VIANET GROUP PLC — Earnings Release 2017

Dec 5, 2017

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RNS Number : 3412Y

Vianet Group PLC

05 December 2017

Press release                                                                                                                                     5 December 2017

Vianet Group plc

("Vianet", "Company" or "the Group")

Interim Results

Vianet Group plc (AIM:VNET), the international provider of actionable data and business insight through devices connected to its Internet of Things platform ("IOT"), is pleased to announce its interim results for the six months ended 30 September 2017.

Financial summary

●	Revenue of £6.71 million (H1 2017: £7.06 million) with recurring revenues at 90% (H1 2017: 86%) of turnover
●	Adjusted operating profit* up 3.97% to £1.70 million (H1 2017: £1.64 million)
●	Pre-exceptional items, profit before tax was £1.29 million up from £1.26 million last year
●	Profit before tax £0.90 million (H1 2017: £1.13 million) after expensing £0.19 million of corporate acquisition costs
●	Basic earnings per share (pre-exceptional items) up 7.02% at 3.66p (H1 2017: 3.42p), including a deferred tax adjustment charge of 1.05p
●	Operational cash generation of £1.25 million (H1 2017: £1.50 million)
●	Net cash of £2.72 million (H1 2017: net cash £1.98 million)
●	Interim dividend of 1.70p (H1 2017: 1.70p)

Divisional highlights

●	Smart Zones adjusted operating profit of £2.27 million (H1 2017: £2.39 million)
●	Smart Machines adjusted operating profit of £0.47 million (H1 2017: £0.45 million)
●	Smart Machines growth continues with 2,395 new unit sales (H1 2017: 3,335 units), predominantly in coffee vending

Post H1 period end

●	Earnings-enhancing strategic acquisition of Vendman, the UK's leading unattended retail management software company
●	Smart Machines material long term contract win for the pan European and Australia and New Zealand operations of a leading international coffee company
●	Company reclassified as part of FTSE quarterly ICB classification changes to the ICB subsector of Telecommunication Equipment effective from 18 December 2017

* Adjusted operating profit is profit before exceptional costs, amortisation, interest and share based payments

Commenting on the interim results, James Dickson, Chairman of Vianet Group plc, said:

"I am pleased to report that the Group's continued focus on growth areas has resulted in a moderate increase in adjusted operating profits for the six months to 30 September 2017, with our recurring revenue streams being strengthened by growth in the Smart Machines division further enhancing the quality of the Group's earnings.

I was particularly pleased to report the acquisition of Vendman and a material contract win with a global coffee company post the year end as endorsement of the exciting growth prospects for our Smart Machines division.   The revenue stream transition towards an annuity base will provide greater visibility and quality of future earnings for this division.

As we expand the iDraughtTM footprint, develop new revenues from further Pubco data analytics and deliver efficiencies from increased automation in our Smart Zone division, the Group believes that the division's contribution can be sustained notwithstanding the challenges of the end customers' market.

Further we were pleased that the company's focus on IOT and data analytics has been recognised by way of the reclassification of Vianet to the Technology Supersector as part of the FTSE ICB quarterly classification changes which becomes effective as from 18 December 2017.    We believe this should also bring Vianet to the attention of a wider audience.

Underpinned by high levels of recurring revenue, Group cash flow is strong and there is a solid financial platform to facilitate further expansion and development.   The Board remains confident that Vianet's long term strategy is appropriate and that the Group is capable of delivering consistent and sustained growth."

- Ends -

An audio cast of the interim results presentation, given by Stewart Darling (Chief Executive) and Mark Foster (Chief Finance Officer), was released this morning, Tuesday, 5 December 2017 at 07.00hrs and is available on the Group's website, www.vianetplc.com.

Enquiries:

Vianet Group plc
James Dickson, Chairman Stewart Darling, CEO Mark Foster, CFO	Tel: +44 (0) 1642 358 800 www.vianetplc.com
Cenkos Securities plc
Stephen Keys / Camilla Hume	Tel: +44 (0) 20 7397 8900
	www.cenkos.com

Media enquiries:

Yellow Jersey PR
Sarah Hollins sarah@yellowjerseypr.com	Tel: +44 (0)7764 947 137 www.yellowjerseypr.com

Chairman's Statement

I am pleased to report that the Group's focus on growth areas has resulted in a moderate increase in adjusted operating profits for the six months to 30 September 2017, as compared to the same period last year.  In addition, the Group's recurring revenue streams have been strengthened further by growth in the Smart Machines division.

Against a background of continued pub closures, adjusted operating profit in the Smart Zones division remained stable at £2.27 million (H1 2017: £2.39 million).  Vianet Americas added a further 31 new sites helping to reduce H1 year on year adjusted operating losses to £0.07 million (H1 2017: £0.08 million) despite additional costs associated with continuing some key long term iDraught commercial evaluations by national operators.

Notwithstanding our focus on increasing the proportion of recurring revenues thereby reducing the number of capital sales, we were pleased with the 5.6% year on year growth in adjusted operating profit delivered by the Smart Machines division.

Results

Turnover of £6.71 million (H1 2017: £7.06 million) was down compared to last year largely due to the transition in Smart Machines from capital to annuity sales, and as described above, the effect of pub closures on Smart Zones.

The Group's profit before amortisation, share based payments and exceptional items increased to £1.70 million (H1 2017: £1.64 million) as a result of improved operational efficiencies and administrative cost reductions.

Group profit before taxation reduced to £0.90 million (H1 2017: £1.13 million) after expensing £0.19 million in corporate acquisition costs.     

Group earnings per share before exceptional costs and deferred tax adjustment amounted to 4.71 pence (H1 2016: 4.63 pence), with a deferred tax adjustment of £0.29 million reducing earnings per share before exceptional costs and post deferred tax adjustment to 3.66 pence (H1 2017: 3.42 pence).

Dividend

Reflecting the Board's continued confidence in the Group's growth plans and recent strategic news flow, the Board is pleased to maintain the interim dividend at 1.70 pence per share (H1 2017: 1.70 pence per share), payable on 31 January 2018 to shareholders on the register as at 15 December 2017.  A final dividend of 4.00 pence per share was paid in respect of the year ended 31 March 2017 on 28 July 2017.

Outlook

Whilst growth and profitability in the Smart Zones division continues to be influenced by the challenging backdrop to the UK pub sector, the Group has strong prospects and the Board is confident that the management team can deliver strong growth.  

We are excited by the growth prospects for Smart Machines which look increasingly assured following the acquisition of Vendman and the European contract win for a leading international coffee company.  Additionally the transition in this division's revenues towards a significantly greater level of annuity, provide greater visibility and quality of future earnings.

As we expand the iDraughtTM footprint, develop new revenues from further Pubco data analytics and deliver efficiencies from increased automation in our Smart Zone division, we are optimistic that the division's contribution can be sustained despite the challenges faced in its customers' core market of UK pub retailing.

Underpinned by high levels of recurring revenue, Group cash flow is strong and we have a solid financial platform to facilitate further expansion and development.

The Board were pleased with the recent FTSE ICB subsector reclassification of Vianet from Support Services to the Technology subsector of Telecommunications Equipment, effective from 18 December 2017, and believes this classification more accurately reflects the Group's IOT and data analytics driven business model.  We believe that this should also bring Vianet to the attention of a wider audience which would be a favourable development.

The Board remains confident that Vianet's long term strategy is appropriate and that the Group is capable of delivering consistent and sustained growth, within the parameters of its influence and control.

James Dickson                                                                                 

Chairman                                                             

4 December 2017

Chief Executive and Chief Financial Officer Review

Underlying trading for the six months to 30 September 2017 has seen improvement as compared to the same period last year.  The Group's strategy to achieve increased sales of newer products in Smart Zones and Smart Machines telemetry and contactless payment services has progressed in each area, albeit partially offset by the continued impact of pub disposals for Smart Zones and the Board's strategic decision to shift towards an annuity revenue model in Smart Machines.  Whilst transitioning to an annuity model was expected to have an adverse impact on the revenue in the short term, the Board believes it will be more profitable for the business over the life of our contracts.  The proportion of recurring service revenue has continued at high levels and exceptional costs, of £0.39 million (H1 2017: £0.14 million), were in line with our expectations and principally relate to costs of £0.19 million associated with corporate acquisitions and staff transitional costs.

Although good operational cash generation of £1.25 million (H1 2017: £1.50 million) was down on the previous period due to phasing of collections in the year to March 2017, the Group had an overall increase in its net cash position to £2.72 million at 30 September 2017 (H1 2017: £1.98 million). In summary, the Group continues to be highly cash generative which provides a strong financial base to invest in and grow the business.

Smart Zones

The underlying performance of the Group's core beer monitoring business remained stable over the period with further new iDraughtTM sales despite the pub industry headwinds.  iDraughtTM continues to account for approximately 25% of the Group's beer monitoring base by number of installations. Over the period, Smart Zones secured 119 new beer monitoring installations (H1 2017: 166). Pub disposals resulted in a net reduction of circa 550 sites for the division to approximately 14,000 sites.

Our continued confidence in the future growth prospects for iDraughtTM in the UK, despite the challenging backdrop of pub closures, is driven by installations for new customers and replacement systems for existing beer monitoring customers.  In addition, our continued investment in new technology and the migration of data and services to the cloud has significantly increased the business opportunity for Smart Zones to roll-out enhanced insight and data services to our Pubco customers.  

In the US, the roll out of iDraughtTM has increased the installation base to 247 sites and we are moving towards increasing the pace of the roll out.  The increase in installation bases combined with a refined cost base contributed to a further small reduction in losses and we expect the loss position to narrow further as we drive improved sales traction.

Smart Machines

Smart Machines continued to increase new telemetry and contactless payment sales although the top line revenue growth was lower as a result of circa 70% of sales coming from our new annuity-based model.  This transition from capital plus annuity based income streams to annuity only is a key part of our strategy.  The Board believes that this model will be more profitable over the life of the contract and provides for a clearer projection of business performance as it lessens the impact of variable capital sales. 

Post the period end we were pleased to announce both the acquisition of Vendman, one of our distributors, and the significant contract win with an existing global customer in the coffee market, both of which we expect to stimulate substantially increased momentum for Smart Machines as well as bringing greater scale to the division.   Naturally, whilst negotiations with both of these were ongoing, orders were at a slower pace than during the previous year. 

The acquisition of Vendman Systems, a leading Enterprise Resource Planning and mobile software provider for unattended retailing, is a highly complementary fit with the Smart Machines division, and offers a compelling strategic, commercial and financial rationale as it will:

·   Establish a comprehensive portfolio of market leading solutions for unattended retail through the combining existing expertise, products and services.

·     Create significant cross selling opportunities for the combined commercial team as it will:

o  Provide a larger market for the sale of IOT connectivity and real-time data

o  Accelerate the rollout of contactless payment technology for unattended retail

o  Create new opportunities for the ERP and mobile platform capability

·     Unlock incremental big data revenue opportunity through building market leading analytics and insight from combined data sets

·     Significantly enhance route to market and distribution opportunities across Continental Europe through establishing a strong network and footprint

Combined with the major contract win, it is anticipated that the Smart Machines telemetry and contactless business growth will enhance earnings through accelerated growth in the coming year and further into the future.

Looking forward

The Board believes there is also substantial scope to maximise the potential of existing products and services as well as bringing new offerings to both Smart Machines and Smart Zones through continued accelerated investment in new technology.  This investment, primarily in new infrastructure and cloud based capability, enables the creation and delivery of new data and insight based services and mobile applications which further enhance the value of the toolsets we can offer to customers.

Stewart Darling Chief Executive	Mark Foster Chief Financial Officer
4 December 2017

Consolidated Statement of Comprehensive Income

For the six months ended 30 September 2017

		Before Exceptional 6 months	Exceptional 6 months	Total Unaudited 6 months	Unaudited 6 months	Audited Year
		Ended	Ended	Ended	Ended	Ended
		30 Sept	30 Sept	30 Sept	30 Sept	31 March
		2017	2017	2017	2016	2017
	Note	£'000	£'000	£'000	£'000	£'000
Continuing operations
Revenue	3	6,714	-	6,714	7,057	14,263
Cost of sales		(2,016)	-	(2,016)	(2,109)	(4,327)
Gross profit		4,698	-	4,698	4,948	9,936
Administration and other operating expenses	4	(2,995)	(388)	(3,383)	(3,445)	(7,585)
Operating profit pre amortisation and share based payments	3	1,703	(388)	1,315	1,503	2,351
Intangible asset amortisation		(344)	-	(344)	(347)	(693)
Share based payments		(73)	-	(73)	(24)	(206)
Operating profit post amortisation and share based payments		1,286	(388)	898	1,132	1,452
Net finance income/(costs)		1	-	1	(3)	(5)
Profit from continuing operations before tax		1,287	(388)	899	1,129	1,447
Income tax expense	5	(287)	-	(287)	(330)	(417)
Profit from continuing operations		1,000	(388)	612	799	1,030
Profit from discontinued operations:		-	-	-	-	100
Profit and other comprehensive income for the year	3	1,000	(388)	612	799	1,130

Earnings per share
Continuing Operations
- Basic	6			2.24p	2.93p	3.77p
- Diluted	6			2.23p	2.91p	3.76p
Discontinued Operations
- Basic	6			0.0p	0.0p	0.37p
- Diluted	6			0.0p	0.0p	0.36p

Consolidated Balance Sheet

At 30 September 2017

		Unaudited As at 30 Sept 2017	Unaudited As at 30 Sept  2016	Audited As at 31 March 2017
		£'000	£'000	£'000
Assets
Non-current assets
Intangible assets		17,946	17,440	17,503
Property, plant and equipment		3,078	3,058	3,069
Total non-current assets		21,024	20,498	20,572
Current assets
Inventories		1,012	1,666	1,308
Trade and other receivables		2,995	3,155	2,708
Deferred tax asset		173	152	460
Cash and cash equivalents		3,864	3,834	4,549
		8,044	8,807	9,025
Total assets		29,068	29,305	29,597
Equity and liabilities
Liabilities
Current liabilities
Trade and other payables		3,578	3,239	3,728
Borrowings		443	996	325
Provisions		-	-	62
		4,021	4,235	4,115
Non-current liabilities
Borrowings		699	858	778
Provisions		-	-	48
Deferred tax		395	-	395
		1,094	858	1,221
Equity attributable to owners of the parent
Share capital		2,843	2,843	2,843
Share premium account		11,287	11,287	11,287
Share based payment reserve		466	235	418
Own shares		(1,115)	(1,221)	(1,221)
Merger reserve		310	310	310
Retained profit		10,162	10,758	10,624
Total equity		23,953	24,212	24,261
Total equity and liabilities		29,068	29,305	29,597

Summarised Consolidated Cash Flow Statement

For the six months ended 30 September 2017

		Unaudited 6 months	Unaudited 6 months	Audited Year
		Ended	Ended	Ended
		30 Sept	30 Sept	31 March
		2017	2016	2017
		£'000	£'000	£'000
Cash flows from operating activities
Profit for the period		612	799	1,130
Adjustments for
Net Interest (received)/payable		(1)	3	5
Income tax expense		287	330	417
Amortisation of intangible assets		344	347	693
Depreciation		177	177	348
Loss on sale of property, plant and equipment		7	45	(50)
Share-based payments		73	24	207
Operating profit before changes in working capital and provisions		1,499	1,725	2,750
Change in inventories		296	145	502
Change in receivables		(288)	409	857
Change in payables		(149)	(777)	(289)
Change in provisions		(110)	-	110
		(251)	(223)	1,180
Cash generated from operations		1,248	1,502	3,930
Income tax refunded		-	-	-
Net cash from operating activities		1,248	1,502	3,930
Cash flows from investing activities
Proceeds on disposal of subsidiary division		-	-	100
Purchases of property, plant and equipment		(193)	(137)	(325)
Purchase of intangible assets		(788)	(302)	(711)
Net cash used in investing activities		(981)	(439)	(936)
Cash flows from financing activities
Net Interest receivable/(payable)		1	(3)	(5)
Share options exercised		103	-	-
Repayments of borrowings		(245)	(244)	(488)
Dividends paid		(1,096)	(1,092)	(1,557)
Net cash used in financing activities		(1,237)	(1,339)	(2,050)
Net (decrease)/increase in cash and cash equivalents		(970)	(276)	944
Cash and cash equivalents at beginning of period		4,549	3,605	3,605
Cash and cash equivalents at end of period		3,579	3,329	4,549

Statement of changes in equity

Six months ended 30 September 2017

	Share capital	Share premium account	Share based payment reserve	Own shares	Merger reserve	Retained profit	Total
	£000	£000	£000	£000	£000	£000	£000
At 1 April 2017	2,843	11,287	418	(1,221)	310	10,624	24,261
Dividends	-	-	-	-	-	(1,096)	(1,096)
Share based payment	-	-	73	-	-	-	73
Share option forfeitures	-	-	(26)	-	-	26	-
Exercise of options	-	-	1	106	-	(4)	103
Transactions with owners	-	-	48	106	-	(1,074)	(920)
Profit and total comprehensive income for the period	-	-	-	-	-	612	612
Total comprehensive income less owners transactions	-	-	48	106	-	(462)	(308)
At 30 September 2017	2,843	11,287	466	(1,115)	310	10,162	23,953

Six months ended 30 September 2016

	Share capital	Share premium account	Share based payment reserve	Own shares	Merger reserve	Retained profit	Total
	£000	£000	£000	£000	£000	£000	£000
At 1 April 2016	2,843	11,287	217	(1,221)	310	11,045	24,481
Dividends	-	-	-	-	-	(1,092)	(1,092)
Share based payment	-	-	24	-	-	-	24
Share option forfeitures	-	-	(6)	-	-	6	-
Transactions with owners	-	-	18	-	-	(1,086)	(1,068)
Profit and total comprehensive income for the period	-	-	-	-	-	799	799
Total comprehensive income less owners transactions	-	-	18	-	-	(287)	(269)
At 30 September 2016	2,843	11,287	235	(1,221)	310	10,758	24,212

12 months ended 31 March 2017

	Share capital	Share premium account	Share based payment reserve	Own shares	Merger reserve	Retained profit	Total
	£000	£000	£000	£000	£000	£000	£000
At 1 April 2016	2,843	11,287	217	(1,221)	310	11,045	24,481
Dividends	-	-	-	-	-	(1,557)	(1,557)
Share based payment	-	-	207	-	-	-	207
Share option forfeitures	-	-	(6)	-	-	6	-
Transactions with owners	-	-	201	-	-	(1,551)	(1,350)
Profit and total comprehensive income for the year	-	-	-	-	-	1,130	1,130
Total comprehensive income less owners transactions	-	-	201	-	-	(421)	(220)
At 31 March 2017	2,843	11,287	418	(1,221)	310	10,624	24,261

Notes to the interim report

1.            Statutory information

The interim financial statements are unaudited and do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The auditor's review report on the interim financial information for the six months ended 30 September 2017 is set out on page 16.

The financial information for the year ended 31 March 2017 has been derived from the published statutory accounts. A copy of the full accounts for that period, on which the auditor issued an unmodified report that did not contain statements under 498(2) or (3) of the Companies Act 2006, has been delivered to the Registrar of Companies.

These interim financial statements will be posted to all shareholders and are available from the registered office at One Surtees Way, Surtees Business Park, Stockton on Tees, TS18 3HR or from our website at www.vianetplc.com/investors

2.            Accounting policies

These interim financial statements are for the six months ended 30 September 2017. As is permitted, the Group has chosen not to adopt IAS 34 'Interim Financial Statements' and therefore the interim financial information is not in full compliance with International Financial Reporting Standards but have been prepared using consistent accounting policies as applied in the full year accounts to 31 March 2017. The accounts have been prepared on a going concern basis and are presented to the nearest £000 except as otherwise stated. They have been prepared using the recognition and measurement principles of IFRS as adopted by the European Union using the historic cost convention.

3.            Segmental information

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses. The segment operating results are regularly reviewed by the Chief Operating Decision Maker to make decisions about resources to be allocated to the segment and assess its performance. Vianet Group is analysed into to two trading segments (defined below) being Smart Zones (mainly adopted in the leisure sector, including US (particularly in pubs and gaming)) and Smart Machines (mainly adopted in the vending sector (particularly in vending machines)) supported by Corporate/Technology costs.

The products/services offered by each operating segment are:

Smart Zones: design, product development, sale and rental of fluid monitoring equipment, data insights and related services

Smart Machines: design product development, sale and rental of machine monitoring equipment, data insights and related services.

Corporate/Technology: Centralised Group overheads along with technology related costs for the Group

The inter-segment sales are immaterial. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated assets and liabilities comprise items such as cash and cash equivalents, certain intangible assets, taxation, and borrowings. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one period.

The segmental results for the six months ended 30 September 2017 are as follows:

Continuing Operations			Smart Zones	Smart Machines	Corporate/Technology	Total
			£'000	£'000	£'000	£'000
Total revenue			5,662	1,052	-	6,714
Profit/(loss) before amortisation, share based payments and exceptional costs			2,270	473	(1,040)	1,703
Pre-exceptional segment result			2,185	318	(1,217)	1,286
Exceptional costs			(229)	(161)	2	(388)
Post exceptional segment result			1,956	157	(1,215)	898
Finance income			-	-	7	7
Finance costs			(6)	-	-	(6)
Profit/(loss) before taxation			1,950	157	(1,208)	899
Taxation						(287)
Profit for the year from continuing operations						612

			Smart Zones	Smart Machines	Corporate/Technology	Total
			£'000	£'000	£'000	£'000
Segment assets			24,888	-	4,007	28,895
Unallocated assets			173	-	-	173
Total assets			25,061	-	4,007	29,068
Segment liabilities			4,384	-	336	4,720
Unallocated liabilities			395	-	-	395
Total liabilities			4,779	-	336	5,115

The asset base of the Vianet Group plc cannot be split across Smart Zones, Smart Machines or Technology, so has been allocated to Smart Zones.

Notes to the interim report (continued)

The segmental results for the six months ended 30 September 2016 are as follows:

Continuing Operations			Smart Zones	Smart Machines	Corporate/Technology	Total
			£'000	£'000	£'000	£'000
Total revenue			5,866	1,191	-	7,057
Profit/(loss) before amortisation, share based payments and exceptional costs			2,385	448	(1,195)	1,638
Pre-exceptional segment result			2,313	272	(1,318)	1,267
Exceptional costs			(68)	-	(67)	(135)
Post exceptional segment result			2,245	272	(1,385)	1,132
Finance income			-	-	5	5
Finance costs			(8)	-	-	(8)
Profit/(loss) before taxation			2,237	272	(1,380)	1,129
Taxation						(330)
Profit for the year from continuing operations						799

			Smart Zones	Smart Machines	Corporate/Technology	Total
			£'000	£'000	£'000	£'000
Segment assets			25,438	-	3,715	29,153
Unallocated assets			152	-	-	152
Total assets			25,590	-	3,715	29,305
Segment liabilities			4,709	-	384	5,093
Unallocated liabilities			-	-	-	-
Total liabilities			4,709	-	384	5,093

The asset base of the Vianet Group plc cannot be split across Smart Zones, Smart Machines or Technology, so has been allocated to Smart Zones.

Notes to the interim report (continued)

The segmental results for the 12 months ended 31 March 2017 are as follows:

Continuing Operations			Smart Zones	Smart Machines	Corporate/Technology	Total
			£'000	£'000	£'000	£'000
Total revenue			11,935	2,328	-	14,263
Profit/(loss) before amortisation, share based payments and exceptional costs			4,822	891	(2,398)	3,315
Pre-exceptional segment result			4,677	539	(2,800)	2,416
Exceptional costs			(325)	(25)	(614)	(964)
Post exceptional segment result			4,352	514	(3,414)	1,452
Finance income			-	-	-	-
Finance costs			(17)	-	12	(5)
Profit/(loss) before taxation			4,335	514	(3,402)	1,447
Taxation						(417)
Profit for the year from continuing operations						1,030

			Smart Zones	Smart Machines	Corporate/Technology	Total
			£'000	£'000	£'000	£'000
Segment assets			25,350	-	3,787	29,137
Unallocated assets			460	-	-	460
Total assets			25,810	-	3,787	29,597
Segment liabilities			4,584	-	357	4,941
Unallocated liabilities			395	-	-	395
Total liabilities			4,979	-	357	5,336

The asset base of the Vianet Group plc cannot be split across Smart Zones, Smart Machines or Technology, so has been allocated to Smart Zones.

Notes to the interim report (continued)

4.            Exceptional items

		6 months	6 months	Year
		Ended	Ended	Ended
		30 Sept	30 Sept	31 March
		2017	2016	2017
		£'000	£'000	£'000
Exceptional costs		388	135	864
		388	135	864

Exceptional costs principally relate to employee transition costs and corporate transaction costs.

5.            Tax

The charge for tax is based on the profit for the period and comprises:

		6 months	6 months	Year
		Ended	Ended	Ended
		30 Sept	30 Sept	31 March
		2017	2016	2017
		£'000	£'000	£'000
United Kingdom corporation tax		287	330	417

The tax charge reflects the utilisation of brought forward trading losses, which had previously been recognised as a deferred tax asset, against the taxable profit for the period within Vianet Limited

6.            Earnings per share 

Earnings per share has been impacted by the reversal of a deferred tax asset provision realised in previous years.

Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders (£612k) by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share are calculated on the basis of profit for the year after tax divided by the weighted average number of shares in issue in the year plus the weighted average number of shares which would be issued if all the options granted were exercised

The table below shows the earnings pre and post the impact of the movement in the deferred tax asset.

	30 September 2017			30 September 2016
	Earnings £000	Basic earnings per share	Diluted earnings per share	Earnings £000	Basic earnings per share	Diluted earnings per share
Pre-tax profit attributable to equity shareholders	899	3.29p	3.27p	1,129	4.14p	4.11p
Post-tax profit attributable to equity shareholders	612	2.24p	2.23p	799	2.93p	2.91p
Pre-tax, pre-exceptional profit attributable to equity shareholders	1,287	4.71p	4.68p	1,264	4.63p	4.61p
Post-tax, pre-exceptional profit attributable to equity shareholders	1,000	3.66p	3.64p	934	3.42p	3.40p

	30 Sept 2017 Number	30 Sept 2016 Number
Weighted average number of ordinary shares	27,302,694	27,302,694
Dilutive effect of share options	184,041	142,164
Diluted weighted average number of ordinary shares	27,486,735	27,444,858

7.            Business combinations after the reporting period

On 3 October 2017, the group acquired 100% of the share capital of Vendman Systems Limited for a total consideration of £4.0 million, comprising cash of £1.9 million and estimated contingent consideration of £2.1 million that will become payable by January 2019 and January 2020.

Principal reasons for the acquisition have been covered in the Executive Review.

The assets acquired from Vendman Systems Limited were as follows. As the acquisition took place after the end of the accounting period, the directors have yet to complete their initial accounting.  Accordingly the book and fair values presented below are provisional and goodwill is not presented separately from other intangibles that may be identified.

	Provisional book and provisional fair value
	£'000
Non-current assets	155
Trade and other receivables	479
Cash and cash equivalents	11
Trade and other payables	(513)
Borrowings	(74)
Total identifiable assets	58
Goodwill and other intangibles	3,946
Total consideration	4,004

During the period to 30 September 2017, Vendman Systems Limited recorded turnover of £1,015,095 and an operating profit before exceptional items of £104,191.

INDEPENDENT REVIEW REPORT TO VIANET GROUP PLC

Introduction

We have been engaged by the company to review the financial information in the half-yearly financial report for the six months ended 30 September 2017 which comprises the consolidated statement of comprehensive income, the consolidated balance sheet, the summarised consolidated cash flow statement, the statement of changes in equity and the related explanatory notes. We have read the other information contained in the half yearly financial report which comprises only the Chairman's Statement, and the Chief Executive and Chief Financial Officer Review and considered whether they contain any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the company those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusion we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The AIM rules of the London Stock Exchange require that the accounting policies and presentation applied to the financial information in the half-yearly financial report are consistent with those which will be adopted in the annual accounts having regard to the accounting standards applicable for such accounts.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The financial information in the half-yearly financial report has been prepared in accordance with the basis of preparation in note 2.

Our responsibility

Our responsibility is to express to the company a conclusion on the financial information in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial information in the half-yearly financial report for the six months ended 30 September 2017 is not prepared, in all material respects, in accordance with the basis of accounting described in note 2.

GRANT THORNTON UK LLP

AUDITOR

LEEDS

4 December 2017

This information is provided by RNS

The company news service from the London Stock Exchange

END

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