305

43,548

 

All operating lease commitments are in respect of property leases held by the Group.

 

28. Subsequent events

On 1 October 2017 ZPG completed its acquisition of 100% of the issued share capital of Dot Zinc Holdings Limited ("Money") for initial consideration of £80 million and earn out consideration of up to a maximum of £60 million based on performance targets for the twelve-month periods ending 31 October 2017 and 30 September 2018.

For the year ended 31 October 2016 Dot Zinc Holdings Limited generated revenue and consolidated profit for the year of £24.7 million and £5.3 million respectively and had gross assets of £14.1 million.

As of the date of this report Management has not completed its purchase price allocation exercise .  Full details of the fair value of assets and liabilities acquired will be provided in the Group's interim results for the period to 31 March 2018.

As at the date of this report the Company is well advanced in its acquisition of automated property valuations and statistical market analysis provider Calcasa B.V ("Calcasa") for initial consideration of €30 million and earn out consideration of up to €50 million.  The acquisition is expected to complete on 1 December 2017 and will be financed through a combination of cash resources and an extension to the Company's existing credit facilities.

For the year ended 31 December 2016 Calcasa generated profit for the year of €4.2 million and had gross assets of €6.2 million.

There have been no other reportable subsequent events between 30 September 2017 and the date of signing of this report.

29. Ultimate controlling party

The Directors are of the opinion that there was no ultimate controlling party in either period presented.

 

Company statement of financial position

As at 30 September 2017

 

 

Notes

2017

£000

2016

£000

Assets

 

 

 

Non-current assets

 

 

 

Investment in subsidiaries

4

421,089

250,790

Intangible assets

 

335

128

Property, plant and equipment

5

5,738

5,315

Trade and other receivables

6

28,245

74,698

Deferred tax assets

11

1,168

600

 

 

456,575

331,531

Current assets

 

 

 

Trade and other receivables

6

5,084

9,092

Cash and cash equivalents

 

62,405

414

 

 

67,489

9,506

Total assets

 

524,064

341,037

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

7

17,605

27,732

Deferred and contingent consideration

8

8,601

28,143

 

 

26,206

55,875

Non-current liabilities

 

 

 

Loans and borrowings

9

266,865

149,696

Deferred and contingent consideration

8

13,268

2,533

Provisions

10

1,375

1,375

Total liabilities

 

307,714

209,479

Net assets

 

216,350

131,558

Equity

 

 

 

Share capital

11

439

418

Share premium reserve

 

74,304

50

Other reserves

11

90,151

90,137

Retained earnings

 

51,456

40,953

Total equity

 

216,350

131,558

 

The financial statements of ZPG Plc (company number 09005884) were approved and authorised for issue by the Board of Directors and were signed on its behalf by:

 

A Chesterman

A Botha

Director

Director

28 November 2017

28 November 2017

 

Company statement of cash flows

For the year ended 30 September 2017

 

 

2017

£000

2016

£000

Cash flows from operating activities

 

 

Profit before tax

27,615

33,649

Adjustments for:

 

 

Depreciation of property, plant and equipment

587

-

Amortisation of intangible assets

89

-

Finance income

(1,501)

(1,615)

Finance costs

5,576

3,559

Dividend income received

(49,000)

(47,000)

Movement in contingent and deferred consideration

11,122

7,075

Operating cash flow before changes in working capital

(5,512)

(4,332)

Decrease in trade and other receivables

3,020

21,093

(Decrease)/Increase in trade and other payables

(10,223)

4,984

Net cash flows from operating activities

(12,715)

21,745

Cash flows (used in)/from investing activities

 

 

Acquisition of subsidiaries, net of cash acquired

(110,351)

(48,636)

Settlement of deferred and contingent consideration

(32,722)

(37,042)

Amounts paid into escrow in relation to deferred and contingent consideration

6,341

(2,448)

Purchase of property, plant and equipment

(1,010)

(3,441)

Purchase and development of intangible assets

(296)

-

Interest income received

1,501

1,615

Dividend income received

49,000

47,000

Net cash flows used in investing activities

(87,537)

(42,952)

Cash flows from/(used in) financing activities

 

 

Proceeds on issue of shares, net of issue costs

74,275

-

Proceeds on issue of debt, net of issue costs

215,000

89,358

Repayment of debt

(97,500)

(52,500)

Interest paid

(5,811)

(2,937)

Shares purchased by trusts

(112)

-

Treasury shares purchased

-

(414)

Dividends paid

(23,609)

(16,554)

Net cash flows from financing activities

162,243

16,953

Net increase/(decrease) in cash and cash equivalents

61,991

(4,254)

Cash and cash equivalents at beginning of period

414

4,668

Cash and cash equivalents at end of period

62,405

414

 

Company statement of changes in equity

For the year ended 30 September 2017

 

 

 

 

Other Reserves

 

 

 

Share

capital

£000

Share

premium

reserve

£000

Treasury

shares

£000

Shares in trust

£000

Merger

reserve

£000

Retained

earnings

£000

Total

equity

£000

At 1 October 2016

418

50

(358)

-

90,495

40,953

131,558

Profit and total comprehensive income for the period

-

-

-

-

-

28,183

28,183

Transactions with owners recorded directly in equity:

 

 

 

 

 

 

 

Share issuance

21

74,254

-

-

-

-

74,275

Share-based payments

-

-

-

-

-

6,055

6,055

Treasury shares released

-

-

60

-

-

(60)

-

Shares purchased by trusts

-

-

-

(112)

-

-

(112)

Shares released from trusts

-

-

-

66

-

(66)

-

Dividends paid

-

-

-

-

-

(23,609)

(23,609)

At 30 September 2017

439

74,304

(298)

(46)

90,495

51,456

216,350

 

 

 

 

 

Other Reserves

 

 

 

Share

capital

£000

Share

premium

reserve

£000

Treasury

shares

£000

Shares in trust

£000

Merger

reserve

£000

Retained

earnings

£000

Total

equity

£000

At 1 October 2015

418

50

-

-

90,495

19,507

110,470

Profit and total comprehensive income for the period

-

-

-

-

-

34,066

34,066

Transactions with owners recorded directly in equity:

 

 

 

 

 

 

 

Share-based payments

-

-

-

-

-

3,990

3,990

Treasury shares purchased

-

-

(414)

-

-

-

(414)

Treasury shares released

-

-

56

-

-

(56)

-

Dividends paid

-

-

-

-

-

(16,554)

(16,554)

At 30 September 2016

418

50

(358)

-

90,495

40,953

131,558

 

Notes to the Company financial statements

1. Accounting policies and basis of accounting

The Directors have applied International Financial Reporting Standards (IFRS) as adopted by the European Union.

The accounting policies and the financial risk management policies, where relevant to the Company, are consistent with those of the consolidated Group as set out in Notes 1 to 29 of the consolidated financial statements.

The statement of cash flows has been represented in the prior year to move transaction costs on acquisitions of £1.3 million to operating cash flows. The impact was to reduce net cash flows from operating activities and the net cash flows used in investing activities by £1.3 million.

Statement of comprehensive income

The Company has taken advantage of the exemption available under section 408 of the Companies Act 2006 and has not presented a statement of comprehensive income. The profit for the period ended 30 September 2017 was £28.2 million (2016: £34.1 million).

2. Auditor's remuneration

The Company incurred a cost of £140,000 (2016: £65,000) for statutory audit services for the period ended 30 September 2017. The Company incurred a cost of £40,000 (2016: £28,000) in relation to non-audit fees provided by the statutory auditor.

3. Employee costs and Directors' remuneration

The Company has no employees other than the Directors of the Company. Remuneration paid to the Directors was accounted for and paid by the Company's subsidiary, Zoopla Limited. Details of Directors' remuneration are set out in the Directors' Remuneration Report in the Annual Report 2017.

4. Investments in subsidiaries

Investments in subsidiaries are valued at cost less any provision for impairment. The investment in subsidiaries balance of £421.1 million represents the Company's 100% shareholding in Zoopla Limited, uSwitch Limited, Property Software Holdings Limited and Hometrack.co.uk Limited as set out in Note 12 to the consolidated financial statements. Property Software Holdings Limited was acquired on 28 April 2016 as detailed in Note 13 to the consolidated financial statements.

During the year ZPG Plc successfully completed a restructuring of the uSwitch entities within the Group.  All uSwitch trade and assets were transferred into the entity uSwitch Limited at nil gain or loss. The entire share capital of uSwitch Limited was then sold by uSwitch Digital Limited to ZPG Plc at the carrying value of assets and liabilities acquired. Subsequent to the transaction, Ulysses Enterprises Limited and its subsidiaries are dormant with strike off applications in progress.  Intercompany loans including these due to the Company from subsidiaries were settled prior to the restructuring or were capitalised through the issuance of ordinary share capital. The restructuring led to a net increase in the investment of £9.4 million due to the capitalisation of existing intercompany loans.

During the year the Company recognised an increase in the investment in Zoopla Limited, uSwitch Limited and Hometrack.co.uk Limited in respect of the Group's employee share schemes. Consistent with the Group accounting policies outlined in Note 1.20 to the consolidated financial statements, equity-settled share options granted directly to a subsidiary's employees are treated as a capital contribution to the subsidiary. The capital contribution is measured by reference to the consolidated share-based payments charge and is recognised as an increase in the cost of investment with a corresponding credit to retained earnings.

 

Zoopla

Limited

£000

uSwitch

Limited

£000

Ulysses Enterprises Limited

£000

Hometrack.co.uk Limited

£000

Property

 Software

 Holdings

Limited

£000

Total

£000

 

At 1 October 2016

96,683

-

107,783

-

46,324

250,790

 

Acquisition of Hometrack

-

-

-

116,269

-

116,269

 

Investment in uSwitch Limited

-

9,432

-

-

 

9,432

 

Share issue in Ulysses Enterprises Limited

-

-

38,543

-

-

38,543

 

Transfer of investment in uSwitch Group

-

146,326

(146,326)

-

-

-


Share-based payment - Capital contribution

5,122

904

-

29

-

6,055

 

At 30 September 2017

101,805

156,662

-

116,298

46,324

421,089

 

At 1 October 2015

93,053

-

107,425

-

-

200,478

 

Acquisition of Property Software Group

-

-

-

-

46,324

46,324

 

Share-based payment - Capital contribution

3,630

-

358

-

-

3,988

 

At 30 September 2016

96,683

-

107,783

-

46,324

250,790

 

 

5. Property, plant and equipment

 


Fixtures

Computer

Leasehold


and fittings

equipment

improvements

Total

£000

£000

£000

£000

Cost





At 1 October 2016

                   545

         440

       4,330

       5,315

Additions

                   278

         583

          149

       1,010

At 30 September 2017

                 823

      1,023

       4,479

       6,325

At 1 October 2015

 -

 -

 -

              -  

Additions

                   545

         440

       4,330

       5,315

At 30 September 2016

                   545

         440

       4,330

       5,315

Accumulated depreciation





At 1 October 2016

 -

 -

 -

 -

Charge for the year

                   151

         141

          295

          587

At 30 September 2017

                   151

         141

          295

          587

At 1 October 2015

 -

 -

 -

 -

Charge for the year

 -

 -

 -

 -

At 30 September 2016

-

-

-

-

Net book value





At 30 September 2017

                   672

         882

       4,184

       5,738

At 30 September 2016

                   545

         440

       4,330

       5,315

 

6. Trade and other receivables

 

2017

£000

2016

£000

Loan balances due from Group companies

         28,245

71,436

Trading balances due from Group companies

773

1,969

Prepayments

              768

501

Amounts held in escrow

           3,543

9,884

 

         33,329

83,790

Non-current

         28,245

74,698

Current

           5,084

9,092

 

         33,329

83,790

 

The Directors consider that the carrying value of trade and other receivables are approximate to their fair value.

Amounts held in escrow are held for the settlement of deferred consideration due on the acquisition of uSwitch.

The Company has a receivable of £20.8 million due from Property Software Holdings Limited, £6.3 million from Hometrack.co.uk Limited and £1.1 million due from uSwitch Limited. The amounts are designated as unsecured, intercompany loans. The loans accrue interest at Libor + 2% and have no fixed repayment dates. A trading balance of £0.8 million is due from uSwitch Limited. No interest is receivable on the balance. The Company is comfortable that these amounts are recoverable in full.

 

7. Trade and other payables

 

2017

£000

2016

£000

Trade payables

         1,411

270

Accruals

      12,545

5,964

Amounts payable to Group companies

         3,649

21,498


       17,605

27,732

 

At 30 September 2017 a trading balance of £3.6 million was due to Zoopla Limited. No interest is payable on the balance.

The Directors consider that the carrying value of trade and other payables are approximate to their fair value. All trade and other payables are classified as current liabilities.

Details of the Group's exposure to liquidity risk are given in Note 26 to the consolidated financial statements.

8. Deferred and contingent consideration

The Company recognised a total of £13.0 million in respect of deferred payments due on acquisitions made in the period, in relation to the acquisition of Hometrack.co.uk Limited.

A further £11.1 million was recognised through the income statement in relation to payments to continuing Management shareholders.  £2.8 million was recognised in respect of uSwitch, £5.3 million of Hometrack and £3.0 million of Property Software Group.

During the year the Company also made settlements of £33.0 million to settle amounts due in respect of uSwitch, Property Software Group and Hometrack.  The £6.6 million paid to Management shareholders of uSwitch was held in escrow. Of the £32.7 million recorded on the statement of cash flows, £9.7 million of deferred and contingent consideration settled during the year was conditional on continued employment of Management (2016: £2.9 million).

There have been no changes to the expected outcome of ongoing contingent consideration requirements made during the period outside of the finalisation of the acquisition accounting for entities acquired in the year set out in Note 13 of the consolidated financial statements. The Company's liabilities in respect of deferred and contingent consideration arising on acquisitions are set out below:



Contingent


Deferred

consideration


 consideration

Earn-out

Total

£000

£000

£000

At 1 October 2016

28,859

1,817

       30,676

Recognised on acquisition of Hometrack

1,218

11,813

13,031

Charge in the period for amounts conditional on the continued employment of Management

10,330

792

11,122

uSwitch settlement

(4,710)

(1,870)

(6,580)

Property Software Group settlement

(25,097)

-

(25,097)

Hometrack settlement

(1,283)

-

(1,283)

At 30 September 2017

          9,317

       12,552

       21,869

Current

          7,426

         1,175

         8,601

Non-current

          1,891

       11,377

       13,268

At 1 October 2015

11,976

26,156

       38,132

Recognised on acquisition of Property Software Group

22,511

-

       22,511

Charge in the period for amounts conditional on the continued employment of Management

4,412

2,663

         7,075

uSwitch settlement

(10,040)

(27,002)

(37,042)

At 30 September 2016

       28,859

         1,817

       30,676

Current

       26,813

         1,330

       28,143

Non-current

          2,046

             487

         2,533

 

9. Loans and borrowings

Details of loans and borrowings are given in Note 21 to the consolidated financial statements.

 

10. Provisions

The Company's dilapidation provisions relate to Management's best estimation of costs to make good the Company's leasehold property at the end of the lease term. The carrying provision represents expected exit costs on completion of the Company's property lease.

 


Dilapidation

provisions

£000

At 1 October 2016

1,375

Recognised in the period

 -

At 30 September 2017

1,375

At 1 October 2015

 -

Recognised in the period

1,375

At 30 September 2016

1,375

 

11. Deferred Tax

 


Property, plant

Long term


and equipment

Bonus Plans

Total

£000

£000

£000

Deferred tax (liability) / asset at 1 October 2016

(158)

758

600

(Credit) / charge to profit or loss

(51)

646

595

Prior year adjustment

 -

(27)

(27)

Deferred tax (liability) / asset at 30 September 2017

(209)

1,377

1,168

 

12. Equity

Share capital

Details of the Company's share capital are included in Note 23 to the consolidated financial statements.

Other reserves - merger reserve

The merger reserve represents the difference between the investment recognised in ZPG Limited on restructuring in 2014 of £90.9 million and the value of the shares issued of £0.4 million.

Other reserves - treasury shares

Between 11 February 2016 and 17 February 2016 the Group acquired 188,340 of its own shares at a weighted average price of 220.0 pence in order to settle the exercise of outstanding warrants. As at 30 September 2017 53,023 of the shares had been released from treasury to satisfy warrant exercises leaving 135,317 shares in treasury with a weighted average price of 220.0 pence and a total cost of £298,000 as at 30 September 2017.

Distributable reserves

As 30 September 2017 the Company has distributable reserves of £40.3 million (2016: £34.8 million).  The Directors are comfortable that the Company has sufficient reserves to cover the proposed year end dividend of 3.8 pence per share and the expected 2018 interim dividend.

13. Financial instruments

Financial Instruments disclosures, where relevant to the Company, are consistent with those of the Group as set out in Note 26 to the consolidated financial statements.

14. Related parties

a) Key Management personnel

There are no employees of the Company. The Directors are employed and/or remunerated by the Company's subsidiary, ZPG Limited. There were no transactions during the year between the Directors and the Company other than the issue of shares and share options as outlined in the Directors' Remuneration Report in the Annual Report 2017.

b) Subsidiaries

Transactions with subsidiaries

On 31 January 2017 the Company acquired Hometrack.co.uk Limited and its subsidiaries as set out in Note 13 to the consolidated financial statements. The transaction included ZPG Plc assuming and discharging external debt of £16.0 million through an intercompany loan with Hometrack.co.uk Limited. During the period to 30 September 2017 Hometrack.co.uk Limited repaid £10.1 million of this balance to the Company.

During the year to 30 September 2017 Property Software Group Limited repaid £2.5 million in respect of the intercompany loan with the Company.

During the year to 30 September 2017 Ulysses Enterprises Limited made a drawdown of £21.4 million and repaid £69.9 million in respect of the intercompany loan with the Company. The intercompany loan balance at 30 September 2017 is £nil.

During the year Ulysses Enterprises Limited paid interest on intercompany loans of £0.8 million to the Company.

During the year Property Software Group Limited paid interest on intercompany loans of £0.6 million to the Company.

During the year Hometrack.co.uk Limited paid interest on intercompany loans of £0.1 million to the Company.

During the year Zoopla Limited paid dividends of £20.0 million (2016: £33.0 million) to the Company.

During the year Ulysses Enterprises Limited paid dividends of £16.0 million (2016: £14.0 million) to the Company.

During the year uSwitch Limited paid dividends of £13.0 million (2016: £nil) to the Company.

The Company issues shares to employees and estate agent partners of its subsidiaries as part of the Group's share-based payment and warrant schemes as set out in Note 24 to the consolidated financial statements.

There have been no other transactions with the Company's subsidiaries during the year.

Year end balances with subsidiaries

At 30 September 2017 £20.8 million of the intercompany loan due from Property Software Holdings Limited was outstanding. Interest at Libor + 2% per annum is due on the outstanding balance.

At 30 September 2017 £6.3 million of the intercompany loan due from Hometrack.co.uk Limited was outstanding. Interest at Libor + 2% per annum is due on the outstanding balance.

At 30 September 2017 £1.1 million of the intercompany loan due from uSwitch Limited was outstanding. Interest at Libor + 2% per annum is due on the outstanding balance.

At 30 September 2017 a trading balance of £0.7 million is due from uSwitch Limited. No interest is receivable on the balance.

At 30 September 2017 a trading balance of £0.1 million is due from Hometrack.co.uk Limited. No interest is receivable on the balance.

At 30 September 2017 a trading balance of £3.6 million is due to Zoopla Limited. No interest is payable on the balance.

There were no other related party transactions in the period.

c) Other related parties

There were no transactions between the Company and any other related parties.

 

15. Subsequent events

On 1 October 2017 ZPG completed its acquisition of 100% of the issued share capital of price comparison website Dot Zinc Holdings Limited ("Money") for initial consideration of £80 million and earn-out consideration of up to £60 million based on performance targets for the twelve-month periods ending 31 October 2017 and 30 September 2018.

For the year ended 31 October 2016 Money generated revenue and consolidated profit for the year of £24.7 million and £5.3 million respectively and had gross assets of £14.1 million.

As at the date of this report the Company is well advanced in its acquisition of automated property valuations and statistical market analysis provider Calcasa B.V ("Calcasa") for initial consideration of €30 million and earn out consideration of up to €50 million.  The acquisition is expected to complete on 1 December 2017 and will be financed through a combination of cash resources and an extension to the Company's existing credit facilities.

For the year ended 31 December 2016 Calcasa generated profit for the year of €4.2 million and had gross assets of €6.2 million.

There have been no other reportable subsequent events between 30 September 2017 and the date of signing of this report.

 

16. Ultimate controlling party

The Directors are of the opinion that there was no ultimate controlling party in either period presented.

 


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