Beskattning av personaloptioner 2017-01-26 Nyckelpersoner i ett bolag får ofta aktieoptioner som en del av sitt ersättningspaket. Personaloptioner ger arbetstagaren rätt, men inte skyldighet, att köpa aktier i bolaget till ett fast pris på ett angivet datum eller under ett visst tidsintervall. När optionerna beviljas är det vanligtvis begränsningar när de kan utnyttjas eller när det förvärvade beståndet kan säljas eller det kan föreligga risk för förverkande av det förvärvade lagret tills arbetstagaren uppfyller vissa villkor, såsom att arbeta för arbetsgivaren ett visst antal år. När alla restriktioner eller risk för förverkande avlägsnas, sägs att alternativen eller det förvärvade lagret är upptagna. vilket innebär att arbetstagaren har en oåterkallelig rätt till egendomen. Hur optionerna beskattas beror på vilken typ av alternativ de är, om det fanns en rabatt när optionerna beviljades och tidsintervall mellan optionsbidragsdatum, utövningsdatum och lagerförsäljningsdatum. En nackdel med att kompensera anställda med aktieoptioner snarare än med begränsat lager är dock att optioner kan förlora betydande värde innan de blir etablerade. Begränsat lager. Å andra sidan kommer alltid att ha något värde om inte verksamheten blir finansiellt insolvent. Det finns tre nyckelhändelser för att kompensera en anställd med optionsrätter: Teckningsoptionen beviljas, vid vilken tidpunkt arbetstagaren betalar optionspriset för att få bidraget eller tar emot det som en fördel av anställning måste arbetstagaren ha möjlighet att välja en viss period tills den kan utövas, då får arbetstagaren beståndet då den anställde säljer beståndet och skillnaden mellan försäljningsvinsterna och kostnaden för förvärv av aktieoptionerna är de anställdas vinst. Skattelagen skiljer mellan lagstadgade alternativ. som måste följa IRC 421-424. och inkluderar incitamentoptioner (ISO) och optioner som köpts i enlighet med en personalpopulationsköp (ESPP) och icke-statuterade alternativ. som inte omfattas av dessa föreskrifter, men i stället är föremål för en mindre gynnsam skattbehandling av IRC 83. Lagstadgade optioner Lagstadgade optioner erhåller förmånlig skattebehandling. Om vissa innehavsregler följs, utgår anställda inte med regelbunden inkomstskatt, antingen när optionen beviljas eller när den utövas, och eventuella vinster behandlas som realisationsvinster snarare än som vanligt inkomst. Om emitterade optioner utövas, då sprids alternativet. som är lika med det utövade aktiekurset minus optionspriset, måste redovisas som en positiv justering till alternativ minimiskatt (AMT) om den hålls utöver slutet av skatteåret. AMT-ansvar behöver inte rapporteras om aktien är såld före räkenskapsårets slut eftersom den då måste redovisas som skattepliktig inkomst enligt det vanliga skattesystemet. Alternativ Spridning Rättvis marknadsvärde av aktier vid utövad optionspris AMT-justeringsexempel Din arbetsgivare ger dig ett incitamentsprogram för att köpa 100 aktier i bolagets aktie till sitt marknadsvärde (FMV) på 9 a aktie: 1 år senare utövar du optionen när aktierna FMV är 14 en aktie 2 år senare, när aktierna FMV är 16 en aktie. dina rättigheter till beståndet blir etablerade. Följaktligen är din AMT-anpassning, rapporterad på Form 6251, ökad med 1600 900 700. ISO-skatter beskattas generellt när det köpta varan säljs. ISOs beskattas inte när de beviljas eller när de utövas. För att ISOs ska kunna omfattas av skattebestämmelserna som lagstadgade optionsoptioner måste de kunna utnyttjas inom 10 år från tilldelningsdatumet och optionspriset måste åtminstone motsvara det lagliga marknadsvärdet på aktierna när de beviljas. Om det sammanlagda verkliga marknadsvärdet för det bestånd som kan förvärvas genom att utöva ISO: er när övningsbegränsningen har tagits bort för 1: e gången under ett skatteår överstiger 100 000, behandlas överskottet som icke-statuterade aktieoptioner. Om arbetstagaren lämnar bolaget måste ISO utövas inom 3 månader efter anställningsuppläggningen, annars beskattas inkomsten som icke-statuterade optioner. För att bli behandlad som ISOs måste följande krav uppfyllas: ISOs måste beviljas enligt en plan som antagits av bolaget och godkänts av aktieägarna det totala antalet aktier och de anställda som kan få optionerna måste anges. Planen måste godkännas av aktieägare inom 12 månader, antingen före eller efter det att en sådan plan antas, alternativ måste beviljas inom 10 år från det tidigare av antingen planens antagande eller godkännandedatum alternativen måste kunna utnyttjas inom 10 år från tilldelningsdagen kan optionspriset inte vara mindre än det marknadsmässiga marknadsvärdet av beståndet när de beviljas optionerna inte kan överföras, förutom på grund av dödsfallets död, kan optionerna endast utövas av arbetstagaren arbetstagaren vid tidpunkten för bidraget, får inte äga mer än 10 av totalt sammanlagt rösträtt för alla klasser av lager av arbetsgivarföretaget eller dess moderbolag eller dotterbolag. Optionsinnehavaren ska få kopia B i formulär 3921, Utövande av ett incitamentoptionsalternativ enligt avsnitt 422 (b) från bolaget när ISO utövas och visar följande information: Datum för tilldelningsdatum för lösenpris per aktie rättvis marknadsvärde per aktie på övningsdatum Antal förvärvade aktier när option utövades Kopia A i Form 3921 går till IRS. Informationen i denna blankett ska användas för att beräkna vinst när aktierna säljs eller för att beräkna AMT-justeringen, om tillämpligt. Regler för innehavsperiod En långsiktig realisationsvinst eller - förlust kan endast hämtas på beståndet om lagret hålls i minst 2 år efter det att ISO beviljades och minst 1 år efter utnyttjandet av optionen. Dessa regler om innehavsperiod anses vara nöjda om en tidigare försäljning motiverades för att uppfylla kraven på intressekonflikter. Om innehavsperiodstestet inte var uppfyllt behandlas vinsten på börsförsäljningen som en normal löneinkomst som är lika med optionsräntan: Ordinarie löneinkomstoption Utnyttjandeprisoptionsbidragskurs Skattebasen för aktien ökar med vilket belopp som helst som behandlades som löner. Exempel Holding Period Regler 12 mars, år 1: Din arbetsgivare ger dig en ISO för att köpa 100 aktier av aktier på sin FMV på 10 per aktie. 6 januari, år 2: Du utnyttjar alternativet när aktierna FMV var 12 per aktie. 26 januari, år 3: Du säljer beståndet för 15 en aktie. Även om du innehöll beståndet i mer än ett år, behöll du inte det i minst 2 år från tilldelningsdatumet. I försäljningsåret måste du anmäla skillnaden mellan optionspriset på 10 per aktie och lösenpriset på 12 per aktie som lönen resten är realisationsvinst: Försäljningspris (15 100 aktier): Anställda Aktieinköp Arbetstagarlager Köpplaner (ESPP) är skriftliga aktieägare godkända planer där anställda beviljas optioner för att köpa aktier i arbetsgivarlagret eller dess moderbolag eller dotterbolag. Behandlas enligt lagstadgade optionsregler: Inga anställda kan ges till anställda som äger mer än 5 av arbetsgivarens aktieinnehav eller arbetsgivarens förälder eller dotterbolag. Alla heltidsanställda måste ingå utom för personer med mindre än 2 års anställnings, deltid eller säsongsarbetare. Planen måste vara icke-diskriminerande men den mängd aktier som en anställd kan köpa kan vara baserad på ersättningen från anställda. Ingen anställd får ha rätt att köpa mer än 25 000 aktier per år baserat på aktiekursen när optionen beviljas. Optionspriset får inte vara mindre än 85 av det lägsta av: det marknadsmässiga marknadsvärdet på aktien när optionen beviljas eller det verkliga marknadsvärdet på aktiebeställningen när optionen utövas. Alternativet måste utövas inom 27 månader från tilldelningsdagen eller 5 år om optionspriset är baserat på aktiens marknadsvärde när optionen beviljas. Arbetstagaren måste vara anställd kontinuerligt från tilldelningsdatumet till 3 månader före utövandet. Om arbetstagaren köpte alternativet till ett lägre pris än det verkliga marknadsvärdet på beståndet på dagen för beviljandet, får rabattbeloppet, som inte är större än 15, behandlas som ordinarie löneinkomst. Aktieköp enligt en ESPP omfattas av samma innehavsregler som för ISO. Skatt behöver inte betalas tills lagret säljs och vinsten minus det belopp som behandlas som löner behandlas som realisationsvinst. Om aktien säljs med förlust är det en kapitalförlust. Om innehavsperioder inte är uppfyllda, redovisar arbetstagaren ordinarie inkomster då den minsta av försäljningen fortskrider eller det verkliga marknadsvärdet vid anställdens död minus optionspriset eller det verkliga marknadsvärdet på aktierna när optionen beviljades minus optionen pris. Om arbetstagaren utnyttjar ett alternativ som beviljas enligt en ESPP, ska han få blanketten 3922, överlåtelse av förvärvad aktie genom en personalinköpskarta enligt avsnitt 423 c efter skattens slut. ESPP Exempel Du betalar 10 per aktie för ett alternativ att köpa 1000 aktier av aktiebeståndet när aktiens marknadsvärde var 11. Ett år senare utövar du möjligheten när aktiens marknadsvärde var 15 000. 2 år senare säljer du aktien för 20 000. Eftersom du köpte alternativet med en rabatt på 11 10 1 per aktie, behandlas 1000 av din vinst som löner under köpoptionsåret, resten behandlas som en långfristig realisationsvinst på 20 000 11 000 9000 under året för aktieförsäljning. Om du inte hade uppfyllt reglerna för innehavsperioden skulle då 15 000 10 000 1000 4000 betraktas som löner och din långsiktiga realisationsvinst skulle bara vara 20 000 15 000 5000. Icke-statuterade optionsoptioner Icke-statuterade aktieoptioner (även ovala aktieoptioner) är föremål för mindre gynnsam skattebehandling enligt IRC 83. Under vissa omständigheter kan det betraktas som icke-kvalificerad uppskjuten ersättning enligt § 409A om lösenpriset är mindre än det underliggande börsvärdet när optionen beviljas. Om teckningsoptionen har ett lätt uppskattat verkligt marknadsvärde, då: Ordinarie löneinkomst (Fair Market Value of Options Option Price Paid) Antal aktier En icke-statutär option har ett lätt uppskattat verkligt marknadsvärde om: optionen är överlåtbar kan alternativet vara utövas när det beviljas där finns inga villkor eller restriktioner som skulle påverka detta verkliga marknadsvärde och värdet av optionsrätten är lätt att fastställa. I de flesta fall kommer ett alternativ inte att ha ett lätt uppskattat verkligt marknadsvärde om det inte handlas på en offentlig utbyte, och eftersom personaloptioner aldrig handlas på offentliga börser, kommer de nästan aldrig att ha ett lättvisbart marknadsvärde. Beräknade optioner utan fastställd FMV beskattas som ordinarie intäkter under året som optionen utövas: Ordinarie löneinkomst (Utnyttjandeprisoption Pris Betald) Antal Aktier Om beståndet inte är beräknat, är intäkterna uppskjuten till det år som stock västar. Under vinståret beskattas vinster som vanlig löneinkomst som motsvarar aktiens värde från intjänandedagen minus det betalda beloppet, även om skattebetalaren håller på lagret. Ordinarie löneinkomst (Aktie FMV på Förfallodatum Option Pris Betald) Antal Aktier Vanlig löneinkomst är föremål för både inkomst - och anställningsskatt. vinsten som redovisas som löneinkomst läggs till i lagerets skattegrundlag: Skattebas av aktieoption Prisbetalad vinst Redovisad som intäkter Efter det att börsen säljs, behandlas eventuell vinst eller förlust som en realisationsvinst eller förlust: Kapitalförbättring eller förlust Lagerförsäljning Intäkter Skatt Baserat på aktier Icke-statuterade optioner kan beviljas utöver incitamentsprogramoptioner. Till skillnad från ISOs, finns det ingen begränsning av antalet icke-statuterade aktieoptioner som kan beviljas eftersom de inte erhåller gynnsam skattebehandling. Sekretesspolicy För denna fråga Cookies används för att personifiera innehåll och annonser, för att tillhandahålla sociala medier och för att analysera trafik. Information delas också om din användning av denna webbplats med våra sociala medier, annonsörer och analytikapartners. Detaljer, inklusive opt-out-alternativ, finns i sekretesspolicyen. Skicka e-post till thismatter för förslag och kommentarer Var noga med att inkludera orden ingen spam i ämnet. Om du inte inkluderar orden kommer e-posten att raderas automatiskt. Information tillhandahålls som är och enbart för utbildning, inte för handelsändamål eller professionell rådgivning. Copyright copy 1982 - 2017 av William C. Spaulding GoogleFirm Insights Håll anställda Intresserade vinster Intressen, deras potentiella affärsmässiga fördelar och gränsar 24 februari 2017 Ett av de första och viktigaste skattemässiga beslut som en grundare måste göra är den typ av enhet där att hyra sitt eller hennes företag. Även om mycket bläck har spillts över för och nackdelar med att välja ett företag gentemot ett aktiebolag eller LLC, är en sak säker: de flesta förstår företag bättre än LLCs. Och vem kunde skylla dem LLCs kan vara komplicerade enheter ndash så flexibla att de ofta verkar ganska rar. Som ett resultat, även om en grundare bestämmer att en LLC är rätt passform, är det ofta strukturerat att se så mycket ut som ett företag som möjligt. Vi betecknar medlemskapsintresse som aktierelaterade enheter, vi ser styrelser av chefer helt enkelt som styrelseledamöter med ett annat namn, och ja, vi utfärdar ibland även alternativ till anställda. 2016 MA-avtal Ett provtagning av årens MA-transaktioner 14 februari 2017 Lag om upphovsrätt och lagstiftning 26 januari 2017 Copyright Alert: Nytt upphovsrättsligt kontors elektroniskt system för registrering av utvalda agenter Under DMCA 2 februari 2017, serie A Venture Capital Financing : En översyn av 2016 och en framflyttning till 2017 22 september 2016 Finansieringsmodeller i Biotech - Life Sciences Series - Panel 3 Gemensam värdering av aktier och alternativ prissättning av privata företag 10 års värderingar under 409A Det var den långvariga övningen av privata företag och deras juridiska och bokföringsrådgivare för att bestämma det verkliga marknadsvärdet på deras stamaktie för att fastställa optionsutnyttjandepriser genom att löst uppskatta en lämplig rabatt från priset på nyligen utfärdade preferenslagret på grundval av företagets utvecklingsstadium. Denna praxis, som tidigare godkändes av Internal Revenue Service (ldquoIRSrdquo eller ldquoServicerdquo) och Securities and Exchange Commission (SEC), blev brått avslutad med den inledande Internal Revenue Code Section 409A 1-riktlinjen utfärdad av IRS 2005. för tidigare övning innehåller avsnitt 409A-förordningarna (den slutliga versionen av IRS utfärdades 2007) detaljerade riktlinjer för att bestämma det verkliga marknadsvärdet av det gemensamma företaget i ett privatägt företag genom att kräva en ldquoreasonlig tillämpning av en rimlig värderingsmetod , inklusive några förmodligen rimliga värderingsmetoder eller Safe Harbors. Dessa regler har omformat primärt värdepappersvärde för aktiebolag och optionsprissättning. I den här artikeln beskrivs kortfattat 409A gemensamma värderingspraxis före mdash den aktuella lämpliga rabattmetoden. Därefter beskrivs de värderingsregler som fastställdes i avsnitt 409A-riktlinjer utfärdat av IRS, inklusive Safe Harbor. Det beskriver sedan reaktionerna hos privatägda företag av olika storlekar och mognadsträckor har vi observerat vad ledningen, deras styrelser och deras rådgivare faktiskt gör på marken. Slutligen beskriver den bästa praxis som vi sett har utvecklats hittills. Observera att den här artikeln inte är avsedd att täcka alla problem enligt avsnitt 409A. Det enda fokuset på denna artikel är effekten av avsnitt 409A om värdering av stamaktier för privatägda bolag för att fastställa icke-kvalificerade optionsoptioner (ldquoNQOrdquo), så att sådana alternativ är undantagna från tillämpningen av avsnitt 409A, och mdash av skäl som vi förklarar nedan ndash också för att fastställa utövas priser på incitamentsprogramoptioner (ISOs), även om ISOs inte omfattas av avsnitt 409A. Det finns ett antal signifikanta frågor som rör effekten av avsnitt 409A på optionsvillkor och om icke-kvalificerad uppskjuten ersättning mer generellt som ligger utanför tillämpningsområdet för denna artikel. 2 Introduktion Det har varit nästan 10 år sedan avsnitt 409A i Internal Revenue Code (ldquoCoderdquo) antogs. Detta är en uppdatering av en artikel som vi skrev 2008, ett år efter det att slutgiltiga avsnitt 409A-föreskrifter utfärdades av IRS. I den här artikeln behandlar vi, som tidigare, tillämpningen av avsnitt 409A på värderingen av stamaktier för privatägda företag i syfte att fastställa utövningspriser för kompensationsbidrag av ISO och NQO till anställda 3 och vi uppdaterar det bästa praxis vi har observerat, nu under det senaste decenniet, i lagervärdering och optionsprissättning. För att uppskatta betydelsen av avsnitt 409A är det viktigt att förstå skattebehandlingen av icke-kvalificerade aktieoptioner både före och efter antagandet av avsnitt 409A. Före upptagandet av avsnitt 409A var en optionstagare som beviljades en NQO för tjänster inte beskattningsbar vid tidpunkten för beviljandet. 4 Optionerna var snarare skattepliktiga på spridningen mellan lösenpriset och det underliggande lagrets marknadsvärde vid optionsoption. Avsnitt 409A ändrade inkomstskattebehandlingen av icke-kvalificerade optionsrätter. Enligt § 409A kan en optionstagare som beviljas en NQO i utbyte mot tjänster vara föremål för omedelbar inkomstskatt på ldquospreadrdquo mellan lösenpriset och det verkliga marknadsvärdet vid årets slut där de icke-kvalificerade optionsrätterna (och i efterföljande år före utövandet i den utsträckning värdet av underliggande aktier har ökat) och en 20 skattesats plus ränta. Ett företag som beviljar en NQO kan också få negativa skattekonsekvenser om det inte lyckats hålla inkomstskatter och betala dess andel av anställningsskatter. Lyckligtvis är en NQO som beviljats med ett lösenpris som inte är mindre än det verkliga marknadsvärdet på det underliggande beståndet på dagen för beviljande undantaget från avsnitt 409A och dess eventuellt negativa skattekonsekvenser. 5 Medan ISOs inte omfattas av avsnitt 409A, om ett alternativ som var avsett att vara en ISO, bestäms senare för att inte kvalificeras som en ISO (av ett antal olika skäl som ligger utanför denna artikels räckvidd, men viktigare inklusive att vara beviljas med ett lösenpris som är mindre än det verkliga marknadsvärdet på det underliggande stamaktien), kommer det att behandlas som en NQO från dagen för beviljandet. Enligt de regler som gäller för ISO-satser, om ett alternativ skulle misslyckas med att vara en ISO endast på grund av att lösenpriset var mindre än det verkliga marknadsvärdet för det underliggande beståndet från dagen för beviljandet, behandlas alternativet generellt som en ISO om företaget försökte i god tro att bestämma lösenpriset till verkligt marknadsvärde. 6 Det finns risk för att ett företag som inte följer de värderingsprinciper som fastställs i avsnitt 409A kan anses inte ha försökt i god tro för att fastställa ett rättvist marknadsvärde, vilket innebär att alternativen inte skulle behandlas som en ISO och skulle vara med förbehåll för alla konsekvenserna av avsnitt 409A för NKO med ett lösenpris som är lägre än det verkliga marknadsvärdet. Således har fastställandet av ISO-utövningspriser till verkligt marknadsvärde med tillämpning av 409A-värderingsprinciperna också blivit god praxis. Som wersquove har rådgivit kunder under de senaste 10 åren är det viktigt att skapa ett stödjande verkligt marknadsvärde i avsnitt 409A-miljön. Hur utövningspriser för vanliga aktieoptioner fastställdes före avsnitt 409A Fram till utfärdandet av IRS-vägledning i enlighet med avsnitt 409A, är den äraförda praxisen av privatägda företag att fastställa lösenpriset för incitamentoptioner (ISOs) för deras stamaktier 7 var enkel, lätt och väsentligen fri från oro som IRS skulle ha mycket att säga om det. 8 För nystartade företag kan ISO-lösenpriset bekvämt sättas till det pris som grundarna betalade för sitt stamaktie, och ofta var målet att få upp de högsta möjliga möjligheterna till de viktigaste tidiga anställda så billigt som möjligt. Efter efterföljande investeringar var anskaffningspriset knutet till priset av något stamaktie som såldes till investerare eller till en rabatt från priset på den senaste omgången av föredragna aktier sålda till investerare. För illustrationens skull kan ett företag med ett kompetent och fullständigt ledningsgrupp, släppta produkter, intäkter och en sluten C-runda ha använt en rabatt på 50 procent. Det var allt väldigt okunnigt. Självt köpte ett företag en oberoende värdering för valmöjligheter och medan företagets revisorer rådfrågades med mdash och deras åsikter var viktiga, men inte nödvändigtvis utan några armwrestling mdash konversationen bland dem var ledningen och styrelsen vanligtvis ganska kortfattad. Värderingsreglerna enligt avsnitt 409A 9 IRS: s riktlinjer avseende avsnitt 409A fastställde en dramatiskt annan miljö där privata företag och deras styrelser måste verka för att bestämma värderingen av deras stamaktier och fastställa lösenpriset för sina optioner. Den allmänna regeln. Avsnitt 409A-riktlinjer anger regeln (som vi kommer att kalla den allmänna regeln) att det verkliga marknadsvärdet på aktier från ett värderingsdatum är det värde som bestäms av en rimlig tillämpning av en rimlig värderingsmetod baserad på alla fakta och omständigheter. En värderingsmetod tillämpas rimligt om det tar hänsyn till allt tillgängligt informationsmaterial till bolagets värde och tillämpas konsekvent. En värderingsmetod är en rimlig värderingsmetod om den beaktar faktorer som, inklusive, värdet av företagets materiella och immateriella tillgångar, nuvärdet av bolagets förväntade framtida kassaflöden, marknadsvärdet på aktie - eller aktieinnehav i liknande företag som bedriver liknande verksamhet, nyligen genomförda transaktioner med vapenlängd som innebär försäljning eller överföring av sådana aktier eller aktieintressen, kontrollpremier eller rabatter för brist på omsättbarhet, om värderingsmetoden används för andra ändamål som har en väsentlig ekonomisk effekt på företag, dess aktieägare eller dess fordringsägare. Den allmänna regeln föreskriver att användningen av en värdering inte är rimlig om (i) den inte speglar information som är tillgänglig efter beräkningsdagen, som kan väsentligt påverka värdet (till exempel slutföra en finansiering vid högre värdering, uppnå en betydande milstolpe som slutförande av utvecklingen av en nyckelprodukt eller utfärdande av ett nyckelpatent eller avslutande av ett betydande kontrakt) eller (ii) värdet beräknades med avseende på ett datum mer än tolv månader tidigare än det datum då det används. En companyrsquos konsekvent användning av en värderingsmetod för att bestämma värdet av dess aktier eller tillgångar för andra ändamål stöder rimligheten av en värderingsmetod för avsnitt 409A. Om ett företag använder den allmänna regeln för att värdera sin aktie, kan IRS framgångsrikt utmana det verkliga marknadsvärdet genom att helt enkelt visa att värderingsmetoden eller dess tillämpning var orimlig. Behovet att bevisa att metoden var rimlig och rimligt tillämpad ligger hos företaget. Värderingsmetoderna för säker hamn. En värderingsmetod kommer att anses förmodligen rimlig om den kommer inom en av de tre Safe Harbor-värderingsmetoderna, som specifikt beskrivs i avsnitt 409A-vägledning. I motsats till ett värde som fastställs enligt den allmänna regeln kan IRS bara framgångsrikt utmana det verkliga marknadsvärdet som upprättats med hjälp av en säker hamn genom att bevisa att värderingsmetoden eller dess tillämpning var grovt orimlig. De säkra hamnarna inkluderar: Värdering av oberoende bedömning. En värdering gjord av en kvalificerad oberoende bedömare (som vi kallar den oberoende bedömningsmetoden) kommer att antas rimlig om värderingsdatumet är högst tolv månader före optionstillståndet. Rimlig god tro Skriven värdering av en start-up. En värdering av beståndet av ett privat företag som inte har någon väsentlig handel eller verksamhet som den har genomfört i 10 år eller mer, om det görs rimligt och i god tro och framgår av en skriftlig rapport (som vi kommer att kalla uppstartsmetoden) , anses vara rimligt om följande krav är uppfyllda: Värderingen tar hänsyn till de värderingsfaktorer som anges i den allmänna regeln och händelser efter den värdering som kan göra en tidigare värdering oanvändbar beaktas. Värderingen utförs av en person med betydande kunskap, erfarenhet, utbildning eller utbildning vid utförande av liknande värderingar. Betydande erfarenhet innebär i allmänhet minst fem års relevant erfarenhet av företagsvärdering eller bedömning, finansiell redovisning, investment banking, private equity, säkerställd utlåning eller annan jämförbar erfarenhet inom den bransch eller bransch där företaget är verksamt. Aktien som värderas är inte föremål för någon uppsägnings - eller samtalsrätt, med undantag för bolagets rätt till första vägran eller rätt att återköpa aktier av en anställd (eller annan tjänsteleverantör) på arbetsgivarens kvitto om ett erbjudande att köpa av en icke-närstående tredje part eller uppsägning av tjänsten. Bolaget räknar inte med rimligt från det att värderingen tillämpas, att bolaget kommer att genomgå en förändring av kontrollhändelsen inom 90 dagar efter beviljandet eller göra ett offentligt erbjudande om värdepapper inom 180 dagar efter beviljandet. Formelbaserad värdering En annan säker hamn (som vi kommer att kalla formulärmetoden) är tillgänglig för företag som använder en formel baserad på bokfört värde, en rimlig marginal av vinst eller en rimlig kombination av de två alternativen för att välja alternativet. Formelmetoden kommer inte att vara tillgänglig om inte (a) det förvärvade beståndet är föremål för permanent restriktion för överföring vilket kräver att innehavaren säljer eller på annat sätt överför aktierna till bolaget och (b) formeln används konsekvent av bolaget för den (eller någon liknande) aktieklass för alla (både kompensations - och icke-kompensations-) överföringar till bolaget eller någon person som har mer än 10 procent av den totala sammanlagda rösträtten i alla aktieklasser, förutom en armarlängdsförsäljning av väsentligen alla utestående aktier i bolaget. Val för företag värderingspraxis I avsnitt 409A värderingsmiljö kan företag besluta att ta en av tre åtgärdskurser: Följ Pre-409A Practices. Ett företag kan välja att följa värderingsmetoder före 409A. Om emellertid alternativoptionspriserna senare utmanas av IRS, måste bolaget tillgodose bördan att bevisa att dess värdepappersmetod var rimlig och tillämpades rimligt, enligt vad som krävs enligt den allmänna regeln. Referensvärdet för det beviset är reglerna, faktorerna och förfarandena i avsnitt 409A vägledning, och om företagets befintliga prissättningspraxis inte tydligt hänvisar till och följer dessa regler, faktorer och förfaranden kommer det nästan säkert att misslyckas att bördan och de negativa Skattekonsekvenser av avsnitt 409A kommer att uppstå. Intern värderingsövning Efter avsnitt 409A Allmän regel. Ett företag kan välja att genomföra en intern lagervärdering enligt den allmänna regeln. Om de resulterande optionsutnyttjandepriserna senare utmanas av IRS, måste företaget återigen uppfylla befogenheten att bevisa att dess värdepappersmetod var rimlig och tillämpades rimligt. Nu, eftersom företaget kan visa att dess värdering följde avsnitt 409A-vägledning, är det rimligt att tro att dess chanser att uppfylla denna börda är betydligt bättre, även om det inte finns någon garanti för att det kommer att råda. Följ en av Safe Harbor-metoderna. Ett företag som vill minimera risken kan använda en av de tre säkra hamnarna som förväntas leda till en rimlig värdering. För att utmana det värde som bestäms enligt en säker hamn, måste IRS visa att värderingsmetoden eller dess tillämpning var grovt orimlig. Praktiska lösningar och bästa praxis När vi skrev det första utkastet till denna artikel 2008 föreslog vi att värderingsmönstren bland privata företag föll längs ett kontinuum utan skarpa avgränsningar från uppstartsfasen, efter uppstart till förväntan av likviditetshändelsen, efter förväntning av likviditetshändelse. Sedan dess har det i vår praxis blivit tydligt att avgränsningen är mellan dem som har tillräckligt med kapital för att få en oberoende bedömning och de som inte gör det. Start-Up Stage Companies. I det tidigaste skedet från ett företag som grundar sig på den tid då det börjar få betydande tillgångar och operationer kan många av de välkända värderingsfaktorer som anges i IRS-vägledningen vara svåra eller omöjliga att tillämpa. Ett företag utfärdar vanligtvis stamaktier till grundägare, inte alternativ. Till dess att ett företag börjar ge alternativ till flera anställda kommer avsnitt 409A att vara mindre oroande. 10 Även efter att betydande optionsbidrag påbörjats ser vi att företagen balanserar den potentiellt betydande dollarn och andra kostnader för att uppnå ett definitivt skydd mot bristande överensstämmelse med avsnitt 409A mot de ofta stränga ekonomiska förutsättningarna för startstadiet. I de tidiga dagarna i avsnitt 409A varierade kostnaden för värderingar av professionella värderingsföretag från cirka 10 000 till 50 000 eller mer beroende på ålder, intäkter, komplexitet, antal platser, immateriella rättigheter och andra faktorer som kontrollerar omfattningen av undersökningen krävs för att bestämma ett företags värde. Nu konkurrerar ett antal etablerade och nya bedömningsföretag specifikt för 409A värderingsverksamhet på grundval av pris, många av dem erbjuder initiala avgifter så låga som 5000 och några till och med så låga som 3000. Vissa värderingsföretag erbjuder även paketpaket där efterföljande kvartalsvärderingar prissätts till rabatt när de görs som en uppdatering till en årlig värdering. Även om kostnaden för den oberoende utvärderingsmetoden är mycket låg, är många start-up-bolag ovilliga att genomföra den oberoende utvärderingsmetoden på grund av behovet av att bevara kapital för verksamheten. Användning av formelmetoden är också oattraktiv på grund av de restriktiva användningsvillkoren och, för tidigt stadiums start-ups, kan formelmetoden vara otillgänglig eftersom de varken har bokfört värde eller resultat. Use of the Start-Up Method is also often not available due to the lack of in-house personnel with the ldquosignificant expertiserdquo to conduct the valuation. The general recommendation is no different for start-up companies than for companies at any stage of development: opt for the maximum certainty that they can reasonably afford, and, if necessary, be willing to take some risk if they are cash-constrained. Because reasonably priced valuation services tailored specifically for the needs created by Section 409A are now being offered in the market, even some early stage companies may consider that the cost of an Independent Appraisal is justified by the benefits afforded. If the start-up cannot afford the Independent Appraisal Method and the Formula Method is too restrictive or inappropriate, the remaining options include the Start-Up Method and the General Method. In both cases, companies that intend to rely on these methods will need to focus on their valuation procedures and processes to ensure compliance. Developing best practices include the following: The company should identify a person (e. g. a director or a member of management) who has significant knowledge, experience, education or training in performing similar valuations, if such a person exists within the company in order to take advantage of the Start-Up Method. If such a person is not available, the company should identify a person who has the most relevant skills to undertake the appraisal and consider whether it may be feasible to augment that personrsquos qualifications with additional education or training. The companys board of directors, with the input of the person identified to perform the appraisal (the ldquoInternal Appraiserrdquo), should determine the factors relevant to its valuation, given the companys business and stage of development, including at least the valuation factors specified under the General Rule. The companys Internal Appraiser should prepare, or direct and control the preparation of, a written report determining the valuation of the companys common stock. The report should set forth the qualifications of the appraiser, it should discuss all valuation factors (even if simply to note a factor is irrelevant and why), and it should come to a definitive conclusion (a range of value is unhelpful) as to fair market value and provide a discussion as to how the valuation factors were weighted and why. The companys valuation procedure described above should be performed in cooperation and consultation with its accounting firm in order to ensure that the company does not determine a valuation that the accountants will refuse to support in its financial statements. The companys board of directors should carefully review and expressly adopt the final written report and the valuation established in it, and should expressly refer to the valuation established by the report in connection with grants of stock options. If additional options are granted later, the board should expressly determine that the valuation factors and facts relied upon in preparing the written report have not materially changed. If there have been material changes, or if more than 12 months have passed since the date of the report, the report should be updated and adopted anew. Intermediate-Stage Private Companies. Once a company is beyond the start-up stage but does not yet reasonably anticipate a liquidity event, its board of directors will have to apply its judgment in consultation with the companys legal counsel and accountants to determine whether it should obtain an independent appraisal. There is no bright line test for when a company should do so, but in many cases the company will have reached this stage when it takes its first significant investment from outside investors. An angel round could be significant enough to trigger this concern. Boards that gain truly independent outside directors as a result of the investment transaction will be more likely to conclude that an independent appraisal is advisable. Indeed, venture capital investors typically require the companies they invest in to obtain an outside appraisal. The general recommendation for companies in this intermediate stage of growth is again the same: opt for the maximum certainty that they can reasonably afford, and, if necessary, be willing to take some risk if they are cash-constrained. Companies that have either begun to generate significant revenues or that have completed a significant financing will both be more capable of bearing the cost of the Independent Appraisal Method and be more concerned about possible liability for the company and for optionees if their valuation is subsequently determined to have been too low. Because reasonably priced valuation services tailored specifically for the needs created by Section 409A are being offered in the market, intermediate-stage companies are likely to determine that the cost is justified by the benefits afforded. Companies that foresee a liquidity event in their future are more likely to use, if not a Big 4 accounting firm, then one of the larger and relatively sophisticated regional firms in order to assure that their accounting and financial affairs are in order for an IPO or acquisition. Many such firms require that their clients obtain independent valuations of their stock for purposes of option grants, and wersquove heard reports of accounting firms that are refusing to take on new audit accounts unless the company agrees to do so, especially in light of the option expensing rules under FAS 123R. A common practice that has developed in implementing the Independent Appraisal Method is to have an initial appraisal performed (or annual appraisals), and then to have that appraisal updated quarterly (or perhaps semi-annually, depending on the companys circumstances), and to plan option grants to occur soon after an update. The only caveat is that if, as is the case with many technology companies, a company has experienced a value-changing event since the most recent appraisal, the company must be sure to advise its appraiser of such events in order to be sure that the appraisal incorporates all relevant information. If a company at this stage, after careful consideration, determines that the Independent Appraisal Method is not feasible, the next best option is to apply the Start-Up Method if all the requirements for relying on this method are met or, if the Start-Up Method is not available, apply the General Rule. In both cases, the company should consult with its accounting and law firms to determine a reasonable methodology of valuation for the company based on its facts and circumstances and, at a minimum, undertake the appraisal as we described above for Start-Up Stage Companies. Later Stage Private Companies. Companies that anticipate mdash or reasonably should anticipate mdash going public within 180 days or being acquired within 90 days, or that have a line of business that has continued for at least 10 years, cannot rely on the Start-Up Method and, while such companies may rely upon the General Rule, many will, and should, rely predominantly on the Independent Appraisal Method. Companies contemplating an IPO will be required - initially by their auditors and later by the SECs rules - to establish the value of their stock for financial accounting purposes using the Independent Appraisal Method. Companies planning to be acquired will be advised that prospective buyers will be concerned about compliance with Section 409A and will require evidence of defensible option pricing, typically the Independent Appraisal Method, as part of their due diligence. Other Observations Finally, for NQO grants, companies that cannot take advantage of a Safe Harbor and that determine reliance on the General Rule leaves more risk than the company and the optionees are willing to take on may also consider limiting Section 409A exposure by making the options compliant with (rather than exempt from) Section 409A. A NQO may be ldquo409A-compliantrdquo if its exercise is limited to events permitted under Section 409A guidance (for example, upon (or upon the first to occur of) a change of control, separation from service, death, disability, andor a certain time or schedule, as defined in Section 409A guidance). However, while many optionees whose options are not restricted in this manner in fact do not exercise their options until such events occur, applying these restrictions may in subtle ways change the economic deal, or the optioneersquos perception of it, and thus may have an effect on incentivizing service providers. Considering the application of such restrictions from both the tax and business perspectives is imperative. Please feel free to contact any member of our Tax or Corporate practice groups for assistance and advice in considering your companys choices of valuation practices under Section 409A. While we are not competent to perform business valuations, we have counseled many clients in these matters. Footnotes. 1. The tax law regulating nonqualified deferred compensation plans, including nonqualified stock options, which was enacted on October 22, 2004 and became effective on January 1, 2005. 2. These issues are addressed in more detail in other MBBP Tax Alerts. 3. Unless an exemption applies, Section 409A covers all ldquoservice providers, rdquo not just ldquoemployeesrdquo. For purposes of this article, we use the term ldquoemployeerdquo to indicate a ldquoservice providerrdquo as that term is defined in Section 409A. 4. This treatment applied so long as the option did not have a ldquoreadily ascertainable fair market valuerdquo as defined under Section 83 of the Code and related Treasury regulations. 5. To be exempt from Section 409A, a nonqualified stock option must also not contain an additional right, other than the right to receive cash or stock on the date of exercise, which would allow compensation to be deferred beyond the date of exercise and the option must be issued with respect to ldquoservice recipient stockrdquo as defined in the final regulations. 6. See section 422(c)(1). 7. ISOs only. Until Section 409A there was no requirement that NQOs be priced at fair market value. 8. The SEC was not a concern unless the company was likely to file for its IPO in less than a year or so, giving rise to cheap stock accounting concerns that could require a restatement of the companys financial statements. This has not changed as a result of Section 409A, although there have been changes recently in the valuation methodologies that the SEC sanctions, which seems to point to a substantial convergence in valuation methodologies for all purposes. 9. The IRS issued guidance which adopted differing valuation standards depending upon whether options were granted before January 1, 2005, on or after January 1, 2005 but before April 17, 2007, or on or after April 17, 2007. Options granted before January 1, 2005 are treated as granted at an exercise price not less than fair market value if the company made an attempt in good faith to set the exercise price at not less than the stocks fair market value on the date of grant. For options granted in 2005, 2006 and up to April 17, 2007 (the effective date of the final Section 409A regulations), the IRS guidance expressly provides that where a company can demonstrate that the exercise price is intended to be not less than fair market value of the stock at the date of grant and that the value of the stock was determined using reasonable valuation methods, then that valuation will meet the requirements of Section 409A. The company may also rely on the General Rule or the Safe Harbors. Options granted beginning on and after April 17, 2007 must comply with the General Rule or the Safe Harbors. 10. Although Section 409A does not technically apply to outright stock grants, care must be taken when establishing the value of stock grants issued proximate to the grant of options. For example, a grant of stock with a reported value for tax purposes of 0.10share may be questioned when a subsequent grant of NQOs at a fair market value strike price of 0.15share established using a Section 409A valuation method is made close in time. Share this pageHALF YEAR RESULTS HALF YEAR RESULTS FOR THE 26 WEEKS ENDED 30 OCTOBER 2016 A ROBUST BUSINESS MODEL DELIVERING RESULTS Conviviality Plc (Conviviality, the Company, or the Group), the UKs leading independent wholesaler and distributor of alcohol and impulse serving consumers through its franchised retail outlets and through hospitality and food service, announces its results for the 26 weeks to 30 October 2016 (H1 FY16: 27 weeks to 1 November 2015). Group Financial Highlights 183160160160160160 Revenue up 211 to 163782.5m (H1 FY16: 163252.0m) 183160160160160160 Gross margin up 2.5 points to 12.5 (H1 FY16: 10.0) 183160160160160160 Profit before tax up 285 to 1637.4m (H1 FY16: loss 1634.0m) 183160160160160160 Adjusted EBITDA 1 up 252 to 16322.9m (H1 FY16: 1636.5m) 183160160160160160 Adjusted profit before tax 2 up 295 to 16315.4m (H1 FY16: 1633.9m) 183160160160160160 Adjusted fully diluted EPS 3 up 142 to 9.2 pence (H1 FY16: 3.8 pence) 183160160160160160 Free cash flow 4 improved 18 to an outflow of 1639.2m (H1 FY16: out flow of 16311.2m) 183160160160160160 Net debt at 163138.4m is 1.2 below pro forma net debt 5 at 1 November 2015 of 163140.1m 183160160160160160 Leverage is comfortably below the Adjusted EBITDA bank covenant of 2.50x at 2.19x 183160160160160160 Interim dividend up 100 to 4.2 pence (H1 FY16: interim dividend 2.1 pence), which is currently expected to represent approximately one third of the anticipated full year divi dend 183160160160160160 Sales 4.4 above the corresponding prior period 6 with each business unit trading well 183160160160160160 Completed complementary acquisition of Bibendum PLB Group 183160160160160160 Successful integration of strategic acquisitions ahead of plan and on track to deliver stated synergies of 1636m in FY17 183160160160160160 Strengthened Plc Board with appointments of Jennifer Laing, Mark Aylwin and David Robinson 183160160160160160 Number of outlets served in the period increased 1.5 and sales per outlet grew 3.8 183160160160160160 Number of Bibendum customers who buy all product categories has increased 100 (H1 FY17 10 H1 FY16 5) 183160160160160160 Entered into a two year supply agreement with Palmer and Harvey to provide lower volume beers, wines and spirits, who in turn will supply the Group with tobacco Conviviality Direct Highlights 183160160160160160 5.2 increase in sales compared to the corresponding prior period 6 160 183160160160160160 1.5 increase in outle ts supplied 183160160160160160 3.8 increase in revenue per outlet Conviviality Retail Highlights 183160160160160160 2.5 increase in sales compared to the corresponding prior period 6 160 183160160160160160 Franchisee like for like 7 retail sales down 1.7 (H1 FY16: down 1.7) 183160160160160160 Franchisee margin up 1.8 Conviviality Trading Highlights 183160160160160160 5.1 increase in sales compared to the corresponding prior period 6 160 183160160160160160 47 increase in Events sales 183160160160160160 Appointed agents for a number of key brands including Santa Rita and Luis Felipe Edwards 183160160160160160 6.1 increase in Group sales in November and December 183160160160160160 2.1 increase in retail like for like 7 sales for the 6 weeks ended 1 January 2017 Diana Hunter, Chief Executive Officer of Conviviality, said: These strong results demonstrate our competitive advantage, the broad customer base we have developed and the robust nature of Conviviality as the UKs leading drinks whol esaler, distributor and solution provider to our Customers. We have successfully restructured to create three business units Conviviality Direct, Conviviality Retail and Conviviality Trading, each providing our customers and Franchisees with unrivalled range, expert service and advice to meet their customer needs whilst providing our suppliers with unmatched access to routes to market across both the on and off trade. The recent acquisitions have resulted in Conviviality being well positioned in its market with a resilient business model that provides unique positioning for its suppliers and customers. We are also pleased to report that the Group continues to trade in line with expectations for the full year There will be a presentation for analysts at the offices of FTI Consulting (200 Aldersgate, EC1A 4HD) at 9.30am today, 30 January 2017. 1 Adjusted EBITDA is calculated as profit before tax of 1637,434,000 (H1 FY16: loss of 1634,023,000), adding back net interest of 1632,643,000 (H1 FY16: 163346,000), depreciation of 1632,299,000 (H1 FY16: 1631,311,000), amortisation of 1636,255,000 (H1 FY16: 163650,000), exceptional items of 1633,669,000 (H1 FY16: 1637,344,000) and share based payment charges160of 1631,259,000 (H1 FY16: 163766,000) and adjusting for fair value movements on foreign exchange derivatives 163673,000 (H1 FY16: ( 163122,000)). The last 12 months adjusted EBITDA used in the leverage calculation for the bank covenants is a rolling last 12 months EBITDA including the results of all current entities assuming they were part of the group for the full 12 month period. 2 Adjusted profit before tax is calculated as profit before tax of 1637,434,000 (H1 FY16: loss of 1634,023,000), adding back amortisation of intangible assets created on the acquisitions of Matthew Clark, Peppermint and Bibendum PLB of 1635,014,000 (H1 FY16: 163412,000), exceptional items of 1633,669,000 (H1 FY16: 1637,344,000) and adjusting for fair value movements on foreign exchange derivatives of 163673,000 (H1 FY16: (163122,000)). 3 Adjusted fully diluted earnings per share takes into account the dilutive effect of share options. The difference between the basic and diluted average number of shares represents the dilutive effect of share options. Note 15 reconciles the weighted average number of shares to the diluted weighted average number of shares. 4 Free cash out flow of 1639,282,000 (H1 FY16: 16311,155,000) is calculated as EBITDA 16322,885,000 (H1 FY16: 1636,515,000) less working capital movements (16315,631,000) (H1 FY16: (16313,873,000)), tax payments 1635,083,000 (H1 FY16: 163958,000), net capital expenditure 1638,799,000 (H1 FY16: 1632,671,000) and interest payments 1632,654,000 (H1 FY16: 163168,000). 5 Proforma performance measures restate the prior period to include the impact of acquisitions including Matthew Clark, Bibendum PLB Group and Peppermint Events and apply to various measures including net debt, sales, working capital. 6 References to corresponding prior period and year on year in the front section of this report are on a pro forma basis. 7 Like for like performance measures adjust the prior period of 27 weeks to 26 weeks to compare with the current period of 26 weeks. Like for like performance measures also adjust for the impact of non-recurring trading disruptions in both periods. 8 Adjusted profit after tax is calculated as adjusted profit before tax less a tax charge calculated at the marginal tax rate. I am pleased with the trading performance of the Group during the first half of the year whilst also completing the acquisition of Bibendum PLB Group, which provides the business with a complementary proposition and further strengthens our leading position both in the On-Trade and as a center of excellence for Wine. The Group is now structured into three Business Units: Conviviality Direct, serving the On-Trade through its Matthew Clark and Bibendum propositions Conviviality Retail, serving the Off-Trade focusing on its Franchisee model and strategic partnerships and Conviviality Trading, providing brand agency expertise and sourcing to suppliers and to multiple and independent retailers. The recent acquisitions and new structure result in Conviviality being well positioned in its market with a robust business model that provides a unique positioning with both its suppliers and its customers. We have strengthened the management team with the following key appointments: 183160160160160160 Mark Aylwin joined the business in January 2016 and was subsequently appointed as Managing Director Conviviality Direct 183160160160160160 James Lousada joined the business in June 2016 as Managing Director Conviviality Trading 183160160160160160 David Robinson joined the business in July 2016 as Managing Director Conviviality Retail and 183160160160160160 Nigel Basey joined the business in March 2016 as Group Logistics Director ensuring that all of Convivialitys customers benefit from our extensive logistics capability. Furthermore, we have added experience to the Plc Board with the appointments of Mark Aylwin and David Robinson as Executive Directors and the addition of Jennifer Laing as our fourth Independent Non-Executive Director. The integration of Matthew Clark and Bibendum PLB Group continues to progress well and we remain ahead of schedule. Importantly, we are on track to deliver our stated synergies and the teams are working well together across the entire business. On behalf of the Board, I would like to thank everyone working in our business for their passion, commitment and customer focus that has made it possible to deliver our acquisitions to plan while also delivering underlying growth across the business. Reflecting the progress of the Group I am pleased to announce a 100 increase in the interim dividend to 4.2 pence per share, which is currently expected to represent approximately one third of the anticipated total dividend. 30 January 2017 CHIEF EXECUTIVE OFFICERS STATEMENT Conviviality Group Overview As a result of the acquisitions of Matthew Clark and Bibendum PLB we are now in a truly unrivalled position. Across the UK we have access to over 25,000 restaurants, hotels, bars over 700 Franchise retail outlets approximately 400 independent specialists and events and we serve major multiple supermarkets drawing from over 10,000 alcohol SKUs sourced globally from specialist producers and brand owners. Total Group unaudited pro forma revenues for the current financial year are now over 1631.5bn underlining our significant scale and reach across the drinks industry. We are the only company in our sector which has the skillset spanning, marketing, branding, merchandising, logistics, supplier management, buying and technical with unrivalled scale and reach across the On-Trade and Off-Trades. As we connect across all these areas of our business and utilise our skills and talent more effectively, we move from being not only a wholesaler and distributor but also a solution provider by providing access to all of these resources to our customers as they face the complexity and operational challenges of their market place. Our strategic goal is to be the drinks and impulse sectors leading independent wholesaler, distributor and solution provider to hotels, restaurants, bars, events and retail outlets by being the most knowledgeable and inspiring partner for our customers. In 2016, we put in place a new organisational structure and leadership team with the formation of our three business units Conviviality Retail led by David Robinson, Conviviality Direct led by Mark Aylwin and Conviviality Trading led by James Lousada. This uniquely connected business model has been purposefully designed to make us stronger and more resilient and to provide the infrastructure to deliver unparalleled customer service today with the opportunity to scale easily as we drive future growth. Each business unit faces the customer with the full back up of our Group support function which helps service the needs of each business unit in the core areas of Finance, Human Resource and critically in Supply Chain and Logistics, a key backbone and increasingly differentiating element of competitive advantage for our business. We have very purposefully lowered our center of gravity to empower our people closest to the customer and provide the support required by the Group to remain agile and efficient. We believe that our determination to ensure our customers and suppliers succeed will continue to further strengthen our market leading position. The market continues to be full of challenges and opportunities and we now have the best platform from which to benefit. We span the entire market across the UK and we are best placed to see trends starting in festivals and cocktail bars, across the retail space and we, more than any business, can provide access to the market to help our suppliers place their products appropriately and to help our customers know what is going to appeal to their consumers. We are rapidly becoming the one stop shop for any customer who sells alcohol or any supplier who wants to reach the right consumers. Due to the acquisitions of Matthew Clark on 7 October 2015, Peppermint on 31 December 2015 and Bibendum PLB Group on 20 May 2016, coupled with strong organic growth, sales grew 211 to 163782.5m (H1 FY16: 163252.0m and adjusted EBITDA 1 increased 252 to 16322.9m (H1 FY16: 1636.5m). Adjusted profit before tax 2 increased by 295 to 16315.4m (H1 FY16: 1633.9m) and fully diluted adjusted earnings per share 3 increased 142 to 9.2 pence (H1 FY16: 3.8 pence). Net debt at 30 October 2016 was 163138.4m (1 May 2016: 16386.1m) reflecting new debt of 16330.0m to fund the acquisition of Bibendum PLB Group coupled with a seasonal increase in net working capital. Net debt was 1631.7m below pro forma net debt 5 at 1 November 2015 and leverage at 30 October 2016 was comfortably below the bank covenant of 2.50x Adjusted EBITDA 1 at 2.19x. Business Unit Highlights: We have made excellent progress with the integration of Matthew Clark and Bibendum PLB Group and are ahead of schedule. We have seen good sale s growth from both propositions, with first half sales up 5.2 over the corresponding prior period 6 to 163515.2m. The number of outlets served in the period increased by 1.5 and sales per outlet grew 3.8, demonstrating the strength of our proposition to both existing and new customers.160 The number of Bibendum customers who buy all product categories has increased 100 (H1 FY17 10 H1 FY16 5). Conviviality Direct will continue to serve its customers through the differentiated propositions of Matthew Clark and Bibendum, however, with the integration of Bibendum there is a significant opportunity for our customers to choose from over 10,000 SKUs of alcohol from the Groups assortment, enabling them to reduce complexity of supply and enabling Conviviality Direct to be a one stop shop for its customers. Detailed analysis has been undertaken to assess the purchases of the 25,000 outlets served by Conviviality Direct, and only 3 of these outlets have duplicated assortments, thereby indicating a significant growth opportunity for both Mathew Clark and Bibendum to support our customers further. 1,769 customers are now trading through the digital platform, a 34 increase year on year 6. We have created a Group Wine Buying team to ensure our supplier partners benefit from access to the enlarged group and so that our customers benefit from the expertise of our buying team and the enhanced choice of wine both in quality and value. For the half year, total sales were up 2.5 reflecting the number of new stores brought into the group and that some of the stores brought into the group in March will be converted and refurbished in the second half of the year leading to further expected growth. 10 existing Franchisees opened 11 more stores in the first half and in total there are 12 Franchisees actively seeking to grow with the business. Attracting new quality Franchisees remains key to our plan with 8 new Franchisees joining us in the period. Franchisee margin for the period improved 1.8 and we were delighted to award 224 Franchisees 920,180 shares under our Franchisee Inventive Plan. The store pipeline continues to build, albeit the focus will always be on quality outlets as opposed to quantity hence the slightly lower number of store openings compared to the prior half. During the period 19 stores were opened including a new Wine Rack in Tattenham Corner, Epsom. On 5 December 2016, 15 high quality convenience stores were purchased from the convenience operator KMD and these stores will be gradually converted to Bargain Booze Select Convenience during the second half and will be subsequently Franchised. The refurbishment programme continues to show strong results with on average 5.8 growth post refurbishment. The supply agreement with Palmer and Harvey signed in October 2016 provides a strong indication of expertise in the drinks sector through our ability to serve a wider group of customers and partners. The relationship with Palmer and Harvey is working well and we consider that there is further potential going forward. Conviviality Retail continues to develop marketing strategies to win in the local community, leveraging its significant strength in social media. Facebook followers now exceed 100,000 enabling the business to communicate with its customers efficiently and with a wide range of mechanics. The Conviviality Retail pricing policy is to be everyday low promotionally priced. On average across our off licence range we have maintained competitiveness in spite of the heavy discounting in the market. Value and consistent pricing is important to our customers and they appreciate the transparency of our pricing strategy, which in turn increases customer loyalty.160 Differentiating the proposition from our competitors has been a successful part of our Retail strategy and will continue to be so.160 By way of example, we recently launched the vaping category into 150 stores with sales per week of vaping products up 61 in participating stores, an average of 163140 per week per store. 160Vaping is an increasing trend as customers switch from tobacco into alternative solutions.160 Franchisees have embraced the proposition, it is a category that is complementary to an off-licence proposition and Franchisees are benefiting from the enhanced margin that these products bring. Conviviality Trading, which aims to be the UKs leading drinks agency, brings together PLB, Instil and Catalyst Brands, three specialist brand agency businesses, each with significant expertise in their respective categories. This area of the business not only represents large suppliers and brands as an agency but is also a consolidator of wine suppliers managing the supply of wine to the Off-Trade and selling more than 9 million 9 litre cases of wine per annum to the UK retail trade including high street retailers, specialists and supermarkets.160 Conviviality Trading has significant capabilities in consumer insight, sourcing, ranging and supply that can add significant value to its customers by reducing the complexity of the wine category in large multiple national chains. Following the creation of this business unit, we have already seen new strategic relationships established. In January 2017 two of the largest Chilean wine producers transferred their Off-Trade business to Conviviality: Santa Rita, with brands including Santa Rita, Vina Carmen and Sur Andino, is the leading Chilean wine producer in the domestic market with a 31 market share and is the third largest wine group in the export market and second largest in the premium wine category and Luis Felipe Edwards, a privately owned wine group founded in 1976 by Luis Felipe Edwards Senior, with brands including Luis Felipe Edwards, Dona Bernada, Marea and Cien. The business is focused heavily on exports and less so on the domestic market. In addition to the agency business, Conviviality Trading is also responsible for the development and growth of an events business including Peppermint and Wondering Wine Co, which are both specialists in outdoor events and festivals.160 Sales increased by 47 over the corresponding prior period 6. The aim for the outdoor business (known as third space) is to create one stop shop solutions for event owners to include full bar and food service management as well as ATM operation and Click and Collect. Click and Collect in association with Bargain Booze was trialled for the first time in 2016 at the Isle of Wight Festival and then at Bestival. Furthermore, Elastic, our brand activation agency, which provides activation and brand building expertise to many of Convivialitys branded supply base saw sales grow strongly. Elastic has signed with 8 new branded suppliers in addition to the retained business of Diageo, LVMH, ABInBev, cementing our positioning as one of the UKs leading agencies. With the greater scale of the Group there is the potential to realise lower costs through buying and distribution and improved organisational efficiency. A clear integration plan has been established to ensure the benefits of both the Matthew Clark and Bibendum PLB acquisitions are achieved.160 By acquiring the two businesses in relatively close succession we have been able to simplify the integration process particularly in the areas of logistics and IT.160 The key benefit areas are detailed as follow: Two key programmes of work have been undertaken, firstly the alignment of Buying terms from the Matthew Clark acquisition by Conviviality Retail, and the subsequent acquisition of Bibendum PLB.160 Secondly through the establishment of the Group Wine Buying team in June 2016, the team are now undertaking detailed analysis of the supply base and assortment to ensure that not only do we carry the choice that our customers and their consumers demand but also to maximise buying scale. Logistics and Distribution The enlarged Group spans 18 depots and third party distribution through DHL Trade Team.160 During May 2016 we changed the reporting structure of all the Depots to report into Nigel Basey, Group Logistics Director.160 We believe there is clear opportunity to align best practice and process to drive more efficient ways of working and deliver between 1631-1.5million of cost savings into FY18.160 Furthermore, the logistics function is reviewing the network to ensure that it has the capacity to allow for future growth.160 As a result, trials will be undertaken in the remainder of the financial year to understand the potential to consolidate slow moving lines as well as to fulfil six day deliveries in target city locations.160 Further updates on the network will be provided in our full year results. With the acquisition of Bibendum PLB Group we have decided to move our systems on to one platform across the entire group.160 The migration of Bibendum Wines to the JD Edwards system that is used in Matthew Clark is expected to be completed during 2017 and will facilitate consolidation of several back office teams. Conviviality Retail is also implementing JD Edwards which will result in more streamlined processes.160 Once these IT projects are complete we plan to migrate Conviviality Trading to JD Edwards. Conviviality performed well during the Christmas trading period across all of its businesses. Group sales in November and December were 6.1 above the corresponding prior period 6 with each business unit performing well. Retail like for like sales in the 6 weeks ending 1 January 2017 grew 2.1 and Conviviality Retail sales increased 6.9. Conviviality Direct sales increased 6.2 and Conviviality Trading grew 3.1. Our trading is in line with expectations for the full year. We have a proven capability in delivering results whilst managing the integration of acquisitions and delivery of synergies.160 Our teams believe in the potential there is for the business and are working well together to deliver our aims.160 We will continue to invest in our business, supporting our customers and Franchisees and our supplier partners as we build upon our strong foundations. Chief Executive Officer 30 January 2017 Following the acquisitions of Matthew Clark on 7 October 2015, Peppermint on 31 December 2015 and Bibendum PLB Group on 20 May 2016, sales grew 211 to 163782.5m (H1 FY16: 163252.0m) and adjusted EBITDA 1 increased 252 to 16322.9m (H1 FY16: 1636.5m). Profit before tax, amortisation of intangible assets created on the acquisitions of Matthew Clark, Peppermint and Bibendum PLB Group, exceptional items and mark to market adjustments (Adjusted profit before tax) 2 increased by 295 to 16315.4m (H1 FY16: 1633.9m). On the same basis, fully diluted adjusted earnings per share 3 increased 142 to 9.2 pence (H1 FY16: 3.8 pence). The acquisition of Bibendum PLB Group was funded in part by new debt of 16330m which, coupled with a seasonal increase in net working capital increased net debt at 30 October 2016 to 163138.4m (1 May 2016: 16386.1m).160 Net debt was 1631.7m below pro forma 5 net debt at 1 November 2015 and leverage at 30 October 2016 was comfortably below the bank covenant of 2.50x Adjusted EBITDA 1 at 2.19x. Group revenues for the period were 211 ahead of last year at 163782.5m (H1 FY16: 163252.0m) and include revenues from the acquisitions of Matthew Clark, Peppermint and Bibendum PLB Group.160 On a pro forma 5 basis Group revenues are 4.4 above the corresponding prior period 6 160 with each of Convivialitys three business units (Conviviality Direct Conviviality Retail and Conviviality Trading) delivering strong growth. Conviviality Direct generated sales of 163515.2m in the 26 weeks to 30 October 2016 and were 5.2 above the corresponding prior period 7 as both Matthew Clarks and Bibendum Wines sales teams remained focused and worked well together during the acquisition and subsequent integration process.160 The strong sales growth is due to a 1.5 increase in the number of outlets coupled with a 3.8 increase in sales per outlet. Conviviality Retails sales were 2.5 above the corresponding prior period 6 as the benefit of a 14 increase in the average number of stores was offset by lower wholesale sales per store as the strong store growth enjoyed in FY16 resulted in a far less mature store estate.160 In addition, a significant number of the stores joined the franchisee estate in March 2016 and have not yet been rebranded, further restricting wholesale sales. During the period, Conviviality Retails store estate fell by 2.0 to 702 (1 May 2016: 716) and the number of stores owned by multi-site franchisees decreased by 2.2 to 356 (1 May 2016: 364). Franchisee like for like 7 sales were down 1.7 reflecting strong summer 2015 marketing campaigns with higher discounts.160 Franchisee gross margin increased 1.8 such that average Franchisee margin was in line with last year. Conviviality Trading generated sales of 16379.0m in the 26 weeks to 30 October 2016 and were 5.1 above the corresponding prior period 6 due to strong growth in Peppermint, Conviviality Tradings festivals and events business that was acquired on 31 December 2015. Adjusted EBITDA 1 Adjusted EBITDA 1 increased 252 to 16322.9m (H1 FY16: 1636.5m) as the strong sales growth was augmented by a 2.5 point improvement in gross margin.160 This increased gross margin by 16372.4m which was partly offset by a 16356.0m increase in operating costs (excluding exceptional items, depreciation, amortisation, share based payment charges and mark to market adjustments on foreign currency contracts). Gross margin improved to 12.5 (H1 FY16: 10.0) due to a significantly improved sales mix with the mix of higher margin wines increasing from 19 to 34 and low margin tobacco falling from 23 of sales to 8 of sales. Bibendum PLB Group was acquired on 20 May 2016 generating sales of 163135.3m and profit before tax of 1632.7m. Adjusted Profit before Tax 2 Adjusted profit before tax 2 increased 16311.6m as the 16316.4m increase in adjusted EBITDA 1 was offset by higher finance costs, depreciation and amortisation (excluding amortisation of Matthew Clark and Bibendum PLB Group acquisition intangibles).160 Finance costs increased to 1632.7m primarily due to interest on debt acquired to fund the acquisitions of Matthew Clark and Bibendum PLB Group, and the amortisation of banking arrangement fees. Depreciation and amortisation (excluding amortisation of Matthew Clark and Bibendum PLB Group acquisition intangibles) increased 1632.0m due to the acquisitions of Matthew Clark and Bibendum PLB Group coupled with an increase in Conviviality Retail depreciation following investments in the store estate and IT systems since IPO on 2 October 2015. Profit before Tax Profit before tax increased by 16311.4m from a loss of 1634.0m to a profit of 1637.4m. Exceptional items includes the costs of acquiring Bibendum PLB Group and business integration costs.160 Exceptional items have fallen 1633.7m due to the prior period including the costs of acquiring Matthew Clark. The intangible assets created on the acquisitions of Matthew Clark and Bibendum PLB Group total 16373.5m, comprising brands and customer bases and generated an amortisation charge of 1635.0m in the 26 weeks ended 30 October 2016 (H1 FY16 1630.4m). The tax charge of 1631.7m represents tax on Group profit before tax and exceptional items of 1632.1m offset by a tax credit on exceptional items of 1630.4m.160 The effective tax rate on Group profit before tax and exceptional items was 19.0 as disallowable expenses in Matthew Clark were offset by deferred tax movements.160 The tax credit on exceptional items was 160 12 due to disallowable transaction costs on the acquisition of Bibendum PLB Group. Earnings per Share Adjusted profit after tax 8 increased 303 to 16312.5m (H1 FY16: 1633.1m) and the basic weighted average number of shares increased 13 to 129.5m (1 May 2016: 115.3m) following the issue of approximately 15.6m new shares, for cash, to help fund the acquisition of Bibendum PLB Group.160 This resulted in basic adjusted EPS increasing 143 to 9.7 pence (H1 FY16: 4.0 pence). Fully diluted weighted average shares increased 14 to 136m (1 May 2016: 119m) resulting in fully diluted adjusted EPS 3 increasing 142 to 9.2 pence (H1 FY16: 3.8 pence). Cash flow and Funding Free cash flow 4 (adjusted EBITDA plus changes in working capital less capital expenditure, interest and tax) improved 17.9 to an outflow of 1639.2m (H1 FY16: outflow of 16311.2m) as adjusted EBITDA 1 of 16322.9m (H1 FY16: 1636.5m) was offset by an increase in working capital of 16315.8m (H1 FY16: increase of 16313.8m), net capital expenditure of 1638.5m (H1 FY16: 1632.7m), interest payments of 1632.7m (H1 FY16: 1630.2m) and tax payments of 1635.1m (H1 FY16: 1631.0m). Net working capital of 16375m was 160 17 below the pro forma prior year net working capital of 16390m. Capital expenditure includes investments in our Franchisees stores of 1631.8m, our IT systems of 1634.2m, as we implement our systems convergence strategy, and the building of a replacement depot in Shefford with a total investment of 1635.4m of which 1631.9m was incurred in the 26 weeks ended 30 October 2016. The Shefford depot was sold and leased back in December 2016 realising cash proceeds of 1635.7m. Net debt increased from 16386.1m at 1 May 2016 to 163138.4m due to the free cash outflow 4 of 1639.2m, a net cash outflow on the acquisition of Bibendum PLB Group of 16326.4m, exceptional items of 1633.7m and dividend payments of 16312.8m. The consideration for Bibendum PLB Group was 16339.7m which, together with 16318.7m of debt acquired resulted in a total investment of 16358.4m.160 This investment was funded by proceeds from the issue of new ordinary shares of 16332.0m and new term loans of 16310.0m. At 30 October 2016 the Groups net debt comprised 16380.2m of term loans and amounts drawn down under the Groups working capital facilities, less unamortised banking arrangement fees.160 The bank facilities include a leverage and an interest cover covenant.160 The leverage covenant requires debt (excluding any amounts drawn down under Matthew Clarks invoice discounting facility plus any amounts above 16320.0m drawn down under Bibendum PLBs invoice discounting facility) to be less than 2.5 times the last 12 months adjusted EBITDA 1. The interest cover covenant requires adjusted EBITDA 1 to be at least four times net finance charges.160 At the measurement date of 31 October 2016 leverage was 2.19 and interest cover was 11. On 16 January 2017 the Groups banking facilities were restructured to reduce costs and increase flexibility. The new facilities comprise term loans of 163101m and a group wide invoice discounting facility with a maximum draw down of 163130m. The leverage covenant requires the term loans to be less than 2.5 times the last 12 months adjusted EBITDA 1. The interest cover covenant has not changed. Conviviality has a progressive dividend policy and aims to increase dividend cover (based on fully diluted adjusted EPS 3 ) 160 to two times by the year ending April 2020.160 In line with this policy an increase in the interim dividend of 100 to 4.2 pence per share (H1 FY16: 2.1 pence) is declared today for shareholders on the register at close of business on 10 February and will be paid on 10 March 2017. This is currently expected to represent approximately one third of the anticipated total dividend Chief Financial Officer 30 January 2017 INDEPENDENT REVIEW REPORT TO CONVIVIALITY PLC160 Introduction We have been engaged by the company to review the condensed set of financial statements in the half-yearly report for the 26 weeks ended 30 October 2016 which comprises the consolidated income statement, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and the related explanatory notes.160 We have read the othe r information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.160 This report is made solely to the company in accordance with the terms of our engagement.160 Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose.160 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 conclusions we have reached.160 Directors responsibilities The half-yearly report is the responsibility of, and has been approved by, the directors.160 The directors are responsible for preparing the half-yearly report in accordance with the AIM Rules.160 The annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU.160 The condens ed set of financial statements included in this half-yearly report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.160 Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly report based on our review.160 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 UK.160 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.160 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 wou ld become aware of all significant matters that might be identified in an audit.160 Accordingly, we do not express an audit opinion.160 Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the 26 weeks ended 30 October 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the AIM Rules.160 for and on behalf of KPMG LLP160 Chartered Accountants 160 1 St Peters Square 30 January 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1.160160160160 General Information The principal activity of Conviviality Plc (the Company) and its subsidiaries (together, the Group or Conviviality) is that of wholesale supply of beers, wines, spirits, tobacco, soft drinks, grocery and confectionery to the UK on trade and off trade markets. The Company is incorporated and domiciled in the United Kingdom. The address of its registered office is: Weston Road, Crewe, Cheshire CW1 6BP. The registered number of the Company is 5592636. The condensed interim financial information presented is for the periods ended 30 October 2016 and 1 November 2015 and the year ended 1 May 2016. The consolidated financial information is presented in sterling, which is also the functional currency of the parent company, and has been rounded to the nearest thousand (163000). The condensed interim financial information shown has been approved for issue on 30 January 2017. The condensed interim financial information shown does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The Groups statutory financial statements for the year ended 1 May 2016 have been reported on by the Companys auditor and delivered to the Registrar of Companies. The auditors report on those financial statements was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The condensed interim financial information has not been audited. 2.160160160160 Basis of preparation The condensed interim financial statements for the 26 weeks ended 30 October 2016, which are unaudited, have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Directors have prepared cash flow forecasts for the period until April 2019. Based on these forecasts the Directors confirm that there are sufficient cash reserves to fund the business for the period under review, and believe that the Group is well placed to manage its business risk successfully. In addition to this the group has restructured its bank facilities to reduce costs and increase flexibility. For this reason they continue to adopt the going concern basis in preparing the financial information. The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements they should be read in conjunction with the Groups financial statements as at 1 May 2016. The Board has considered the principal risk and uncertainties for the remaining half of the financial year and determined that the risks and uncertainties presented in the 2016 Annual Report still remain. The Groups business is seasonal in nature. Historically, the Groups most important trading period in terms of sales, profitability and cash flow has been the Christmas season. 3.160160160160 Accounting policies In preparing these condensed interim financial statements, the Groups accounting policies and judgements and estimates were the same as those applied to the consolidated financial statements as at 1 May 2016, with the exception of a new policy for assets held for sale, and as such should be read in conjunction with those consolidated financial statements. Assets held for sale The Group classifies non-current assets and disposal groups as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. To be classified as held for sale, an asset must be available for immediate sale in its present condition subject only to terms that are usual and customary for the sale of such assets, and the sale must be highly probable. Sale is considered to be highly probable when management is committed to a plan to sell an asset and an active programme to locate a buyer and complete the plan has been initiated at a price that is reasonable in relation to its current fair value, and there is an expectation that the sale will be completed within one year from the date of classification. Non-current assets classified as held for sale are carried on the Groups statement of financial position at the lower of their carrying amount and fair value less costs to sell. Property, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised. 4.160160160160 Segmental Information The Groups activities consist of the wholesale and retail distribution of beers, wines, spirits, tobacco, grocery and confectionery within the United Kingdom to both the On-Trade and Off-Trade market. The Chief Executive officer is considered to be the chief operating decision maker (CODM). Each trading division within Conviviality plc wholesales to businesses that retail alcohol via stores, pubs, bars, restaurants and events. The performance of each division is therefore driven by the UK market for alcohol consumption, which is a single market with a single set of economic characteristics and risks. In addition 90 of the Groups sales are of the same products and the sales process is similar in each division and is serviced by a single supply chain. Consequently, all activities are reported as one segment. To assist with the understanding of performance, however, an analysis of sales are disclosed for each of the trading divisions. This is a new divisional structure which became operational this year. The Remuneration Committee awarded a one off cash bonus of 163288,000160 to Diana Hunter on 13 September 2016 which represents an amount equal to the gross dividends received by Bargain Booze EBT trustees Limited (EBT) (as trustee of the Bargain Booze Share Option Plan 2013) following the IPO of the Company during July 2013.160 The dividends are in respect of the shares held by the EBT that subsequently vested on the date of the IPO. The commercial intent, when the option was granted, was that Diana Hunter would be entitled to receive dividends on such shares from the date of the IPO.160 The dividends were not paid to Diana Hunter as planned and therefore this bonus payment realised the intended objective.160 The Company and the EBT have also entered into a joint share ownership plan with Diana Hunter and Andrew Humphreys which ensures they are both entitled to receive the future dividends payable on the vested share options owned by the EBT pursuant to the Bargain Booze Share Option Plan 2013. Taxation for the period has been calculated by applying the forecast effective tax rate for the financial year ending 30 April 2017. Deferred tax assets relating to share-based payments have been calculated to reflect the number of options outstanding and movement in the share price. Deferred tax liabilities have been recognised relating to the valuation of the Bibendum PLB Group brand and customer base included in intangible assets. In addition deferred tax assets have been recognised on certain acquisition fair value adjustments. A final dividend of 4.2p per ordinary share was declared by the Board of directors at the date of publication of these financial statements. It will be paid on 10 March 2017 to shareholders whose name appears on the register at close of business on 10 February 2017. The interim dividend, amounting to 1637.2 million, has not been recognised as a liability in this interim financial information. It will be recognised in the shareholders equity in the year to 30 April 2017. 9.160160160160 Financial instruments Fair values of financial assets and financial liabilities The carrying values of all the Groups financial assets and financial liabilities approximate to their fair values because of the short-term maturity of these instruments. The fair value of trade receivables and payables is considered to be equal to the carrying values of these items due to their short-term nature. All other financial assets and liabilities are carried at amortised cost. Cash is held with counterparties with a credit rating of A1, A2 and BBB. 10.160 Business combinations Current period business combinations Bibendum PLB Group On 20 May 2016, the Group entered into an agreement to acquire the entire issued share capital of Bibendum PLB Group for a total consideration of 16339.7 million in cash. Bibendum PLB Group is a leading independent wholesaler in the drinks industry specialising in wines and spirits.160 This acquisition is consistent with the Groups ongoing strategy of expanding the Groups wholesaling expertise and entering new markets and channels. The acquisition, together with the current businesses in the Group, creates a unique offering that addresses both the On-Trade and Off-Trade retailers. Significant synergies across buying, distribution, organisational efficiencies and additional revenue generation are expected to be achieved by bringing the businesses together. The following table summarises the consideration paid for Bibendum PLB Group, and the amount of assets acquired and liabilities assumed recognised at the acquisition date. The goodwill arising on acquisition represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised on the acquisition of Bibendum PLB Group these largely relate to synergy and integration benefits. On the acquisition of Bibendum PLB Group, the fair value of assets and liabilities has been assessed and adjustments made as shown in the table above. Within property, plant and equipment and intangible assets a fair value adjustment of 1631.6 million was made to write down assets to their fair value. Within inventories, a fair value adjustment of 1634.2 million was made which represents the adjustment required to bring inventories to their net realisable value. Fair value adjustments of 1630.5 million were made to receivables in relation to non-recoverable debtors of 1631.0 million offset by a 1630.5 million fair value adjustment in relation to forward contracts. Adjustments of 1630.2 million were made to bank balances to convert foreign denominated balances to spot rate. Adjustments of 1630.2 million were made to trade and other payables in respect of conversion to spot rate for foreign denominated balances (1630.3 million) offset by a 1630.1 million holiday pay accrual. A deferred tax liability of 1632.0 million has been recognised on the brand and customer base intangible assets, offset by a deferred tax asset of 1631.3 million on fair value adjustments. From the date of acquisition Bibendum PLB Group has contributed revenue of 163135.3 million and 1632.7 million to profit before tax to the Groups results. Acquisition costs of 1631.5 million have been charged to exceptional costs in the consolidated income statement for the period. Prior period business combinations Matthew Clark (Holdings) Limited On 7 October 2015, the Group entered into an agreement to acquire the entire issued share capital of Matthew Clark (Holdings) Limited for a total consideration of 163199.0 million in cash. Matthew Clark (Holdings) Limited is a leading independent wholesaler in the drinks industry.160 This acquisition is consistent with the Groups ongoing strategy of expanding the Groups wholesaling expertise and entering new markets and channels. The acquisition, together with the current businesses in the Group, creates a unique offering that addresses both the On-Trade and Off-Trade retailers. Significant synergies across buying, distribution, organisational efficiencies and additional revenue generation are expected to be achieved by bringing the businesses together. The following table summarises the consideration paid for Matthew Clark (Holdings) Limited, and the amount of assets acquired and liabilities assumed recognised at the acquisition date. Adjustments made to the fair value of assets acquired include the recognition of the deferred tax liability relating to the intangible asset (16310.1 million), additional provisions and accruals to recognise three onerous contacts that were in place at acquisition (16311.0 million which has been recalculated in this half year review and uplifted by 1635.8 million), additional provisions to recognise that renovation works needed to be carried out at specific depots (1631.0 million) and impairments for property plant and equipment that is impaired at the point of acquisition (1630.9 million). A deferred tax asset of 1631.8 million has been recognised in these interim financial statements relating to the fair value adjustment of onerous contracts. Goodwill has increased by net 1634.0 million as a result of the measurement period adjustments. The comparative balance sheets have been restated to reflect these measurement period adjustments. The goodwill arising on acquisition represents the premium paid to acquire Matthew Clark (Holdings) Limited and the future economic benefits arising from other assets acquired in the business combination that are not individually identified and separately recognised on the acquisition of Matthew Clark (Holdings) Limited these largely relate to synergy and integration benefits. Goodwill has been allocated to the Matthew Clark (Holdings) cash-generating unit (CGU). 160160160160160160 Cost and net book value 160 As at 26 April 2015 160 Acquisitions through business combinations - restated 160 Other acquisitions 160 Other disposals 160 As at 1 May 2016 - restated 160 Acquisitions through business combinations 160 Other acquisitions As at 30 October 2016 12.160 Intangible assets 160Brands and customer base 160 160160160 Cost 160160 160As at 26 April 2015 160160 160Acquired through business combinations 160160 160As at 1 May 2016 160 160160Acquisitions through business combinations 160 160160Transfers from property, plant and equipment 160 160160 As at 30 October 2016 160 160160As at 26 April 2015 160 160160Charge for the period 160 160160As at 1 May 2016 160 160160Charge for the period 160 160160As at 30 October 2016 160 160160Net book value 160160 160As at 30 October 2016 160 160160As at 1 May 2016 13.160 Assets held for sale Matthew Clark have disposed of a warehouse depot under a sale and leaseback arrangement which completed in December 2016. Th e net book value as at 30 October 2016 was 1635.4 million and has been disclosed under assets held for sale. 14.160 Share Capital On 20 May 2016, a further 15,609,757 shares were issued at a value of 1632.05 each in relation to the acquisition of Bibendum PLB Group Limited. The Company entered into additional block listing arrangements with AIM in respect of the notification to AIM of allotments of 250,000 new ordinary shares of 1630.0002 each in the capital of the Company to satisfy the requirement to allot matching shares at the time of purchase of partnership shares for the Bargain Booze Share Incentive Plan. In this regard 47,679 shares were issued during the period. In addition 36,667 shares were issued to a director during the period and a further 2,331,250 free shares were issued under the Franchisee Incentive Plan in the period. 15.160 Earnings per ordinary share Profit(loss) attributable to ordinary shareholders (163000) Basic earnings(loss) per share (pence) Diluted earnings(loss) per share (pence) Basic and diluted earnings per share are calculated by dividing the profit (loss) for the period attributable to equity holders by the weighted average number of shares. Adjusted basic and diluted earnings per share are calculated by dividing the profit after tax but before exceptional items, fair value adjustments on derivative financial instruments and amortisation of intangibles acquired with Matthew Clark and Bibendum PLB Group, by the weighted average number of shares, which is the same as disclosed in the table above. 16.160 Events Occurring After the Reporting Date On 16 January 2017 the Groups receivable financing facilities were restructured to reduce costs and increase flexibility. Under the new agreement the Group can sell any debts owed to Matthew Clark Wholesale Limited, Bibendum PLB Group Limited and Conviviality Retail Limited by its customers who have purchased goods or services. The maximum facility available is 85 of the allowable trade receivables up to 163130m.160 The discount margin for the funding of debts is 1.25.160 There is a non utilisation fee of 0.5 of the available facility payable during the minimum period of the facility being 24 months from the date of the agreement. The agreement terminates in October 2020. An arrangement fee of 163150,000 was incurred and is being amortised over 5 years. The Groups existing senior term and revolving facilities agreement have been revised.160 Term loan A has increased from 16340m to 16351m and Term loan B has increased to 16350m. This information is provided by RNS The company news service from the London Stock Exchange
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