Final Results
Idox plc
('Idox' or 'the Group' or 'the Company')
Final results for the year ended 31 October 2017
Idox plc (AIM: IDOX), a leading supplier of specialist information management solutions and services, today announces its final results for the year ended 31 October 2017.
Financial highlights:
· Revenues up 16% to £88.9m (2016: £76.7m)
· Adjusted EBITDA* decreased 14% to £18.5m (2016: £21.5m)
· Adjusted EBITDA* margin 21% (2016: 28%)
· Adjusted profit before tax** £12.1m (2016: £16.7m)
· Adjusted EPS** 2.40p (2016: 4.11p)
· Net debt as at 31 October 2017 stood at £32.1m (31 October 2016 £25.0m; £3.5m net cash outflow on two acquisitions in the financial year and £11.4m bond on 6PM acquisition)
· Proposed final dividend of 0.655p (2016: 0.650p) making a total of 1.040p (2016: 1.000p), an increase of 4% for the financial year
Operational highlights:
· Recurring and repeating revenues represented 84% of revenues
· Strategic focus on, and continued investment in, public sector
· New digital services platform, enabled by recent acquisitions, underpinning public sector focus and future growth
· Another strong performance from Public Sector Software (PSS):
o Represented 46% of Group revenues
o Strong election year and winning of market share
o Won 108 new local authority customers - 94% of all local authorities now customers
· Acquisitions:
o 6PM Group delivers healthcare solutions, principally to the NHS within the UK, using a combination of proprietary software, infrastructure, and professional services that enables healthcare organisations to enhance and optimise efficiency.
o Halarose develops, markets, sells and supports a range of electoral back office software and services to UK local authorities. It enables its customers to be more efficient both in the production and management of the electoral register and in the running of elections and referenda. The acquisition is in line with Idox's strategic focus..
Statutory Equivalents
The above highlights are based on adjusted results. Reconciliations between adjusted and statutory results are contained within these financial statements. The statutory equivalents of the above results are as follows:
· Profit before tax was £3.5m (2016: £13.0m)
· Basic EPS was 0.66p (2016: 3.30p)
* Adjusted EBITDA is defined as earnings before amortisation, depreciation, restructuring, acquisition, impairment, corporate finance costs and share option costs
** Adjusted profit before tax and adjusted EPS excludes amortisation on acquired intangibles, restructuring, impairment and acquisition costs
Richard Kellett- Clarke, Interim Chief Executive of Idox said:
'The failure to achieve the year end numbers has been disappointing and is the result of a perfect storm of issues including a recent complex acquisition.
However, in the early months of the new financial year the business has had an encouraging start with new contracts signed on the Bristol transport solution, the e-Count solution for the Government of Malta, and new solutions for the Isle of Man, Western Isles, Croydon and the South Downs National Park and Dorset Councils partnership.
Overall, the Board is confident that the Group will deliver an improved performance in the current financial year, driven by a combination of new contract momentum, management and organisational changes, savings made since the year end and the full year contributions from the 2017 acquisitions.
I remain confident of Idox's prospects and believe that the Group has good growth opportunities, through its continued focus on digital transformation and channel shift in the public sector, increasing market shares, ensuring existing acquisitions are fully bedded in, cross selling, and geographical expansion.'
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014.
Enquiries:
Idox plc +44 (0) 870 333 7101
Laurence Vaughan, Chairman
Richard Kellett-Clarke, Interim Chief Executive Officer
Jane Mackie, Chief Financial Officer
N+1 Singer (NOMAD and Broker) +44 (0) 20 7496 3000
Shaun Dobson
Liz Yong
MHP (Financial PR) +44 (0) 20 3128 8100
Reg Hoare / Charlie Barker
For more information see www.idoxplc.com
Chairman's Statement
Introduction
2017 proved to be a year of change and contrasting performance for Idox; after a promising start to the year, it is disappointing to report on a mixed set of results for the year as a whole.
The early part of the year was focused on completion of the acquisition of 6PM, a software and solutions business whose main customer is the UK NHS, which represented a significant expansion in the health and social care market. We made a further important acquisition in August, of Halarose, an electoral back office software and services business that has significantly enhanced our elections' capabilities.
However, we suffered a setback in the second half of the year due to a combination of factors which overall impacted our reported profits for the year; first, as a result of customer disruption in the wake of the June 2017 UK General Election, sign-off on some contract wins, especially within health and transport, was delayed; secondly, following an internal review by our finance team in preparation for the full year audit, we identified nine contracts where we did not consider revenue should be recognised in these results.
I am pleased to report that the year-end audit and subsequent review of revenue recognition did not show up any additional material problems around accounting irregularities, nor did it increase the size of the related adjustment materially.
Our finance team are to be congratulated for their diligence and integrity in standing up for the correct treatment and precise year end cut off. On the downside, we have expended considerable management time on resolving these issues.
There have been more robust discussions and technical analysis of revenue recognition accounting policies, in particular around the complex area of 6PM software licence treatment. As a result, an adjustment was made to management figures relating to 6PM licence revenue.
Board
Richard Kellett-Clarke, who had become a non-executive director of Idox in November 2016 after a successful tenure as our Chief Executive, stepped back in as Interim Chief Executive in December 2017 following the regrettable illness of his original successor Andrew Riley. Andrew remains on extended sick leave. I am pleased to report that Richard has been able to rapidly execute on a plan to get the business back on track as soon as possible and will help out for as long as necessary.
Peter Lilley, who joined the Board in 2005 will step down from his role at the Company's AGM as Senior non-executive director and chair of the Remuneration Committee after twelve years' service to the Group. We would like to take this opportunity of thanking him for his contribution to the Group over this period.
Results summary
A summary of our financial key performance indicators is presented below:
|
|
|
2017 |
2016 |
Change |
|
|
|
|
|
|
|
Revenue |
|
£88.9m |
£76.7m |
16% |
|
Adjusted EBITDA* |
|
£18.5m |
£21.5m |
-14% |
|
Adjusted EBITDA* margin |
|
21% |
28% |
-7% |
|
Adjusted EPS** |
|
2.40p |
4.11p |
-42% |
*Adjusted EBITDA is defined as earnings before depreciation, amortisation, restructuring, acquisition, impairment, corporate finance and share option costs
**Adjusted EPS excludes amortisation on acquired intangibles, restructuring, impairment and acquisition costs
Idox grew revenues by 16% but organic growth suffered due to the one off issues that occurred during the year, as outlined in the Chief Executive's Statement. As a result, adjusted EBITDA declined by 13.9%. The overall Group margin declined to 21% from 28% in the previous year. This was the result of a change in mix and higher than anticipated one off costs in several parts of the business.
The miss of the originally expected EBITDA target of £27.2m by £8.7m can be summarised as follows:
|
|
£m |
|
|
27.2 |
|
Accrued income adjustments relating to accounting irregularities identified by Finance team |
(2.8) |
|
Treatment of certain 6PM licences (see below) |
(1.0) |
|
Contracts missed 2017 cut off |
(4.8) |
|
Increased audit fees |
(0.1) |
|
|
18.5 |
Management had an expectation that 6pm licences would be able to be recognised at a point in time and had budgeted for revenue in this way. In practice this was not possible and 6pm licences were recognised over time resulting in a £1m difference between expected revenues and actual revenues recognised.
Net debt (including the 6PM bond) as at 31 October 2017 stood at £32.1m (2016: £25.0m), and has not been impacted by the revenue recognition issues. Bank debt remains within the Group's banking facilities, and the net debt / EBITDA ratio as at 31 October was 1.7 times. Cash conversion has improved to 82% (2016: 63%).
Group Strategy
The Group continued its focus on providing digital solutions and services to the public sector in the United Kingdom and Europe. The key to our success is to ensure we deliver better user results and productivity improvements for customers through focusing on usability, functionality and application of integrated digital technologies and solutions.
The Group has had a setback this year but the Board believes it can bounce back quickly with the steps already taken to rectify the issues identified and reflecting the underlying strengths of the core business, its product offering and talented people.
Acquisitions
During the financial year two acquisitions were completed, 6PM for £18.5 million and Halarose for £5.0 million, both in line with our strategy, and both of which contributed to this year's financial results. 6PM represented a significant expansion into one of the most important and largest public services - healthcare. Halarose significantly consolidates our position in elections. The Board believes that both will deliver earnings enhancing contributions in future periods.
The 6PM acquisition was funded by means of a placing of new shares which raised gross proceeds of £20.5 million, whilst £3.5m of the Halarose acquisition was financed out of the Group's existing cash resources, with £1.5m settled in shares.
Dividends
The Board proposes, subject to approval at the Company's Annual General Meeting, that a final dividend of 0.655p (2016: 0.650p) be paid bringing the total for the year to 1.04p (2016: 1.00p), an increase of 4%, consistent with our progressive dividend policy. In reaching this decision, the Board has taken into account the disappointing results for the year.
Summary
Following the disappointment at the year-end regarding delayed contracts and revenue recognition, I am pleased that these matters have now been clarified and that we can look forward with confidence to the new financial year. Idox has an exceptionally strong market position in the public sector, a sound balance sheet, and multiple opportunities for growth. I am therefore confident of the Group's future prospects.
Laurence Vaughan
Chairman
28 February 2018
Market overview
The Group continues to operate successfully and has grown in challenging markets characterised by continued pressure on local government expenditure. Our diversity of offerings and tight integration of businesses into a single management structure allows us to take advantage of opportunities and respond to challenges in our markets as demonstrated by this year's performance.
We see no change in outlook for our core markets. Announcements concerning public sector savings over the next three years are in line with our planning and expectations and should drive take-up of our new cost saving solutions.
Our Business Model
Idox is the leading applications provider to UK local government for core functions relating to land, people and property, such as its market leading planning systems and election management software. Over 90% of UK local authorities are now customers for one or more of the Group's products.
Idox provides:
· public sector organisations with tools to manage information and knowledge, documents, content, business processes and workflow as well as connecting directly with the citizen via the web and providing elections management solutions
· decision support content such as grants and planning policy information and corporate compliance services
· engineering document control, project collaboration and facility management applications to many leading companies in industries such as oil and gas, architecture and construction, mining, utilities, pharmaceuticals and transportation in North America and around the world.
The Group employs 845 staff located in the UK, the USA, Canada, Europe, India and Australia.
Strategy
Our strategy is to become the partner of choice due to our domain expertise, continued innovation, quality of service and guaranteed delivery. Through this focus on quality and delivery we expect to demonstrate to our customers improvements in operational efficiency and return on investment which will result in us increasing our market share, growing both organically and internationally.
Key Performance Indicators
Key financial performance indicators, including the management of profitability, monitored on an ongoing basis by management are set out below.
|
Indicator |
|
|
2017 |
2016 |
Measure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
£88.9m |
£76.7m |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Profitability ratios |
|
|
|
|
|
|
|
||
|
Adjusted EBITDA |
|
|
£18.5m |
£21.5m |
Profit before interest, tax, depreciation, amortisation, restructuring costs, acquisition costs, impairment, corporate finance costs and share option costs |
||||
|
Adjusted EBITDA |
|
|
21% |
28% |
Profit before interest, tax, depreciation, amortisation, restructuring costs, acquisition costs, impairment, corporate finance costs and share option costs as a percentage of revenue |
||||
|
Adjusted EPS |
|
2.40p |
4.11p |
Adjusted EPS excludes amortisation on acquired intangibles, restructuring, acquisition and impairment costs |
|||||
|
Non-financial Indicators
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|
|
|
|
|
|
||
|
Idox Group practises an integrated management system centred around gaining and retaining ISO accreditations. These are internally and externally audited annually to ensure compliance. |
||||||||
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Quality Management |
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The Group quality management system has been accredited to BS EN ISO 9001:2015 for the development and the sale of products for document, content and information management. |
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Environmental Management
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The Group environmental management system has been assessed and approved to accredited BS EN ISO 14001:2015, the approved systems apply to the following: the development and sale of products for document, content and information management.
|
||||||
|
Information Security Management |
|
The Group information security management system has been accredited to BS EN ISO 27001:2015, the approved systems apply to the following: for the development and the sale of products for document, content and information management.. |
||||||
|
Health and Safety Management |
|
The Group health and safety management system has been accredited to OHSAS 18001:2007. |
||||||
Composition of the Board
The Board of Directors comprises 29% female staff members.
Overview
It was quite unexpected to be back in this seat some 15 months after stepping down, but I have been pleased by the warmth of the reception from the Idox team, who have knuckled down in what has been a difficult few months. I am particularly grateful to Jane Mackie, our CFO, and her team who in difficult circumstances upheld the Company's standards of honesty and integrity. We are obviously disappointed by the impact these matters have had on the reputation of the business and fully intend to restore it to full health.
The failure to achieve the year end numbers is the result of a perfect storm of issues. Recent complex acquisitions, exacerbated by earn outs, and a time-consuming capital raise created a lot of work in the first half of the year and did not result in the customary tight integration and release of value. This was aggravated by a general election year, which served to push contract activity out towards the end of the financial year, and revenue recognition which was intended to ensure we hit year end targets but proved too aggressive.
The focus since I stepped back into the CEO role, has been on five core changes which are expected to deliver benefits in the current financial year:
1. The full integration of the last four acquisitions to deliver shareholder value. This will be completed during H1 2018 with a new streamlined organisational structure.
2. Target £7m of cost savings (10%) through the identification of cost synergies and technological overlaps in the business to aid productivity and efficiency. Introduction of Group policies and procedures to increase, security, accountability, productivity and compliance. This is well advanced with major changes already implemented.
3. A review of Group pricing and revenue recognition policy with external input from independent accountants to ensure consistency and clarity and improve cash conversion. This will be completed during H1 2018 and implemented by the end of 2018. It is expected to have an initially negative impact on revenues as a result of increased SaaS pricing although this is expected to have a medium-term benefit.
4. Acceleration of our digital, mobile and web technology strategy in partnership with our customers, and a refocus of our development resources to concentrate on core technologies and reduce capital costs.
5. Improve processes to reduce administration and improve cash collection
We have made rapid progress as these were all initiatives that were previously proposed, but deferred.
Public Sector Software
Post the year end we have completed a small reorganisation to integrate completely the recent acquisitions and to drive greater efficiency and more focus to our core public sector customer base.
Today our services facing government and the local public sector aimed at improving the usability and quality of services, account for 72% of revenues, an increase of 17% on the previous year.
The business had another strong election year which not only disrupted the business in the middle of the year with the uncertain outcome of the general election in May, but ended the year with the delayed completion of the national election system for Northern Ireland due to uncertainty around potential fresh elections, and the award of the e-Count contract for Malta.
We have continued to enhance our digital services platform and roll out the completed mobile application platform which aims to improve the customer experience and assist our customers in their productivity goals. The total number of customer solutions has now exceeded over 100. Building on this, consultation has begun on the next generation of web based solutions for local government which is scheduled for delivery in incremental stages starting in 2019 through to 2020.
Overall, we have continued to see further market share gains with 108 new local authority customers, 7 new system sales and 11 managed service customers.
Our Transport solutions have delivered and awaiting sign from the two major systems they have been working on for the past two years in Perth, Australia and Manchester. This has led to cost overruns but the resultant ground-breaking innovation in these solutions has resulted in further international interest and the closure of the Bristol Transport contract in Q1 2018.
These solutions offer real time adaptive traffic signaling, dynamic timetabling and printing, alters and monitoring solutions for multi modal journeys, dynamic stand management, performance monitoring of journey times, bus lateness and air quality, as well as "green wave" solutions to control vehicle speed for current and autonomous vehicles. They represent our long-term investment in smart City solutions, which we believe represents an attractive opportunity for the Group.
Facilities management ('FM') had another good year and has now started to work more closely with our health business to deliver FM solutions linked with asset tracking to hospitals.
6PM
Post-acquisition integration of 6PM quickly uncovered a number of issues which resulted in:
1. The restatement of 6PM's audited accounts due to material errors which were identified in due diligence
2. Discovery of additional unaccrued costs
3. Incurring one-off legal, auditing and consulting costs to expedite discipline in the business
4. Increased management time and resources to achieve the partial integration which detracted attention from the core business
5. The points above resulted in a reassessment of forecasts and an agreed impairment of £2.7m to the carrying value of goodwill in the accounts
6. Continued and extended discussions with our auditors over the recognition of revenues in 2017. The technical discussion was a complex area which focused on recognition of revenue either at a point in time or over time, with the difference in revenue and profits being £1m. Management had an expectation that 6pm licences would be able to be recognised at a point in time. In practice this was not possible and 6PM licence revenue continued to be recognised over time rather than at a point in time. This has resulted in the £1m revenue and profits which was expected by management to be recognised in 2017 not being recognised in the period and carried forward to future periods.
Now this is all behind us, we are concentrating on reviewing how we sell to the NHS to improve sales performance, time to closure and revenue recognition which may affect revenues in the short term.
Digital
The Digital business had an unexciting year in revenue terms but was very proud to have completed and delivered new designs and approaches for a diverse customer base including the Church of England, as well as several well-known premier league football clubs. It has started to work with both the transport, FM, and local government areas of the business to improve the usability of customer web sites and deliver better customer experiences and more relevant information, which is all part of our strategy to use digital technology to deliver better public services.
Content
The Compliance part of our business has been merged at the end of this year with our Grant's business as they are both content and services businesses. The combined Content business unit has stabilised after a poor performance in the prior year and grew revenues by 15% in 2017. New products this year included new modules to help corporates and local authorities with the education of staff around the European GDPR standard. Content has continued to take market share with strong sales for our Research connect platform.
Engineering Information Management (EIM)
Engineering revenue declined slightly by 8% year on year, the result of a more stringent revenue recognition policy and delayed completion of projects. The business has continued to invest in its SaaS platform which has received good reviews and is expected to be launched in the second half of 2018 as an upgrade to the current system.
Markets
Looking forward we see no material change in all our markets. We saw delays in decision making processes in 2017 as a result of the general election but no discernable impact from Brexit. The oil and gas market has seen a slight uptick as a result of the strengthening price of oil but this is yet to turn into substantial growth. The Content business remains a slower growth, lower margin business in highly competitive markets. Public sector customers continue to look at our digital, mobile and web offerings and we continue to see good growth in the use of these services.
Objectives for 2018
The Group's strategy remains to focus on the wider public sector (with the addition of Health last year). We intend to accelerate our international ambitions, and having consolidated our position in the UK elections market we are looking to expand this area of the business outside the UK.
The short-term focus has been to rectify the issues which developed in 2017. To that end we have started and will have completed by the end of H1 2018 the full integration of all the business we have bought in the past two years. This will result in some significant cost saving and improvements in quality standards across the Group as well as helping us to leverage our intellectual property.
This year will see the launch of a new Group web site which integrates all our solutions, capabilities and technologies to aid cross selling and to leverage the capability of the business. The investment strategy will result in an increased focus on our web cloud and smart city solutions.
The Board believes government bodies must invest in digital solutions to improve the quality of their services and continue their drive for improvements in productivity and accessibility. Idox is unique in having an extensive range of capabilities which it can integrate to deliver quick outcomes and is looking forward to building stronger links with its customers to deliver true innovation to the market with their help.
Outlook
In the early months of the new financial year the business has had an encouraging start with the majority of the delayed contracts from last year being signed; the Bristol transport solution, the e-Count solution for the Government of Malta, and new solutions for the Isle of Man, Western Isles, Croydon and the South Downs National Park and Dorset Councils partnership.
2018 will see a decisive move towards a change in product pricing and a focus on cash conversion; we believe this will deliver stronger future growth and a higher quality earnings, although in the short term it will depress revenue growth in 2018. We expect margins to improve following the cost saving measures being targeted and the completion of integration activity.
Overall, the Board is confident that the Group is well positioned for the current financial year, driven by a combination of new contract momentum, management and organisational changes, savings made since the year end and the full year contributions from the 2017 acquisitions.
I remain confident of Idox's prospects and believe that the Group has good growth opportunities, through its continued focus on digital transformation and channel shift in the public sector, increasing market shares, ensuring existing acquisitions are fully bedded in, cross selling, and geographical expansion.
Richard Kellett-Clarke
Chief Executive Officer
28 February 2018
Financial Review
Group revenues grew by 16% to £88.9m (2016: £76.7m), driven by the impact of two acquisitions; 6PM, providing software and services to the NHS (February 2017) and Halarose supplier of electoral back office software and services to UK local authorities (August 2017).
74% of Group revenues were generated in the UK (2016: 73%) with the two acquisitions completed in 2017 having the majority of their customers based in the UK. Gross profit earned increased 11% to £73.7m (2016: £66.6m) and the Group saw a decrease in gross margin from 87% to 83% as a result of lower margin election print revenue related to the May local elections and General Election. Earnings before interest, tax, amortisation, depreciation, restructuring, acquisition, impairment, corporate finance and share option costs ("Adjusted EBITDA") decreased by 14% to £18.5m (2016: £21.5m) with EBITDA margins decreasing to 21% (2016: 28%). Group EBITDA margin was impacted by lower margins in the Digital and Health divisions and a change in mix of election revenue in the PSS division.
Performance by segment
Following the acquisition of 6PM a new segment was created with the addition of Health, which reflects the results of 6PM. Halarose acquired in August 2017 is part of the PSS segment. Grants and Compliance have been combined in the second half of the year following a reorganisation and now come under the Content division.
The PSS division, which accounted for 46% of Group revenues (2016: 53%), delivered revenues of £41.2m (2016: £41.0m) and included a contribution from Halarose acquired August 2017. Product and services revenue increased by 7% (or organically decreased by 5%) to £20.4m (2016: £19.0m). Election revenues accounted for £4.7m (2016: £5.6m) of PSS revenues with the division delivering on the May local elections and the General Election. Election revenue was down on the prior year as 2016 included the EU referendum, May Scottish and local elections and the Scottish Government eCount project. Recurring revenues within the PSS division from maintenance and hosting were £16.1m (2016: £16.4m). Recurring revenues represented 39% (2016: 40%) of total PSS revenue. Divisional Adjusted EBITDA decreased by 6% to £15.4m (2016: £16.3m), delivering a 37% EBITDA margin (2016: 40%).
The Digital division accounted for 17% of Group revenues (2016: 14%) with revenue of £14.7m (2016: £10.9m) and a full year of Rippleffect acquired in August 2016.
The EIM division accounted for 15% of Group revenues (2016: 18%) with revenue of £12.9m (2016: £14.1m). Recurring revenues within the EIM division from maintenance and SaaS were 60% (2016: 57%). EIM saw a fall in revenue due to an increased emphasis on SaaS and managed service deals, continued pressure on per-seat licence prices and oil and gas spending still tight on non-key investment.
The Content division in the UK and Europe had revenue growth of 15% to £12.4m (2016: £10.8m).
The Health division contributed nine months trading to the period, since the acquisition of 6PM in February 2017, with revenues of £7.6m.
Profit before tax
|
|
|
|
|
|
12 months to 31 October 2017 (audited) £000 |
12 months to 31 October 2016 (audited) £000 |
|
|
|
|
|
Profit before tax for the period |
3,481 |
12,983 |
|
Add back: |
|
|
|
Amortisation on acquired intangibles |
5,247 |
3,817 |
|
Restructuring costs |
704 |
330 |
|
Acquisition costs/(credits) |
8 |
(404) |
|
Impairment |
2,681 |
- |
|
Adjusted profit for the period |
12,121 |
16,726 |
Reported profit before tax decreased to £3.5m (2016: £13.0m) as a result of higher amortisation and finance costs following the acquisition of 6PM plus an impairment charge related to 6PM. The impairment arose from a reassessment of the forecasts prompted by the emergence of inherited issues as described above. Amortisation of intangibles increased to £5.2m (2016: £3.8m) due to the acquisition of 6PM. Amortisation of development costs was £2.3m (2016: £1.3m) and amortisation on software licences was £0.9m (2016: £1.0m). Development costs are amortised over a 1 to 5 year period on a project by project basis and software licences are amortised over 3 years. Acquisition costs of £8,000 (2016: £0.4m credit) relate to £0.2m of 6PM and Halarose acquisition costs, offset by a further £0.2m reduction in the earn out payment for Cloud Amber. Restructuring charges of £0.7m (2016: £0.3m) includes £0.3m for the restructuring of the Digital division following the acquisition of Rippleffect.
Adjusted profit before tax and adjusted earnings per share are alternative performance measures, considered by the Board to be a better reflection of true business performance than looking at the Group's results on a statutory basis only. These measures are widely used by research analysts covering the Group.
Adjusted EBITDA decreased 14% to £18.5m (2016: £21.5m) impacted by lower margin election revenue in PSS, lower revenue in EIM, lower margin in pay per click revenue in Digital and a maiden loss contribution from Health. Cost of sales increased 49% with 37% of the increase due to acquisitions in the period. Several issues have arisen in the Health division since acquisition. Although full financial due diligence was carried out by Grant Thornton on 6pm and identified material errors, the accounting issues which have come to light have been greater than expected.
We have inherited issues with incomplete accounting records, revenue recognition and inconsistent contractual paperwork. These issues have taken up an exceptional amount of finance resources to resolve. The Health division was fully integrated into the Idox accounting function in July 2017 following the acquisition at the end of February. As a result, the issues inherited are not expected to be repeated going forward.
Administrative expenses increased by 31% to £68.6m (2016: £52.3m) or excluding acquisitions by 4%. Staff costs increased by 19% to £42.3m (2016: £35.5m) or excluding acquisitions decreased by 1%.
Finance costs have increased to £2.0m (2016: £1.4m) due to the 6PM bond interest payable (£0.8m). The Maltese Stock Exchange bond was issued in 2015 prior to Idox acquiring 6PM at a nominal value of €13m, is repayable in 2025 and has a coupon rate of 5.1%.
The Group continues to invest in developing innovative technology solutions and has incurred capitalised development costs of £4.8m (2016: £2.8m). Research and Development costs expensed in the period were £3.8m (2016: £4.0m).
Taxation
The effective tax rate ('ETR') for the period was 24.21% (2016: 9.06%).
Significant tax repayments were processed in 2017, not previously provided for, in respect of historic R&D claims covering the Reading Room Group and Idox Health Ltd, resulting in downward pressure on the ETR for the year.
However, certain other factors contributed to increasing the ETR, primarily impairment of the 6PM acquisition and costs associated with this acquisition, both of which are non-deductible expenses for tax purposes. Another factor which increased ETR was the non-recognition of losses incurred in Malta, owing to uncertainty over their future utilisation. These losses will be recognised where their likelihood of utilisation increases, with any future recognition resulting in a decrease to ETR.
Unrelieved trading losses of £1.1m, across the US and the UK, remain available to offset against future taxable trading profits. This number excludes substantial carried-forward losses not recognised for deferred tax purposes to date, owing to adoption of a prudent loss recognition position. The gross value of these losses not recognised to date totals £12.1m, split across Malta (£8.7m), the UK (£2.1m) and Germany (£1.3m). The Board is hopeful that the Group will benefit from these derecognised tax losses in future, and will be recognised at the point where utilisation becomes more certain.
Earnings per share and dividends
Adjusted earnings per share fell to 2.40p (2016: 4.11p). Adjusted diluted earnings per share fell to 2.34p (2016: 3.96p). Adjusted earnings per share was impacted in the period by increased finance costs following the acquisition of 6PM.
Basic earnings per share fell to 0.66p (2016: 3.30p). Diluted earnings per share fell to 0.64p (2016: 3.18p). Basic earnings per share fell due to the impact of the 6PM acquisition on increased finance costs, increased amortisation on acquired intangibles, increased acquisition costs and impairment.
The Board proposes a final dividend of 0.655p an increase of 0.8% on the previous final dividend, giving a total dividend for the year of 1.04p and 4% growth for the full year. This is in line with our progressive dividend policy for dividend growth. Subject to shareholder approval at the forthcoming Annual General Meeting, the final dividend is expected to be paid on the 20 April 2018 to shareholders on the register at 3 April 2018.
Balance sheet and cashflows
The Group's balance sheet continued to strengthen during the period and at 31 October 2017 net assets were £91.3m compared to £65.2m at 31 October 2016. The increase in net assets includes £35m relating to goodwill on acquisition and other intangibles of 6PM.
Cash generated from operating activities before tax as a percentage of Adjusted EBITDA was 82% (2016: 63%). Cash conversion has historically been impacted by deferred payment deals over 3 to 5 years which have been offered to local authorities. The cash conversion trend continues to improve as payment from customers are more aligned with when services are provided.
The Group ended the period with net debt of £32.1m (2016: £25.0m), after utilising the facility for the acquisition of Halarose (£3.5m) and taking on the 6PM bond of £11.4m which existed in 6PM pre-acquisition. The 6PM bond sits outside the Group's signed debt facilities.
The Group's total signed debt facilities at 31 October 2017 stood at £36.5m, a combination of a £9.5m term loan, £4m overdraft and £23m revolving credit facility, split £22.8m with the Royal Bank of Scotland and £13.7m with Silicon Valley Bank. In addition to the signed debt facilities the 6PM bond is a Maltese Stock Exchange bond issued in 2015 pre-acquisition at a nominal value of €13m, it is repayable in 2025 and has a coupon rate of 5.1%.
Deferred income, representing invoiced maintenance and SaaS contracts yet to be recognised in revenue stood at £19.8m (2016: £15.9m). An increase of £4.9m is due to acquisitions in the period. Accrued income, representing future cash flows, increased to £23.0m (2016: £18.8m). The increase in prior year includes £1.2m due to acquisitions.
£15.1m of accrued income relates to licences and services that have been delivered to local authorities and revenue recognised but the customer is paying for the licence and services over a period of typically 3 to 5 years. This will be future cash inflows for the Group. The balance of accrued income is service revenue where work has been completed but the project has not yet reached an invoicing milestone and will convert to cash in the short term.
Jane Mackie
Chief Financial Officer
28 February 2018
Principal Risks and Uncertainties
Risk identification and management continues to be a key role for the Board. Risk management strategy is led by the Board; thereafter management of risk is judiciously managed through dedicated expert professionals in the business.
Risk management processes and internal control procedures are established within business practices across all levels of the organisation. Risk identification, assessment and mitigation are performed across Idox with a more detailed assessment at operational level, and through Board led assessment of strategic and market risk.
Board: The Board has overall responsibility for Idox's risk management, processes and reporting. Risk management processes and internal control procedures are the ultimate responsibility of the Board.
Audit Committee: The Audit Committee has responsibility for assessing and challenging the robustness of the internal control environment. It directs and reviews local management, internal audit and Group finance reports on internal control and risk management throughout the year, and reports the principal risks to the Board.
Risk Committee: The Risk Committee meets quarterly and discusses the Group's strategy, identifies the principal risks to the strategy and agrees mitigating actions.
Internal Audit: The Group's internal audit function performs regular audits in country offices to assess culture, financial controls in accordance with local regulatory requirements and Group controls.
Local Management: Annual comprehensive risk reviews are performed by local management teams and reported to the Risk Committee.
Risk management and internal controls provide reasonable but not absolute protection against risk. Risk appetite is not static and is regularly assessed by the Board to ensure it continues to be aligned with the Group's goals and strategy.
Risk Profile
New and existing risks were identified and assessed during 2017. Executive management, the Risk Committee and the Board performed further analysis to prioritise these risks, with a focus on those principal risks posing the highest current risk to the achievement of the Group's objectives. All risks facing Idox were consolidated onto a risk heat map.
Risks included on the heat map are monitored more closely by executive management, the Risk Committee and the Board. Whilst these principal key risks represent a significant portion of the Group's overall risk profile, the executive management and the Risk Committee continue to monitor the universe of risks to identify new or emerging risks as well as any changes in risk exposure. The risk profile continued to change throughout the year, in part as a result of the acquisition of the 6PM Holdings plc group of companies and Halarose Holdings Limited. We now have operations in Malta, Macedonia and have more exposure to the health sector and increased exposure in the elections space.
Embedding the Risk Culture
Throughout the Group, risk management is an evolving process. This is recognised by ongoing training and advice by divisional and business unit risk representatives, supported by the central risk and assurance team, best practice sharing, gap analysis and internal benchmarking. Successful training and communication help build a culture and ability to further embed processes and procedures throughout the organisation. A more deeply embedded risk management culture supports long-term value creation for all stakeholders.
The principal risks involved in delivering the Group's strategy are actively managed and monitored against our risk appetite as follows:
|
Risk |
Principal risks |
Management of risks |
|
Cyber risk |
Information security breach or cyber-attack resulting in loss or theft of data, content or intellectual property. |
Idox operates with a number of complex systems that maintain confidential data. The risk is perceived to have increased due to the higher number of cyber-attacks in the UK.
Idox has cyber, data protection and security policies in place and regularly reviews the effectiveness of these policies. System controls include secure infrastructure, content level protection, access management and monitoring.
There is an enterprise-wide data security programme and defined incident management processes, including those for employees to report security breaches.
Idox continues to focus on achieving ISO 22301: 'Business Continuity Management System'
Idox is accredited to the UK government based Cyber Essentials standard. |
|
Economic environment |
The performance of Idox is affected by the economic cycles of the markets of the countries in which it operates. The recent US election and 'Brexit' referendum on the exit of the UK from the Treaty of the European Union have increased the uncertainty in the economic, social and environmental markets in which we operate. |
A diversified geographical footprint and sector focus reduces the risk of exposure due to adverse country or sector-specific conditions. Idox continues to focus on the diversification of customers and geographical markets. In February 2017 Idox acquired 6PM Holdings plc. This group of companies was headquartered in Malta with operations in the UK and Macedonia. This expansion of the Group's customer base and geographical reach increases risk. Idox has budgeted for foreign exchange fluctuations; however, this may not mitigate the risk entirely. The Executive team deliver against a framework for future investment for both organic and acquisitive growth. The investment going forward will be focused on: public sector initiatives in international expansion; increasing market share in existing public sector markets; entering new public sector markets; and delivering increased account sales in product & sales initiatives. |
|
Technological development and digital innovation |
Idox risks being outclassed by competitor products that have increased capabilities if the Group fails to deliver continued product development. |
Idox strives to deliver quality products, which provide strong competition in the market, while continuing to invest in quality assurance and research and development functions. Idox has invested significantly in increasing its capability to become a significant player in the delivery of digital. |
|
Retention and succession |
Due to recent acquisitions, Idox may inherit employees who have levels of training and remuneration that are inconsistent with the wider Group, potentially leading to retention issues and resultant loss of skills and knowledge. |
Idox continues to deliver successful integrations of acquired businesses. Human Resources leads on assessing remuneration packages and training requirements. Where required, mitigating actions are taken to develop or enhance benefits packages to Group employees.
|
|
Acquisitions |
Acquisitions/restructuring may not achieve the anticipated returns impacting on projected margin rates. |
Idox has set up a robust M&A team, which works together with our integration function, to carry out due diligence and mitigate risks where possible. For more complex acquisitions, the team work in conjunction with external advisors to reduce exposure. The Group has a robust and disciplined approach to identifying and testing potential companies for acquisition. Following the recent complex acquisition the group will enhance the approach to identifying and testing acquisitions to ensure the likelihood of issues encountered (as discussed in the Chief Executive's review) this year are not repeated.". Targets are subject to due diligence processes, and analysed according to Board level agreed investment decision criteria to identify suitable, earnings enhancing acquisitions. They are assessed by the Executive team for strategic fit. The due diligence process is led by experienced M&A Integration Managers and supported by relevant experts in domain knowledge and heads of department. Idox's focus for 2018 is to fully integrate recent acquisitions and improve discipline to ensure adherence to policies across the Group. |
|
Business continuity |
There is a risk that any business may face the failure of business continuity systems, disruption to normal business operations and closure of offices for a significant period of time. This would have a significant impact on our operations and trading capability. |
To successfully manage this risk, Idox has developed effective business continuity and incident management plans. The disaster recovery plan provides for re-build in and already contracted secondary location. Idox's information management team has provided for the replication of key systems data at existing secondary location to reduce key system recovery time. As part of our commitment to risk management, Idox continues to carry out a wider business review of disaster recovery plans to ensure they are fit for purpose. Regular business continuity plans are updated and delivered to the Board on at least an annual basis. In the current year, Idox has focused on achieving ISO 22301: 'Business Continuity Management System'
|
|
Political |
The Group has a large customer base in local government. A change in spending priorities by the current or a future Government could materially impact the Group |
This risk is mitigated due to the contractual nature of the recurring revenue in the Group.
The Group has increased diversification of its customer base through acquisitions to mitigate against political risks.
|
|
Global macro-environment |
The Group operates across a number of countries and its operations are increasingly subject to global competition and political risks. The Group is also affected by economic environments in other territories, which include currency volatility, inflation and recession. The customer base in local government means that political changes can be disruptive and can interfere with activities and operations in a particular country |
In order to mitigate these risks, the Group monitors and forecasts for key changes in the territories in which it operates.
Idox continues to diversify its business and operations in various territories. Idox risk assesses changing geo-political environments and this allows for timely risk mitigation as and when volatility occurs. The Group gathers information and seeks expert advice where necessary.
|
Signed on behalf of the Board by:
Richard Kellett-Clarke
Chief Executive Officer
28 February 2018
Directors Report
The Directors are pleased to submit their report and audited financial statements for the year ended 31 October 2017.
Results and Dividends
The Group's audited financial statements for the year ended 31 October 2017 are set out on pages 44 to 84. The Group's profit for the year after tax amounted to £2.6m (2016: £11.8m). The Directors paid a dividend of 0.650 pence per share in the first half of the 2017 financial year, in respect of the year ended 31 October 2017. The Directors will propose, at the forthcoming AGM, a final dividend of 0.655 pence per share in respect of the year ended 31 October 2017.
Details of future developments and research and development activities are outlined in the Strategic Report.
Post balance sheet events
On 6 February 2018, the Group acquired the entire share capital of Atlas Adviesgroep Twente B.V. ("Atlas") for a total consideration of €270,000 (£237,000). Atlas is a small grants consultancy business based in the Netherlands, working predominantly with local and regional government bodies, and will complement the Group's existing grants business in the Netherlands.
Directors and their Interests
The Directors who served during the year and their beneficial interests (including those of their immediate families) in the Company's 1p ordinary share capital were as follows:
|
|
|
|
|
|
Number of shares |
|
|
|
31 October 2017 |
1 November 2016 |
|
|
|
|
|
L Vaughan* |
232,250 |
200,000 |
|
R Kellett-Clarke** |
14,161,668 |
12,573,279 |
|
J Mackie |
494,781 |
58,421 |
|
A Riley |
1,416,272 |
225,126 |
|
P B Lilley*** |
533,000 |
533,000 |
|
J Millard |
- |
- |
|
B Moorhouse |
- |
- |
|
Prof W Hall (resigned 31 December 2016) |
- |
- |
* 232,250 (2016: 200,000) of these shares are held through a Self-Invested Pension Plan.
** 2,761,667 (2016: 2,761,667) of these shares are held through Self-Invested Pension Plans and 11,400,001 (2016: 9,762,900) shares are held through certain members of his family and a family trust.
*** 111,300 (2016: 111,300) of these shares are held through a Self-Invested Pension Plan and 59,250 (2016: 59,250) shares are held through certain members of his family.
In addition to the shareholdings listed above, certain Directors have been granted options over ordinary shares. Full details of these options are given in the Report on Remuneration on pages 23 to 24.
Details of the Directors' service contracts can be found in the Report on Remuneration on pages 23 to 24.
Insurance for Directors and Officers
The Company has purchased and maintains appropriate insurance cover against legal action brought against Directors and Officers.
Substantial Shareholdings
As at 31 October 2017, the Company was aware of the following interests in 3% or more of its issued share capital:
Shareholder Number of shares % Holding
Liontrust Asset Management 56,482,819 13.68%
Investec Wealth & Investment 38,233,418 9.26%
Kestrel Partners 35,344,301 8.56%
Hargreave Hale Investment Managers 30,490,187 7.38%
Herald investment Management 29,909,483 7.24%
Hargreave Hale Stockbrokers 21,008,808 5.09%
Charles Stanley 18,801,074 4.55%
Highclere International Investors 17,715,623 4.29%
Living Bridge EP LLP 17,543,409 4.25%
Richard Kellett-Clarke 14,161,668 3.43%
Transaction in own shares
During the year, the Group did not purchase any of its own ordinary shares of 1p to be held as treasury shares in order to satisfy future employee share option exercises.
During the year three share option exercises were satisfied using treasury shares. These exercises combined used a total of 64,000 treasury shares.
The maximum number of shares held in treasury at any time during the year was 3,055,219, which had a cost value of £1,270,634. The current number of shares held in treasury is 1,491,219.
Health, Safety and Environmental Policies
The Group recognises and accepts its responsibilities for health, safety and the environment (H,S&E) and has a dedicated team, which provides advice and support in this area. The team members regularly attend external H,S&E courses and internal reviews are performed on a regular basis to ensure compliance with best practice and all relevant legislation. In the current year, Idox has focused on achieving ISO 45001: 'Health and Safety Management' Standard.
Disabled Employees
Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes and abilities of the applicant concerned.
In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled employees should, as far as possible, be identical with that of other employees.
Employee Consultation
The Group consults employees through the National Company Council (NCC). The NCC sits regularly during the year and is made up of representatives voted on the Council by employees. An employee consultation policy is also in place. Employees are encouraged to present their views and suggestions in respect of the Group's performance and policies. In addition, the Group has an intranet, which facilitates faster and more effective communication.
An Employee Share Investment Trust is in place to provide employees with a tax efficient way of investing in the Company. The Company purchases matching shares, which become the property of the employee after a three year vesting period.
Financial Risk Management Objectives and Policies
The Group uses various financial instruments which include cash, equity investments, bank loans and items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations.
The main risks arising from the Group's financial instruments are credit risk, liquidity risk, exchange rate risk and interest rate risk. The Directors review these risks on an ongoing basis. This policy has remained unchanged from previous years. Further information on financial risk management is disclosed in note 22 of the Group accounts.
Credit Risk
The Group's principal financial assets are cash and trade receivables. The credit risk associated with cash is limited as the counterparties have high credit ratings assigned by international credit-rating agencies. The principal credit risk arises therefore from its trade receivables.
In order to manage credit risk, the management review the debt ageing on an ongoing basis, together with the collection history and third-party credit references where appropriate.
Liquidity Risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.
Exchange Rate Risk
The Group monitors its exposure to exchange rate risk on an ongoing basis. The Group has minimal exposure to foreign exchange risk as a result of natural hedges arising between sales and cost transactions.
Interest Rate Risk
The Group's bank borrowings bear interest at rates linked to LIBOR. On a quarterly basis, the Board reviews the LIBOR rate and discuss whether it is considered necessary to set up hedges to protect against interest rate movements.
Going Concern
The Directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate resources to continue in business for the foreseeable future. Whilst the Consolidated Balance Sheet shows net current liabilities, £19.8m of current liabilities relates to deferred income which does not convert to cash payable. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements. In making this assessment, the Directors have considered the Group's budget, cash flow forecasts, available banking facility and levels of recurring revenue.
The Board highlighted to the lenders that due to a limitation of scope in relation to the 6PM sub-group the audit would result in a qualified audit opinion. It was explained to the lenders that due to poor record keeping in the early months of the period within 6PM there is a limitation of scope on 6PM revenue and deferred revenue and the books and records of the three immaterial subsidiaries, particularly relating to the period up to July 2017 when 6PM was integrated into Idox finance and the record keeping has been improved. Following discussions with the Board the bank was satisfied that, whilst this is technically a default, they have given an advance waiver to cover the period of signing the statutory accounts.
Auditor
A resolution to reappoint an Auditor and to authorise the Directors to agree their remuneration will be placed before the forthcoming Annual General Meeting of the Company.
By order of the Board
Jane Mackie
Chief Financial Officer
28 February 2018
Independent Auditor's Report to the Members of Idox plc
Qualified opinion
Our opinion on the group financial statements is modified
We have audited the group financial statements of Idox Plc for the year ended 31 October 2017, which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, except for the possible effects of the matters described in the Basis for qualified opinion section of our report, the financial statements:
· give a true and fair view of the state of the group's affairs as at 31 October 2017 and of its profit for the year then ended;
· have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for qualified opinion
With respect to revenue and deferred income within the sub-group headed by 6PM Holdings plc, having balances of £7.6 million and £4.3 million respectively, the audit evidence available to us was limited because 6PM Holdings plc's group, which was acquired in February 2017, had a history of poor record keeping until it was fully integrated into the Idox plc Group in July 2017 and the record keeping issues addressed. Owing to the nature of the company's records, we were unable to obtain sufficient appropriate audit evidence regarding these elements of revenue and deferred income by using other audit procedures. In addition, with respect to consolidated revenues of £0.4 million and consolidated net liabilities of £0.2 million in three of 6PM Holdings plc's subsidiaries, the audit evidence available to us was also limited because the accounting records of these three subsidiaries was poor. Owing to the nature of the company's records, we were unable to obtain sufficient appropriate audit evidence regarding these matters by using other audit procedures. As a result of the poor record keeping and poor accounting records, we were unable to determine whether any adjustments might have been found necessary in respect of these two matters.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the 'Auditor's responsibilities for the audit of the group financial statements' section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Who we are reporting to
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
· the directors' use of the going concern basis of accounting in the preparation of the group financial statements is not appropriate; or
· the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
Overview of our audit approach
· Overall materiality: £646,000, which represents approximately 3.5% of the group's earnings before interest, tax, depreciation and amortisation (EBITDA)
· Key audit matters were identified as revenue recognition, carrying value of goodwill, business combinations - acquisitions, valuation of capitalised development expenditure, deferred income completeness, trade receivable existence and accrued income existence
We performed full scope audit procedures on the financial statements of Idox plc and on the financial information of Idox Software Limited, McLaren Software Limited, McLaren Software Inc and 6pPM Holdings plc. This covered 85% of revenue and 91% of EBITDA for the year.
Key audit matters
The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement impact and the extent of management judgement.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the group financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
|
Key Audit Matters |
How the matter was addressed in the audit |
|
Revenue recognition
Large contracts are typically bundled, and often include hardware, software and maintenance revenues.
Revenue is a key number for users of the annual accounts, and is a key focus for management as they continue to grow the business through a combination of organic growth and strategic acquisitions.
As part of year-end accounting processes, management identified a number of revenue items that did not meet the criteria for recognition in the current year, and were thus removed from the final revenue figure. The value of the adjustment was £2.7 million. An additional £1.0 million adjustment was noted in relation to the accounting for licence revenue in 6PM Holdings PLC. Due to these issues noted, we revised our risk profile and approach to revenue testing.
In light of the multiple revenue streams, complexity of accounting and crucial nature of this number to stakeholders, we have identified revenue recognition as a significant risk, which was one of the most significant assessed risks of material misstatement.
|
Our audit work included, but was not restricted to: · Assessing the revenue recognition policies applied by the group; · Performing detailed sample testing of the population of invoices for the first 11 months back to contractual documentation, and ensuring that the component income types within were checked to ensure that the correct specific recognition policy had been applied for each unbundled element where appropriate.; · Performing enhanced detailed sample testing on October 2017 revenues which have been identified as having a greater level of risk due to the significance of revenue recognised at this stage in the year and the impact against key City expected metrics. We traced back to contractual documentation, and ensuring that the component income types within were checked to ensure that the correct specific recognition policy had been applied for each unbundled element where appropriate; · Assessing the split of contracts to challenge and gain sufficient comfort around the level of software being recognised immediately under bundled contracts; and · Agreeing a sample of contracts to direct customer confirmation.
Following revenue recognition issues identified by management, we performed enhanced testing around the first 11 months of the year to bring in line with the level of work performed on October revenue as set out above.
The group's accounting policy on revenue recognition is shown in note 1 and related disclosures are included in note 2.
Key observations We gained sufficient audit evidence to support the majority of revenue through our enhanced procedures.
As noted above, we encountered a limitation of audit scope in trying to gain sufficient appropriate audit evidence in respect of the revenue and deferred income balances within 6PM Holdings PLC.
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|
Carrying value of goodwill The carrying value of goodwill is £73.2 million at 31 October 2017 (31 October 2016: £52.0 million), with the increase primarily driven by the acquisition of 6PM Holdings plc during the year. An impairment of £2.7 million was recognised against the 6PM acquisition in the year Goodwill is reviewed annually for impairment under IFRSs as adopted by the European Union. An impairment review must be carried out for each cash-generating unit ('CGU'), with a CGU being the smallest group of assets that includes the asset being tested for impairment. The balance is assessed by management with key judgements being made around discount rate, growth rate and future cash flows. Given the level of management judgement involved, and that there are comparatively low levels of headroom in certain CGUs, we identified the carrying value of goodwill as a significant risk, which was one of the most significant assessed risks of material misstatement.
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Our audit work included, but was not restricted to: · Challenge of cash generating units and the lowest level that impairment reviews could be carried out at; · Consideration of the cash flow projections for each CGU as prepared by management (based on 2018 budget), critically assessing the inherent judgements and assumptions, comparing to current year performance and gaining support for key movements year on year; · The Compliance and Grants CGUs were merged during the year to form Content. We reviewed the fact pattern and challenged this assessment on the individual units to ensure that the treatment is appropriate and in accordance with International Accounting Standard (IAS) 36 'Impairment of Assets'; · Assessing the outcome of management's previous accounting estimates and considering the impact on management's ability to make accounting estimates for the current year; and · Performing sensitivity analysis on the key assumptions and reviewing the headroom when flexing key assumptions.
The group's accounting policy on carrying value of goodwill is shown in note 1 and related disclosures are included in note 11.
Key observations Our audit work indicates that the carrying value of goodwill is fairly stated.
|
|
Business combinations - acquisitions
The 6PM Holdings plc group, which is based in Malta, was acquired during the year at a cost of £35m. This was funded by a combination of cash and share placing to fund the acquisition, seeing £20.5m (before expenses) raised through the issue of new share capital. The entire share capital of Halarose Ltd was acquired in August 2017 for a cost of £5m. This comprised £3.5m in cash along with a share offering of £1.5m. Given the subjectivity around assumptions used as part of the associated fair value exercise, there is a risk that such assets are incorrectly measured. We are aware that external valuation specialists have been used to perform the valuations of each acquisition. We therefore identified acquisition accounting as a significant risk, which was one of the most significant assessed risks of material misstatement. |
Our audit work included, but was not restricted to: · Considering the terms of the sale and purchase agreement and public offer documentation respectively to ensure that the terms of the acquisitions have been appropriately accounted for within the financial statements by management; · Appraising the fair value adjustments relating to the acquisition of 6PM Holdings plc; · Following up on previous acquisition accounting and audit of any adjustments noted in the period; · Analysing management's calculations for goodwill and other intangible assets identified from acquisitions, along with other fair value adjustments, including evaluating the forecasts used to complete these calculations. This involved input by our specialist Valuations Team to ensure the calculations comply with the requirements set out in IFRS 3 'Business Combinations'; and · Challenging management's rationale and calculations behind the fair values of any contingent consideration, including the assessment of the range of possible outcomes and the probability of each of these.
The group's accounting policy on acquisition accounting is shown in note 1 and related disclosures are included in note 25.
Key observations We gained sufficient evidence to be satisfied that both acquisitions in the year were correctly accounted for and intangibles recognised the methods used were appropriate. |
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Valuation of capitalised development expenditure
Management have adjusted their approach to development expenditure, with the amortisation period moving from a fixed 5-year period across all projects to an assessment of each project over its useful life.
Management models require the application of significant judgements and assumptions to be made in deriving the underlying model.
In light of these complexities, we have identified valuation of capitalised development expenditure as a significant risk, which was one of the most significant assessed risks of material misstatement.
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Our audit work included, but was not restricted to: · Obtaining and reviewing management models relating to projects held on balance sheet; · Challenging all key inputs, assumptions and judgements (including changes to judgements) made in the process of creating management models; · Discussing development expenditure with the development team, challenging the carrying value and assessing the useful life of key projects based on historical experience and future projected cash flows; · Assessing the outcome of management's previous accounting estimates, and considering the impact on management's ability to make accounting estimates for the current year; and · Agreeing a sample of employee costs to source documentation to support their capitalisation.
The group's accounting policy on capitalised development expenditure is shown in note 1 and related disclosures are included in note 11.
Key observations We gained sufficient audit evidence relating to the valuation of capitalised development expenditure. |
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Deferred income completeness Deferred income is allocated on review of invoices raised for services not yet provided. The risk is that deferred income is not being recognised fully in line with the provision of services, which is heightened due to the management policy of not reviewing any sales invoice totalling less than £10,000.
The value of deferred income at 31 October 2017 is £19.8m million (31 October 2016 £18.3 million), with the movement largely driven by the addition of 6PM Holdings PLC to the group in year.
We therefore identified deferred income completeness as a significant risk, which was one of the most significant assessed risks of material misstatement.
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Our audit work included, but was not restricted to: · As part of our statistical sample of revenue, we gathered sufficient evidence to determine the accuracy of deferred income apportioned for those items selected; · Stratified our total population to ensure that we get sufficient, appropriate evidence in relation to invoiced sums below £10,000, where there is a heightened risk and testing a sample of these items; and · Substantive analytical procedures were carried out to identify any significant variances in deferred income across the group that are not in line with our expectation. · As noted above, we were unable to gain sufficient evidence to prove completeness of deferred income in 6PM Holdings plc and recognised a limitation of scope in this area.
The group's accounting policy on deferred income is shown in note 1 and related disclosures are included in note 18.
Key observations We gained sufficient audit evidence relating to the completeness of deferred income in all entities except 6PM Holdings plc as referred to in the limitation of scope above.
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Trade receivable existence As a result of revenue recognition issues noted by management, we revisited our risk assessment during our year end audit work. We thus elevated this item to be a significant audit risk and a key audit matter.
The value of trade receivables at 31 October 2017 is £18.8 million (31 October 2016 £18.3 million), broadly in line with the October 2016 position
Management identified some instances when invoices were raised earlier than they were due, and we therefore identified the requirement to increase our risk profile in this area We therefore identified trade receivable existence as a significant risk, which was one of the most significant assessed risks of material misstatement. |
Our audit work included, but was not restricted to: · Agreeing an extended sample of receivables to post year end payments and underlying contractual documentation to confirm they had been received in accordance with the contract; and · Consideration of debtor ageing and the status of any ongoing discussions with customers to identify any potential issues around early invoicing.
The group's accounting policy on trade receivables is shown in note 1 and related disclosures are included in note 15.
Key observations We gained sufficient audit evidence to conclude relating to the existence of trade receivables. |
|
Accrued income existence
The value of accrued income at 31 October 2017 is £23.0 million (31 October 2016 £18.8 million), with the increase primarily driven by revenue growth.
Management identified some instances where the level of accrued income recognised was in excess of what was contractually earned, and we therefore identified the requirement to increase our risk profile in this area We therefore identified accrued income existence as a significant risk, which was one of the most significant assessed risks of material misstatement. |
Our audit work included, but was not restricted to: · Performing enhanced and extended sample testing of the population of accrued income balances to supporting documentation to gain comfort around the existence of accrued income; and · Created expectations for accrued income for sample items and ensured recognition was in line with this.
The group's accounting policy on accrued income is shown in note 1.
Key observations We gained sufficient audit evidence from our procedures relating to the existence of accrued income at year end |
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work.
We determined materiality for the audit of the group financial statements as a whole to be £786,000 at the planning stage, which was 3.5% of the group's EBITDA. This benchmark is considered the most appropriate because it is the key performance measure applied by users of the financial statements.
Following the reductions in EBITDA notified to the market, we revised our materiality for the audit of the group financial statements as a whole to £646,000 to reflect the adjustments in EBITDA as a result of the adjustments identified by management
Materiality for the current year is lower than the level that we determined for the year ended 31 October 2016 to reflect the reduction in EBITDA performance despite the strategic acquisitions.
We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 75% of financial statement materiality for the audit of the group financial statements at the planning stage. Following the issues identified by management relating to revenue recognition, we revised our performance materiality level for revenue recognition, accrued income existence, trade receivable existence and valuation of capitalised development expenditure testing to 40% to reflect the revised risk profile around these balances.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements for those items for which we used the reduced 40% performance materiality level.
We also determine a lower level of specific materiality for directors' remuneration, related party transactions and auditor's remuneration.
We determined the threshold at which we will communicate misstatements to the audit committee to be £32,300. In addition, we communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the group's business, its environment and risk profile and in particular included:
· evaluation by the group audit team of identified components to assess the significance of that component and to determine the planned audit response based on a measure of materiality. We considered each component's significance as a percentage of the group's total assets, revenues and EBITDA or significance based on qualitative factors, such as concerns over specific components;
· interim visit, evaluation the group's internal controls environment including its IT systems and controls;
· components were identified as significant based on a detailed consideration of each component, quantitative financial considerations, risks identified at the component level and other qualitative factors;
· there were initially no significant changes in scope from the prior year audit beyond the additional procedures required relating to the acquisition of 6PM Holdings plc as noted above. Due to matters identified by management relating to revenue recognition, we reduced our performance materiality during the audit process;
· analytical procedures were performed over remaining non-significant components;
· in line with the central Idox plc finance function, all procedures were performed by the group engagement team, and therefore no group instructions or component visits were deemed necessary; and
· the graphs below set out the total percentage coverage of full-scope audit procedures of revenue, accrued income, capitalised development expenditure and trade receivable existence below. We gained 100% full scope coverage over the carrying value of goodwill and business combinations - acquisitions key audit matters.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the group financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the group financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement of the group financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the strategic report and the directors' report for the financial year for which the group financial statements are prepared is consistent with the group financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
Matters on which we are required to report by exception
In respect solely of the limitation on our work relating to revenue and deferred income, and poor record keeping, described above:
· we have not obtained all the information and explanations that we considered necessary for the purpose of our audit.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
· certain disclosures of directors' remuneration specified by law are not made.
Responsibilities of directors for the financial statements
As explained more fully in the directors' responsibilities statement set out on page 28, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of group financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the group financial statements, the directors are responsible for assessing the
group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the group financial statements
Our objectives are to obtain reasonable assurance about whether the group financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these group financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Other matter
We have reported separately on the parent company financial statements of Idox plc for the year ended 31 October 2017. That report includes details of the parent company key audit matters; how we applied the concept of materiality in planning and performing our audit; and an overview of the scope of our audit.
Simon Bevan
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
28 February 2018
Consolidated Statement of Comprehensive Income for the year ended 31 October 2017
|
|
Note |
|
2017 |
|
2016 |
|
|
|
|
£000 |
|
£000 |
|
|
|
|
|
|
|
|
Revenue |
2 |
|
88,859 |
|
76,739 |
|
Cost of sales |
|
|
(15,143) |
|
(10,138) |
|
Gross profit |
|
|
73,716 |
|
66,601 |
|
Administrative expenses |
|
|
(68,567) |
|
(52,316) |
|
Operating profit |
|
|
5,149 |
|
14,285 |
|
|
|
|
|
|
|
|
Analysed as: |
|
|
|
|
|
|
Earnings before depreciation, amortisation, restructuring, acquisition costs, impairment, corporate finance costs and share option costs |
2 |
|
18,539 |
|
21,452 |
|
Depreciation |
3 |
|
(1,172) |
|
(584) |
|
Amortisation |
3 |
|
(8,469) |
|
(6,052) |
|
Restructuring costs |
4 |
|
(704) |
|
(330) |
|
Acquisition costs |
5 |
|
(8) |
|
404 |
|
Impairment |
|
|
(2,681) |
|
- |
|
Corporate finance costs |
|
|
(32) |
|
(8) |
|
Share option costs |
24 |
|
(324) |
|
(597) |
|
|
|
|
|
|
|
|
Finance income |
6 |
|
363 |
|
55 |
|
Finance costs |
6 |
|
(2,031) |
|
(1,357) |
|
|
|
|
|
|
|
|
Profit before taxation |
|
|
3,481 |
|
12,983 |
|
|
|
|
|
|
|
|
Income tax expense |
8 |
|
(843) |
|
(1,177) |
|
|
|
|
|
|
|
|
Profit for the year |
|
|
2,638 |
|
11,806 |
|
|
|
|
|
|
|
|
Non-controlling interest |
|
|
(10) |
|
- |
|
|
|
|
|
|
|
|
Profit for the period attributable to the owners of the parent |
|
|
2,628 |
|
11,806 |
|
|
|
|
|
|
|
|
Other comprehensive income for the year Items that will be reclassified subsequently to profit or loss: Exchange losses on retranslation of foreign operations |
|
|
31 |
|
295 |
|
Other comprehensive income for the year, net of tax |
|
|
31 |
|
295 |
|
Total comprehensive income for the year attributable to owners of the parent |
|
|
2,659 |
|
12,101 |
|
|
|
|
|
|
|
|
Earnings per share attributable to owners of the parent during the year |
|
|
|
|
|
|
Basic |
9 |
|
0.66p |
|
3.30p |
|
Diluted |
9 |
|
0.64p |
|
3.18p |
The accompanying accounting policies and notes form an integral part of these financial statements.
Consolidated Balance Sheet at 31 October 2017
|
|
Note |
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
2016 |
|
|
|
|
|
|
£000 |
|
£000 |
|
ASSETS |
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
Property, plant and equipment |
10 |
|
|
|
1,807 |
|
1,115 |
|
Intangible assets |
11 |
|
|
|
122,754 |
|
82,519 |
|
Investment |
12 |
|
|
|
18 |
|
- |
|
Deferred tax assets |
13 |
|
|
|
1,085 |
|
2,114 |
|
Other receivables |
15 |
|
|
|
8,738 |
|
6,094 |
|
Total non-current assets |
|
|
|
|
134,402 |
|
91,842 |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Stock |
|
|
|
|
166 |
|
- |
|
Trade and other receivables |
15 |
|
|
|
36,742 |
|
33,753 |
|
Cash and cash equivalents |
16 |
|
|
|
3,260 |
|
3,787 |
|
Total current assets |
|
|
|
|
40,168 |
|
37,540 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
174,570 |
|
129,382 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Trade and other payables |
17 |
|
|
|
11,019 |
|
7,643 |
|
Deferred consideration |
18 |
|
|
|
1,600 |
|
478 |
|
Other liabilities |
18 |
|
|
|
27,437 |
|
19,736 |
|
Provisions |
19 |
|
|
|
161 |
|
39 |
|
Current tax |
|
|
|
|
711 |
|
1,468 |
|
Borrowings |
21 |
|
|
|
2,410 |
|
2,425 |
|
Total current liabilities |
|
|
|
|
43,338 |
|
31,789 |
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
Deferred tax liabilities |
13 |
|
|
|
7,010 |
|
4,351 |
|
Deferred consideration |
18 |
|
|
|
- |
|
1,600 |
|
Bonds in issue |
20 |
|
|
|
11,394 |
|
- |
|
Borrowings |
21 |
|
|
|
21,519 |
|
26,410 |
|
Total non-current liabilities |
|
|
|
|
39,923 |
|
32,361 |
|
Total liabilities |
|
|
|
|
83,261 |
|
64,150 |
|
Net assets |
|
|
|
|
91,309 |
|
65,232 |
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
Called up share capital |
23 |
|
|
|
4,145 |
|
3,640 |
|
Capital redemption reserve |
|
|
|
|
1,112 |
|
1,112 |
|
Share premium account |
|
|
|
|
34,109 |
|
13,480 |
|
Treasury reserve |
|
|
|
|
(621) |
|
(1,244) |
|
Share options reserve |
|
|
|
|
1,730 |
|
2,222 |
|
Other reserves |
|
|
|
|
7,528 |
|
1,294 |
|
ESOP trust |
|
|
|
|
(349) |
|
(274) |
|
Foreign currency retranslation reserve |
|
|
|
|
249 |
|
57 |
|
Retained earnings |
|
|
|
|
43,397 |
|
44,945 |
|
Non-controlling interest |
|
|
|
|
9 |
|
- |
|
Total equity |
|
|
|
|
91,309 |
|
65,232 |
|
|
|
|
|
|
|
|
|
The financial statements were approved by the Board of Directors and authorised for issue on 28 February 2018 and are signed on its behalf by:
Richard Kellett-Clarke
Chief Executive Officer
The accompanying accounting policies and notes form an integral part of these financial statements.
Company name: Idox plc Company number: 03984070
Consolidated Statement of Changes in Equity at 31 October 2017
|
|
Called up share capital
£000 |
Capital redemption reserve
£000 |
Share premium account
£000 |
Treasury reserve
£000 |
Share options reserve
£000 |
Other reserves
£000 |
ESOP trust
£000 |
Foreign currency retranslation reserve £000
|
Retained earnings
£000 |
Non-controlling interest*
£000 |
Total
£000 |
|
Balance at 1 November 2015 |
3,587 |
1,112 |
11,741 |
(1,271) |
1,900 |
1,294 |
(242) |
(238) |
35,756 |
- |
53,639 |
|
Issue of share capital |
53 |
- |
1,739 |
- |
- |
- |
- |
- |
- |
- |
1,792 |
|
Share options charge |
- |
- |
- |
- |
597 |
- |
- |
- |
- |
- |
597 |
|
Exercise of share options |
- |
- |
- |
27 |
(275) |
- |
- |
- |
259 |
- |
11 |
|
Deferred tax movement on share options |
- |
- |
- |
- |
- |
- |
- |
- |
272 |
- |
272 |
|
ESOP trust |
- |
- |
- |
- |
- |
- |
(32) |
- |
- |
- |
(32) |
|
Equity dividends paid |
- |
- |
- |
- |
- |
- |
- |
- |
(3,148) |
- |
(3,148) |
|
Transactions with owners |
53 |
- |
1,739 |
27 |
322 |
- |
(32) |
- |
(2,617) |
- |
(508) |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
- |
11,806 |
- |
11,806 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
Exchange gains on retranslation of foreign operations |
- |
- |
- |
- |
- |
- |
- |
295 |
- |
- |
295 |
|
Total comprehensive income for the period |
- |
- |
- |
- |
- |
- |
- |
295 |
11,806 |
- |
12,101 |
|
Balance at 31 October 2016 |
3,640 |
1,112 |
13,480 |
(1,244) |
2,222 |
1,294 |
(274) |
57 |
44,945 |
- |
65,232 |
|
Issue of share capital |
505 |
- |
20,629 |
- |
- |
6,234 |
- |
- |
- |
- |
27,368 |
|
Share options charge |
- |
- |
- |
- |
324 |
- |
- |
- |
- |
- |
324 |
|
Exercise of share options |
- |
- |
- |
623 |
(816) |
- |
- |
- |
492 |
- |
299 |
|
Deferred tax movement on share options |
- |
- |
- |
- |
- |
- |
- |
- |
(451) |
- |
(451) |
|
ESOP trust |
- |
- |
- |
- |
- |
- |
(75) |
- |
- |
- |
(75) |
|
Equity dividends paid |
- |
- |
- |
- |
- |
- |
- |
- |
(4,217) |
- |
(4,217) |
|
Transactions with owners |
505 |
- |
20,629 |
623 |
(492) |
6,234 |
(75) |
- |
(4,176) |
- |
23,248 |
|
Profit for the period |
- |
- |
- |
- |
- |
- |
- |
- |
2,628 |
- |
2,628 |
|
Non-controlling interest |
- |
- |
- |
- |
- |
- |
- |
- |
- |
9 |
9 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
Exchange gains on retranslation of foreign operations |
- |
- |
- |
- |
- |
- |
- |
192 |
- |
- |
192 |
|
Total comprehensive income for the period |
- |
- |
- |
- |
- |
- |
- |
192 |
2,628 |
9 |
2,829 |
|
At 31 October 2017 |
4,145 |
1,112 |
34,109 |
(621) |
1,730 |
7,528 |
(349) |
249 |
43,397 |
9 |
91,309 |
The accompanying accounting policies and notes form an integral part of these financial statements.
*relates to a 30% non-controlling interest 6PM Ireland Limited, a subsidiary of 6PM Holdings plc.
Consolidated Cash Flow Statement at 31 October 2017
|
|
|
|
2017 |
|
2016 |
|
|
|
|
£000 |
|
£000 |
|
Cash flows from operating activities |
|
|
|
|
|
|
Profit for the period before taxation |
|
|
3,481 |
|
12,983 |
|
Adjustments for: |
|
|
|
|
|
|
Depreciation |
|
|
1,172 |
|
584 |
|
Amortisation |
|
|
8,469 |
|
6,052 |
|
Acquisition credits - release of deferred consideration |
|
|
(478) |
|
(722) |
|
Impairment |
|
|
2,681 |
|
- |
|
Finance income |
|
|
(141) |
|
(55) |
|
Finance costs |
|
|
1,669 |
|
873 |
|
Debt issue costs amortisation |
|
|
119 |
|
100 |
|
Research and development tax credit |
|
|
(360) |
|
(301) |
|
Share option costs |
|
|
324 |
|
597 |
|
Profit on disposal of fixed assets |
|
|
(13) |
|
- |
|
Movement in stock |
|
|
106 |
|
- |
|
Movement in receivables |
|
|
(3,408) |
|
(6,292) |
|
Movement in payables |
|
|
1,544 |
|
(271) |
|
Cash generated by operations |
|
|
15,165 |
|
13,548 |
|
|
|
|
|
|
|
|
Tax on profit paid |
|
|
(1,785) |
|
(2,456) |
|
Net cash from operating activities |
|
|
13,380 |
|
11,092 |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
Acquisition of subsidiaries |
|
|
(18,065) |
|
(4,701) |
|
Acquisition credit |
|
|
550 |
|
- |
|
Purchase of property, plant and equipment |
|
|
(1,675) |
|
(639) |
|
Proceeds on sale of investment property |
|
|
397 |
|
- |
|
Purchase of intangible assets |
|
|
(5,688) |
|
(4,168) |
|
Finance income |
|
|
141 |
|
55 |
|
Net cash used in investing activities |
|
|
(24,340) |
|
(9,453) |
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
Interest paid |
|
|
(1,211) |
|
(827) |
|
New loans |
|
|
3,500 |
|
13,000 |
|
Loan related costs |
|
|
(73) |
|
(96) |
|
Loan repayments |
|
|
(9,063) |
|
(11,524) |
|
Equity dividends paid |
|
|
(4,217) |
|
(3,148) |
|
Sale of own shares |
|
|
21,259 |
|
570 |
|
Net cash flows from financing activities |
|
|
10,195 |
|
(2,025) |
|
|
|
|
|
|
|
|
Net movement on cash and cash equivalents |
|
|
(765) |
|
(386) |
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the period |
|
|
3,787 |
|
4,084 |
|
Exchange gains on cash and cash equivalents |
|
|
238 |
|
89 |
|
Cash and cash equivalents at the end of the period |
|
|
3,260 |
|
3,787 |
|
|
|
|
|
|
|
The accompanying accounting policies and notes form an integral part of these financial statements
Notes to the Accounts for the year ended 31 October 2017
1 ACCOUNTING POLICIES
General information
Idox plc is a leading supplier of software and services for the management of local government and other organisations. The Company is a public limited company which is listed on the AIM Market of the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is 2nd Floor, 1310 Waterside, Arlington Business Park, Theale, Reading, RG7 4SA. The registered number of the Company is 03984070.
The financial statements are prepared in pound sterling.
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial assets and liabilities, being derivatives at fair value through profit or loss.
As set out on page 22 of the Directors' Report, the financial statements have been prepared on a going concern basis.
International Financial Reporting Standards and Interpretations issued but not yet effective
At the date of authorisation of these financial statements, the following new standards, amendments and interpretations to existing standards have been published that are mandatory for forthcoming financial periods, but which the Group has not adopted early. These are not expected to have a material impact on the Group's consolidated financial statements:
· IFRS 9 'Financial instruments' - effective for periods commencing on or after 1 January 2018
· IFRIC Interpretation 22 Foreign currency transactions and advance considerations - effective for periods commencing on or after 1 January 2018
The following standards have the potential have a material impact on the Group's consolidated financial statements:
· IFRS 15 'Revenue from contracts with customers'- effective for periods commencing on or after 1 January 2018. This standard will become effective for the Group on 1 November 2018. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognised at the date of initial application (the cumulative catch-up transition method). IFRS 15 requires the disclosure of revenue from contracts with customers disaggregated into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Group is currently performing a detailed analysis of the impact of IFRS 15 on all aspects of its business. To this date, the review has identified a number of areas in which adjustments may be required to revenue recognition and in the related procedures and processes. The areas which are likely to be affected are in relation to recognition of consultancy revenue and our 'no win - no fee' grant application business. In the year ended 31 October 2017, consultancy revenue was approximately £26m and 'no win-no fee' revenue was approximately £3m.
· IFRS 16 'Leases' - effective for periods commencing on or after 1 January 2019. IFRS 16 presents new requirements for the recognition, measurement, presentation and disclosure of leases. The standard provides that lessees will be required to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The standard was issued in January 2016 and applies to annual reporting periods beginning on or after 1 January 2019 but is yet to be endorsed by the EU. The Directors have not yet assessed the impact that this standard will have on the Group's net asset position and are therefore not in a position to make a reliable estimate of the impact this revised standard will have on the Group's accounting policies. The standard is expected to be applicable to the Group for the period beginning 1 November 2019. Please refer to note 26 for the Group's current operating lease commitments, which will be disclosed as a balance sheet liability under IFRS 16 when this becomes effective.
Adoption of new and revised standards
There were no additional standards, amendments and interpretations that had a material impact on the Group's financial statements during the year. The following standards, amendments and interpretations were effective in the year but had no material impact on the Group's financial statements:
· Amendments to IAS 1: Disclosure Initiative
· Amendments to IAS 16 and IAS 38: Classification of Acceptable Methods of Depreciation and Amortisation
· Amendments to IAS 27: Equity Method in Separate Financial Statements
· Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities
· Annual Improvements to IFRSs 2012-2014 Cycle
Restatement of comparative figures
In the previous period, the Group was organised into five main operating segments. During the year ended 31 October 2017, the Grants and Compliance divisions were merged into a new Content division. Following the acquisition of 6PM, a new operating segment called Health was established. As at 31 October 2017, the Group is therefore organised into five operating segments. The segmental analysis for the comparative period to 31 October 2016 have been restated to show results for the new five business segments.
Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. The Group has evaluated the estimates and assumptions that have been made in relation to the carrying amounts of assets and liabilities in these financial statements. The estimates and assumptions which have the most significant impact on the financial statements which are recognised in the financial statements are as follows:
(i) Intangible assets
The Group recognises intangible assets acquired as part of business combinations at fair value at the date of acquisition. The determination of these fair values is based upon management's judgement and includes assumptions on the timing and amount of future incremental cash flows generated by the assets and selection of an appropriate cost of capital. Management estimate the expected useful lives of intangible assets and charge amortisation on those assets accordingly. In determining the useful economic life of the intangible
software assets, management have given consideration to the length of time that its own software is typically used within its market. Competitor products are also reviewed, in conjunction with the length of time they had also been in use. These reviews are conducted with assistance from an independent intellectual property consulting firm who have a wealth of experience in valuing intangible assets generated from acquisitions.
Consideration was also given as to the likelihood that a new competitor could enter the market with a new product. This was considered unlikely due to the up-front capital investment which would be required to develop a new product, the requirement for reference sites to demonstrate the product, and the long-life cycles which products have in the market. For details on the estimates made in relation to intangible assets, see note 11.
(ii) Development costs
The Group reviews half yearly whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each bi-annual review. In addition, all internal activities related to the research and development of new software products are continuously monitored by the Directors.
During the year ended 31 October 2017, management conducted a comprehensive review of all capitalised development and have made a change to the standard policy of amortising all assets over a 5 year straight line period. Management have estimated that a range of 1 to 5 years is more appropriate depending on the future revenue projected for each individual asset. This review has led to accelerated amortisation on a small number of assets during the year. All new capitalised development is reviewed on an individual project basis and management will select the most appropriate rate of amortisation for each asset.
See note 11 for further information.
(iii) Impairment of goodwill
The Group is required to test, at least annually, whether goodwill has suffered any impairment. The recoverable amount is determined based upon value-in-use and net realisable value calculations. The value-in-use method requires the estimation of future cash flows and the choice of a suitable discount rate in order to calculate the present value of these cash flows. Pre-tax discount rates have been applied and are based on WACC calculations. See note 11 for further commentary.
During the year ended 31 October 2017, management combined the Grants and Compliance divisions into one 'Content' division, which has been used as a CGU in the impairment calculations. These divisions were combined following a review by management where it was identified that the operations and strategy of these teams were in alignment. A restructuring of legal entities took place and a new divisional director was appointed to manage this combined operating segment, and financial information is now reported internally on the Content division.
(iv) Revenue recognition
Management assesses both legal paperwork and commercial substance of transactions to determine the appropriate revenue recognition treatment. This review could involve internal chartered accountants, internal legal staff, operational staff and external professional advice where appropriate. Management may exercise judgements over various elements of a contract, for example:
· whether there are ongoing obligations relating to software licences which would require the revenue to be recognised over time rather than at a point in time
· whether performance obligations are separable or bundled
· whether it is appropriate to recognise revenue on certain contracts such as service agreements, prior to an invoice being raised, where work has been completed and there is a high degree of certainty of the contract being completed and the invoice raised and cash received.
There was considerable discussion and review surrounding the correct revenue recognition on certain Health contracts during the period. Management assessed legal paperwork and commercial substance of these transactions in line with accounting standards and the judgement made was that revenue on these contracts should be recognised over time rather than at a point in time as the software and maintenance elements of the contracts could not be separated.
See paragraph headed 'Revenue' below for more detail on how the Group accounts for revenue.
(v) Contingent consideration
The contingent consideration provision is the maximum undiscounted amount which will be paid, which represents fair value. Where an acquisition involves a potential payment of contingent consideration the estimate of any such payment is based on its fair value. To estimate the fair value an assessment is made as to the amount of contingent consideration which is likely to be paid having regard to the criteria on which any sum due will be calculated.
(vi) Deferred tax
The Group has tax losses available to offset future taxable profits. In estimating the amount of deferred tax to be recognised as an asset the Group estimates the future profitability of the relevant business unit.
Basis of consolidation
The Group accounts consolidate the accounts of the Company and its subsidiary undertakings drawn up to 31 October each year. Under IFRS10, control exists when an investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its powers over the investee. As each of the subsidiaries are 100% wholly owned, the Group has full control over each of its investees.
All inter-company transactions are eliminated on consolidation.
For business combinations occurring since 1 November 2009, the requirements of IFRS 3R have been applied. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. For all acquisitions, the Group will perform a fair value review of all property, plant and equipment and intangible assets to align accounting policies with the Group.
Revenue
Revenue represents the amounts receivable in respect of goods and services provided during the year, stated net of value added tax. Where work has been done, but a billing milestone has not been reached, the income has been accrued and included in amounts recoverable within trade and other receivables.
Revenue is measured at the fair value of the right to consideration. The Group derives its revenue streams from software solutions and information solutions.
Software licence revenue is recognised when the licence is despatched to the customer and there are no ongoing obligations associated with the licence once delivered. Where the licence is bespoke, revenue is recognised when the licence is delivered and the customer has accepted the licence as fully functional.
Software consultancy revenue is recognised on a stage of completion basis. Stage of completion is determined by time spent by service delivery consultants or by reference to the project milestones either included in the contract itself or included within a separate detailed project delivery plan.
Revenue relating to digital services, including search engine optimisation, ecommerce and digital advertising, is recognised at the time of service delivery.
Revenue relating to goods delivered as part of software solutions provided is only recognised once the goods have been received by the customer.
Revenue relating to goods delivered for elections is recognised when the goods have been received by the customer. Consultancy revenue for elections is recognised on a stage of completion basis.
The revenues for maintenance and hosted managed service contracts are spread evenly over the life of the agreement, which is typically one year.
Revenue from software-as-a-service ("SaaS") contracts, or revenue where there are ongoing obligations associated with a software licence, is recognised evenly over the life of the agreement.
Revenue derived from information solutions content is recognised over the life of the subscription, which is typically one year. Revenue from projects is recognised over the life of the project in accordance with the stage of completion which is determined by reference to the project delivery plan.
Revenue relating to grant applications is recognised on a 'no win-no fee' basis. Revenue is only recognised when confirmation that the grant application has been successful is received.
Revenue relating to hardware is recognised when the hardware is despatched to the customer.
Contract revenue
The amount of profit attributable to the stage of completion of a long-term contract is recognised only when the outcome of the contract can be foreseen with reasonable certainty. Management make a judgement on the fair value of the work completed to enable revenue on long term contracts to be recognised in the correct periods. Stage of completion is determined based on management's best estimate of effort expended and progress against project plans at the year end. Provision is made for any losses as they are foreseen.
The contracts for software solutions often contain multiple elements such as software, consultancy and maintenance. Management make appropriate judgements and estimates in relation to the fair value of each of these elements in accordance with IAS 18.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the steering committee, which for the year ended 31 October 2017 comprised the Chief Executive Officer, the Chief Financial Officer and the Chief Operating Officer.
Goodwill
Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of the identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.
Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Goodwill is carried at cost less accumulated impairment losses. Unallocated goodwill on acquisitions relates mainly to workforce valuation, synergies and economies of scale obtained on combining acquisitions with existing operations.
Goodwill written off to reserves prior to the date of transition to IFRS remains in reserves. There is no re-instatement of goodwill that was amortised prior to transition to IFRS. Goodwill previously written off to reserves is not written back to profit or loss on subsequent disposal.
Other intangible assets
Intangible assets with a finite useful life are amortised to the consolidated statement of comprehensive income on a straight-line basis over their estimated useful lives, which are reviewed on an annual basis. Amortisation commences when the asset is available for use. The residual values of intangible assets are assumed to be zero.
(i) Research and development
Expenditure on research (or the research phase of an internal project) is recognised in profit or loss in the period in which it is incurred. Development costs incurred are capitalised when all the following conditions are satisfied:
· completion of the intangible asset is technically feasible so that it will be available for use or sale;
· the Group intends to complete the intangible asset and use or sell it;
· the Group has the ability to use or sell the intangible asset;
· the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;
· there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and
· the expenditure attributable to the intangible asset during its development can be measured reliably.
Development costs not meeting the criteria for capitalisation are expensed in profit or loss as incurred. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Amortisation commences upon completion of the asset, and is shown separately on the statement of comprehensive income.
Careful judgement by the Directors is applied when deciding whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each balance sheet date. In addition, all internal activities related to the research and development of new software products are continuously monitored by the Directors.
Amortisation is calculated using the straight-line method over a period of up to 5 years.
(ii) Customer relationships
Customer relationships represent the purchase price of customer lists and contractual relationships purchased on the acquisition of CAPS Solutions Limited, Plantech Limited, J4B Software and Publishing Limited, Strand Electoral Management Services Limited, Grantfinder Limited, McLaren Software Limited, Lalpac Limited, Interactive Dialogues NV, Opt 2 Vote Limited, Currency Connect Holding BV, FMx Limited, Artesys International SA, CTSpace Group, Digital Spirit GmbH, Cloud Amber Limited, Reading Room Limited, Open Objects Software Limited, Halarose Holdings Limited and 6PM Holdings plc. These relationships are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method over a period of 20, 10 and 5 years.
(iii) Trade names
Trade names represent the named intangible asset recognised on the acquisition of CAPS Solutions Limited, Plantech Limited, J4B Software and Publishing Limited, Strand Electoral Management Services Limited, Grantfinder Limited, McLaren Software Limited, Lalpac Limited, Interactive Dialogues NV, Opt 2 Vote Limited, Currency Connect Holding BV, FMx Limited, Artesys International SA, CTSpace Group, Digital Spirit GmbH, Cloud Amber Limited, Reading Room Limited, Open Objects Software Limited, Rippleffect Studio Limited, 6PM Holdings plc and Halarose Holdings Limited. These trade names are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method over a period of between 5 and 20 years.
(iv) Software
Software represents the UNI-form, ACOLAID, Enterprise Engineer, CAFM Explorer, electoral and licensing software purchased on the acquisition of CAPS Solutions Limited, Plantech Limited, McLaren Software Limited, Strand Electoral Management Services Limited, Lalpac Limited, Interactive Dialogues NV, Opt 2 Vote Limited, Currency Connect Holding BV, FMx Limited, Artesys International SA, CTSpace Group, Digital Spirit GmbH, Cloud Amber Limited, Open Objects Software Limited, Rippleffect Studios Limited, 6PM Holdings plc and Halarose Holdings Limited. The software is carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method over a period of between 3 and 10 years. Software also includes software licences purchased which are amortised using the straight-line method over a period of between 3 to 5 years.
(v) Database
Database represents the grant information database purchased on the acquisition of J4B Software & Publishing Limited and Grantfinder Limited. The database is carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method over a period of 5 years.
(vi) Order backlog
Order backlog includes the managed service contracts and subscription deferred revenue purchased on the acquisition of 11 land and property information solution contracts and Grantfinder Limited. Amortisation on the managed service deferred revenue is calculated based on the weighting and length of each contract purchased. Subscription deferred revenue is calculated using the straight-line method over a period of 5 years.
Order backlog includes two managed services contracts acquired from Miria Systems Inc. Amortisation on the managed service deferred revenue is calculated using the straight-line method over a period of 5 years.
Upon the acquisition of Halarose Holding Limited, the Group acquired deferred revenue which is being amortised using the straight-line method over a period of 3 years.
Impairment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are
expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows.
Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.
Property, plant and equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to the income statement using the following rates and bases so as to write off the cost or valuation of items of property, plant and equipment over their expected useful lives. The rates that are generally applicable are:
Computer hardware 25%, 50% and 100% straight line
Fixtures, fittings and equipment 25% straight line
Library books and journals 33 1/3% and 100% straight line
Useful economic lives and residual values are reviewed annually.
Investment property
The investment property was acquired upon the purchase of 6PM Holdings plc and was recorded initially at cost and then using the fair value method. The investment property was revalued annually with resulting gains and losses recognised in the income statement, and the property was included in the balance sheet at its fair value.
Employee benefits
Defined contribution pension plans
Contributions paid to private pension plans of certain employees are charged to the income statement in the period in which they become payable. Contributions paid to the Group personal pension plans of employees are charged to the income statement in the period in which they become payable.
Share-based payment transactions
All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is
appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets).
All equity-settled share-based payments are ultimately recognised as an expense in the profit and loss account with a corresponding credit to the share option reserve.
If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options that have vested are not exercised.
Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to reserves. In some circumstances upon exercise of share options, the right to shares are waived and the proceeds are settled in cash.
Reserves
Equity comprises the following:
· "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.
· "Capital redemption reserve" represents when the entire deferred ordinary share capital was bought in exchange for one ordinary 1p share.
· "Other reserves" arose as a result of:
o a Group reconstruction that occurred on 17 November 2000. This represents the issued share capital and share premium account in the Company's subsidiary undertaking, Idox Software Limited, and;
o Share premium arising on consideration shares issued on the acquisition of 6PM Holdings plc and Halarose Holdings Limited.
· "Share options reserve" represents shares to be issued on potential exercise of those share options that have been accounted for under "IFRS 2 Share Based Payments".
· "ESOP trust" represents share capital purchased to satisfy the obligation of the employee share scheme. Purchased shares are classified within the ESOP trust reserve and the cost of shares purchased are presented as a deduction from total equity.
· "Retained earnings" represents retained profits.
· "Treasury reserve" represents shares repurchased by the Company to be held for redistribution as share options. The cost of treasury shares is debited to the Treasury reserve.
· "Foreign currency translation reserve" represents exchange gains and losses on retranslation of foreign operations.
· "Non-controlling interest" represents retained profits attributable to Non-controlling interests.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Current tax is charged to profit or loss except where it relates to tax on items recognised in other comprehensive income or directly in equity, in which case it is charged to equity or other comprehensive income.
Current tax is the tax currently payable based on taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income credits to the Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except where they relate to items that are charged or credited directly to other comprehensive income or equity in which case the related deferred tax is also charged or credited directly to other comprehensive income or equity.
Research and development tax credits
The UK tax regime permits additional tax relief for qualifying expenditure incurred on research and development. The Research and Development Expenditure Credit (RDEC) Scheme has been adopted, which permits a tax credit of 11% of qualifying expenditure for companies classified as large. The Idox Group is considered large for research and development tax credit purposes owing to a headcount of over 500.
The tax credit is treated as a reconciling item within the taxation line of the income statement.
Operating leases
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. All leases held by the Group are operating in nature. Amounts paid under operating leases are charged to the statement of comprehensive income on a straight-line basis over the lease term.
Dividend distributions
Interim dividends in respect of equity shares are recognised in the financial statements in the period in which they are paid.
Final dividends in respect of equity shares are recognised in the financial statements in the period that the dividends are formally approved.
Foreign currency translation
The functional and presentation currency of Idox plc and its United Kingdom subsidiaries is the pound sterling (£). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss.
In the consolidated financial statements, the assets and liabilities of non-sterling functional currency subsidiaries, are translated into pound sterling at the rate of exchange ruling at the balance sheet date. The results of non-sterling functional currency subsidiaries are translated into pound sterling using average rates of exchange. Exchange adjustments arising are taken to the foreign currency translation reserve and reported in other comprehensive income.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group has become a party to the contractual provisions of the instrument.
Financial assets
Financial assets are classified according to the substance of the contractual arrangements entered into.
Trade and other receivables
Trade receivables do not carry any interest and are initially stated at their fair value, as reduced by appropriate allowances for estimated irrecoverable amounts. All receivables are considered for impairment. Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the assets carrying value and the present value of estimated future cash flows.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and on deposit with a maturity of 3 months or less from inception and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its financial liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded initially at fair value, net of direct transaction costs. Such instruments are subsequently carried at their amortised cost and finance charges, including premiums payable on settlement or redemption, are recognised in profit or loss over the term of the instrument using an effective rate of interest.
Bond
Bonds in issue are recorded initially at fair value, net of direct transaction costs. The bonds are subsequently carried at their amortised cost and finance charges are recognised in profit or loss over the term of the instrument using an effective rate of interest.
Trade and other payables
Trade and other payables are not interest-bearing, are initially stated at their fair value and subsequently at amortised cost.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
2 SEGMENTAL ANALYSIS
In previous periods, the Group was organised into five main operating segments. Following the acquisition and integration of 6PM Holdings plc, an additional Health segment was created. During the year ended 31 October 2017, the Grants and Compliance segments were merged to form a new Content division. As at 31 October 2017, the Group is therefore organised into five operating segments, which are detailed below.
Financial information is reported to the chief operating decision maker, which comprises the Chief Executive Officer and the Chief Financial Officer, monthly on a business unit basis with revenue and operating profits split by business unit. Each business unit is deemed an operating segment as each offers different products and services.
· Public Sector Software (PSS) - delivering specialist information management solutions and services to the public sector
· Engineering Information Management (EIM) - delivering engineering document management and control solutions to asset intensive industry sectors
· Content (CONT) - delivering funding and compliance solutions to corporate, public and commercial customers
· Digital (DIG) - delivering digital consultancy services to public, private and third sector customers
· Health (HLT) - delivering a broad range of innovative solutions to the healthcare market
Halarose Holdings Limited, acquired in August 2017, is included in the PSS segment.
Segment revenue comprises sales to external customers and excludes gains arising on the disposal of assets and finance income. Segment profit reported to the Board represents the profit earned by each segment before the allocation of taxation, Group interest payments and Group acquisition costs. The assets and liabilities of the Group are not reviewed by the chief operating decision maker on a segment basis.
The Group does not place reliance on any specific customer and has no individual customer that generates 10% or more of its total Group revenue.
The segment revenues by geographic location are as follows:
|
|
|
|
|
|
2017 £000 |
|
2016 £000 |
|
Revenues from external customers |
|
|
|
|
|
|
|
|
United Kingdom |
|
|
|
65,896 |
|
55,739 |
|
|
USA |
|
|
|
6,994 |
|
6,361 |
|
|
Europe |
|
|
|
15,077 |
|
12,271 |
|
|
Australia |
|
|
|
312 |
|
1,008 |
|
|
Rest of World |
|
|
|
580 |
|
1,360 |
|
|
|
|
|
|
|
88,859 |
|
76,739 |
Revenues are attributed to individual countries on the basis of the location of the customer.
|
|
|
|
|
|
2017 £000 |
|
2016 £000 |
|
Revenues by type |
|
|
|
|
|
|
|
|
Recurring revenues |
|
|
|
38,568 |
|
32,861 |
|
|
Non-recurring revenues |
|
|
|
50,291 |
|
43,878 |
|
|
|
|
|
|
|
88,859 |
|
76,739 |
|
|
|
|
|
|
|
|
|
|
Revenue from sale of goods |
|
|
|
|
19,696 |
|
15,020 |
|
Revenue from rendering of services |
|
|
|
|
69,163 |
|
61,719 |
|
|
|
|
|
|
88,859 |
|
76,739 |
Recurring revenue is income generated from customers on a contractual basis. Repeat and recurring revenue amount to approximately 84% of total revenue, which is revenue generated from sales to existing customers.
The segment results by business unit for the year ended 31 October 2017:
|
|
PSS £000
|
EIM £000 |
CONT £000 |
DIG £000 |
HLT £000 |
Total £000
|
|
Revenue |
41,171 |
12,901 |
12,421 |
14,726 |
7,640 |
88,859 |
|
Profit before interest, tax, depreciation, amortisation, share option costs, acquisition costs, impairment and restructuring costs |
15,352 |
2,146 |
1,648 |
(254) |
(353) |
18,539 |
|
Depreciation |
(672) |
(190) |
(18) |
(80) |
(212) |
(1,172) |
|
Amortisation - software licences and R&D |
(2,198) |
(492) |
(159) |
- |
(372) |
(3,221) |
|
Amortisation - acquired intangibles |
(2,303) |
(468) |
(493) |
(803) |
(1,181) |
(5,248) |
|
Restructuring costs |
(169) |
(69) |
(87) |
(327) |
(52) |
(704) |
|
Acquisition costs |
144 |
- |
- |
- |
(152) |
(8) |
|
Impairment |
- |
- |
- |
- |
(2,681) |
(2,681) |
|
Share option costs |
(281) |
|
(43) |
- |
- |
(324) |
|
Adjusted segment operating profit |
9,873 |
927 |
848 |
(1,464) |
(5,003) |
5,181 |
|
Corporate finance costs |
|
|
|
|
|
(32) |
|
Finance income |
|
|
|
|
|
363 |
|
Finance costs |
|
|
|
|
|
(2,031) |
|
Profit before Tax |
|
|
|
|
|
3,481 |
The segment results by business unit for the year ended 31 October 2016:
|
|
PSS £000
|
EIM £000 |
CONT £000 |
DIG £000 |
HLT £000 |
Total £000
|
|
Revenue |
40,966 |
14,059 |
10,804 |
10,910 |
- |
76,739 |
|
Profit before interest, tax, depreciation, amortisation, share option costs, acquisition costs and restructuring costs |
16,310 |
3,300 |
824 |
1,018 |
- |
21,452 |
|
Depreciation |
(430) |
(101) |
(20) |
(33) |
- |
(584) |
|
Amortisation - software licences and R&D |
(1,655) |
(410) |
(168) |
(2) |
- |
(2,235) |
|
Amortisation - acquired intangibles |
(2,187) |
(636) |
(492) |
(502) |
- |
(3,817) |
|
Restructuring costs |
(49) |
(40) |
(18) |
(223) |
- |
(330) |
|
Acquisition costs |
483 |
- |
- |
(79) |
- |
404 |
|
Share option costs |
(503) |
- |
(94) |
- |
- |
(597) |
|
Adjusted segment operating profit |
11,969 |
2,113 |
32 |
179 |
- |
14,293 |
|
Corporate finance costs |
|
|
|
|
|
(8) |
|
Finance income |
|
|
|
|
|
55 |
|
Finance costs |
|
|
|
|
|
(1,357) |
|
Profit before Tax |
|
|
|
|
|
12,983 |
3 OPERATING PROFIT FOR THE YEAR
|
Operating profit for the year has been arrived at after charging: |
2017 |
|
2016 |
|
|
£000 |
|
£000 |
|
Auditor's remuneration: |
|
|
|
|
Fees payable to the Company Auditor for the audit of the parent company and consolidated annual accounts |
57 |
|
56 |
|
The audit of the Company's subsidiaries, pursuant to legislation |
342 |
|
108 |
|
Audit related services |
33 |
|
31 |
|
|
432 |
|
195 |
|
Corporate Finance fees |
- |
|
136 |
|
Tax services - compliance |
25 |
|
43 |
|
Tax services - advisory |
9 |
|
- |
|
Operating lease rentals - buildings & equipment |
2,616 |
|
1,917 |
|
Depreciation - owned |
1,172 |
|
584 |
|
Amortisation: |
|
|
|
|
Software licences |
915 |
|
974 |
|
Research & development |
2,306 |
|
1,261 |
|
Acquired intangibles |
5,248 |
|
3,817 |
|
Equity-settled share-based payments |
324 |
|
597 |
|
Research & development costs |
3,764 |
|
3,959 |
4 DIRECTORS AND EMPLOYEES
|
Staff costs during the year were as follows: |
|
|
|
2017 |
|
2016 |
|
|
|
|
|
£000 |
|
£000 |
|
|
|
|
|
|
|
|
|
Wages and salaries |
|
|
|
36,559 |
|
31,226 |
|
Social security costs |
|
|
|
4,416 |
|
3,271 |
|
Pension costs |
|
|
|
1,328 |
|
1,025 |
|
|
|
|
|
42,303 |
|
35,522 |
|
|
|
|
|
|
|
|
In addition, during the year share based payment charges of £324,000 (2016: £597,000) were incurred.
During the year, the Group incurred restructuring costs of £704,000 (2016: £330,000). Restructuring costs represent redundancy payments to former staff.
The average number of employees of the Group during the year was 842 (2016: 676) and was made up as follows:
|
|
|
2017 |
|
2016 |
|
|
|
No. |
|
No. |
|
Office and administration (including Directors of the Company and its subsidiary undertakings) |
|
50 |
|
29 |
|
Sales |
|
61 |
|
33 |
|
Development |
|
134 |
|
101 |
|
Operations |
|
597 |
|
513 |
|
|
|
842 |
|
676 |
|
Remuneration in respect of Directors was as follows: |
|
2017 |
|
2016 |
|
|
|
£000 |
|
£000 |
|
|
|
|
|
|
|
Emoluments |
|
1,064 |
|
1,265 |
|
Pension contributions |
|
21 |
|
22 |
|
Share option exercise gain |
|
3,201 |
|
- |
|
|
|
4,286 |
|
1,465 |
In addition to the remuneration stated above, the Group incurred social security costs in respect of Directors of £562,000 (2016: £162,000).
The amounts set out above include remuneration in respect of the highest paid Director as follows:
|
|
|
2017 |
|
2016 |
|
|
|
£000 |
|
£000 |
|
|
|
|
|
|
|
Aggregate emoluments |
|
376 |
|
484 |
|
Pension contributions |
|
6 |
|
- |
|
|
|
382 |
|
484 |
During the year the highest paid director exercised share options resulting in a taxable gain of £1,128,000 (2016: £nil).
During the year, the Group incurred social security costs in respect of the highest paid director of £184,000 (2016: £66,000).
Details of the remuneration for each Director are included in the Report on Remuneration, which can be found on pages 23 to 24 but does not form part of the audited accounts.
5 ACQUISITION costs
Following the implementation of IFRS 3, all acquisition related costs are expensed in the period incurred rather than added to the cost of investment. Acquisition costs relating to individual acquisitions are disclosed in note 25.
|
Acquisition costs |
|
|
2017 |
|
2016 |
|
|
|
|
£000 |
|
£000 |
|
|
|
|
|
|
|
|
Acquisition costs |
|
|
(236) |
|
(318) |
|
Release of contingent consideration |
|
|
228 |
|
722 |
|
|
|
|
(8) |
|
404 |
During the year, the contingent consideration on Cloud Amber Limited was reduced from £478,000 to £250,000. The reduction was a result of missing the revenue target as set out in the Share Purchase Agreement. The adjusted contingent consideration has been paid. The adjustment of £228,000 is included in 'Acquisition costs' in the Consolidated Statement of Comprehensive Income.
6 FINANCE INCOME AND COSTS
|
|
2017 |
|
2016 |
|
|
£000 |
|
£000 |
|
|
|
|
|
|
Interest receivable |
6 |
|
4 |
|
Insurance income |
- |
|
8 |
|
Dividends receivable |
24 |
|
19 |
|
Foreign exchange differences |
222 |
|
- |
|
Other income |
111 |
|
24 |
|
Finance income |
363 |
|
55 |
|
|
|
|
|
|
Bank loans interest payable |
(757) |
|
(790) |
|
Bond interest payable |
(836) |
|
- |
|
Bank charges and loan facility fees |
(335) |
|
(298) |
|
Loss on discounting of amounts recoverable from customers |
(103) |
|
(191) |
|
Foreign exchange differences |
- |
|
(78) |
|
Finance costs |
(2,031) |
|
(1,357) |
7 dividends
|
|
|
2017 |
2016 |
|
|
|
£000 |
£000 |
|
|
|
|
|
|
Final dividend paid in respect of the year ended 31 October 2016 and 31 October 2015 |
|
2,627 |
1,885 |
|
|
|
|
|
|
Pence per ordinary share |
|
0.650p |
0.525p |
|
|
|
|
|
|
Interim dividend paid in respect of the year ended 31 October 2017 and 31 October 2016 |
|
1,590 |
1,263 |
|
|
|
|
|
|
Pence per ordinary share |
|
0.385p |
0.350p |
The Directors have proposed the payment of a final dividend of.0.655p per share, which would amount to £2,705,000 (2016: 0.650p).
8 INCOME TAX
|
The tax charge is made up as follows: |
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£000 |
£000 |
|
Current tax |
|
|
|
|
UK corporation tax on profits for the period |
|
1,567 |
2,634 |
|
Foreign tax on overseas companies |
|
302 |
508 |
|
Over provision in respect of prior periods |
|
(623) |
(754) |
|
Total current tax |
|
1,246 |
2,388 |
|
|
|
|
|
|
Deferred tax |
|
|
|
|
Origination and reversal of temporary differences |
|
(426) |
(961) |
|
Adjustment for rate change |
|
3 |
(252) |
|
Adjustments in respect of prior periods |
|
20 |
2 |
|
Total deferred tax |
|
(403) |
(1,211) |
|
|
|
|
|
|
Total tax charge |
|
843 |
1,177 |
The differences between the total tax charge above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax, together with the impact on the effective tax rate, are as follows:
|
|
|
|
|
|
|
|
2017 |
% ETR |
2016 |
% ETR |
|
|
£000 |
movement |
£000 |
movement |
|
|
|
|
|
|
|
Profit before taxation on continuing operations |
3,481 |
|
12,983 |
|
|
|
|
|
|
|
|
Profit on ordinary activities multiplied by the standard |
|
|
|
|
|
rate of corporation tax in the UK of 19% (2016: 20%) |
661 |
19.00 |
2,597 |
20.00 |
|
|
|
|
|
|
|
Effects of: |
|
|
|
|
|
Share option deduction |
(100) |
(2.87) |
(216) |
(1.66) |
|
Tax losses utilised in year |
(11) |
(0.33) |
(113) |
(0.87) |
|
International losses not recognised |
359 |
10.31 |
172 |
1.32 |
|
Accelerated capital allowances |
(155) |
(4.45) |
- |
- |
|
Other timing differences |
(98) |
(2.82) |
5 |
0.04 |
|
Expenses not deductible for tax purposes |
724 |
20.80 |
118 |
0.91 |
|
Prior year over-provision |
(656) |
(18.85) |
(751) |
(5.78) |
|
Non-taxable income |
(52) |
(1.49) |
(152) |
(1.17) |
|
Adjustment for tax rate differences |
200 |
5.75 |
(374) |
(2.88) |
|
R&D enhanced relief |
(30) |
(0.87) |
(139) |
(1.07) |
|
Foreign tax suffered |
1 |
0.03 |
30 |
0.22 |
|
|
843 |
24.21 |
1,177 |
9.06 |
The effective tax rate ('ETR') for the period was 24.21% (2016: 9.06%). Significant tax repayments were processed in 2017, not previously provided for, in respect of historic R&D claims covering the Reading Room Group and Idox Health Ltd.
These downward pressures on ETR were mitigated by impairment, acquisition costs and the non-recognition of overseas losses.
The higher effective tax rate in 2017, compared to 2016, is due mainly to impairment of the 6PM acquisition alongside the non-recognition of losses incurred in Malta, owing to uncertainty over their future utilisation. These losses will be recognised where their likelihood of utilisation increases, with any future recognition resulting in a decrease to ETR.
Movement on trading losses during 2017 are as follows:
|
|
|
UK unrelieved trading losses |
Foreign unrelieved trading losses |
Total unrelieved trading losses |
Tax effect |
|
Recognised trading losses |
|
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
As at 1 November 2016 |
|
- |
2,398 |
2,398 |
432 |
|
Impact of deferred tax recognition at local rate |
|
- |
- |
- |
384 |
|
Recognised during the year |
|
327 |
- |
327 |
59 |
|
Utilised during the year |
|
- |
(1,579) |
(1,579) |
(537) |
|
|
|
327 |
819 |
1,146 |
338 |
|
|
|
|
|
|
|
|
Unrecognised trading losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses not recognised |
|
(2,137) |
(9,983) |
(12,120) |
(3,268) |
|
|
|
|
|
|
|
|
|
|
(2,137) |
(9,983) |
(12,120) |
(3,268) |
The UK trading losses recognised during the year were brought in on acquisition of the 6PM Group. The foreign losses utilised during the year were primarily in the US, with a small element in the Netherlands. The closing unrecognised losses of £12,120,000 relate to Malta, the UK and Germany. The decision was made to derecognise these assets until there is more certainty over their future utilisation. Across the year the total deferred tax asset in respect of unrelieved trading losses has decreased from £432,000 to £337,000.
9 EARninGS per share
The earnings per ordinary share is calculated by reference to the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during each period, as follows:
|
|
|
2017 |
2016 |
|
|
|
|
£000 |
£000 |
|
|
|
|
|
|
|
|
Profit for the year |
|
2,628 |
11,806 |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
Weighted average number of shares in issue |
|
397,125,960 |
357,989,177 |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
0.66p |
3.30p |
|
|
|
|
|
|
|
|
Weighted average number of shares in issue |
|
397,125,960 |
357,989,177 |
|
|
Add back: |
|
|
|
|
|
Treasury shares |
|
2,366,219 |
3,023,469 |
|
|
ESOP shares |
|
985,589 |
875,044 |
|
|
Weighted average allotted, called up and fully paid share capital |
|
400,477,768 |
361,887,690 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
Weighted average number of shares in issue used in basic earnings per share calculation |
|
397,125,960 |
357,989,177 |
|
|
Dilutive share options |
|
10,678,522 |
13,579,022 |
|
|
Weighted average number of shares in issue used in dilutive earnings per share calculation |
|
407,804,482 |
371,568,199 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
0.64p |
3.18p |
|
|
|
|
|
|
|
|
Adjusted earnings per share |
|
2017 £000 |
2016 £000 |
|
|
|
|
|
|
Profit for the year |
|
2,628 |
11,806 |
|
Add back: |
|
|
|
|
Amortisation on acquired intangibles |
|
5,248 |
3,817 |
|
Impairment |
|
2,681 |
- |
|
Acquisition costs |
|
8 |
(404) |
|
Restructuring costs |
|
704 |
330 |
|
Tax effect |
|
(1,727) |
(829) |
|
Adjusted profit for year |
|
9,542 |
14,720 |
|
Weighted average number of shares in issue - basic |
|
397,125,960 |
357,989,177 |
|
Weighted average number of shares in issue - diluted |
|
407,804,482 |
371,568,199 |
|
|
|
|
|
|
Adjusted earnings per share |
|
2.40p |
4.11p |
|
|
|
|
|
|
Adjusted diluted earnings per share |
|
2.34p |
3.96p |
10 PROPERTY, PLANT AND EQUIPMENT
|
|
Computer hardware |
Fixtures, fittings and equipment |
Library books and journals |
Investment Property |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
Cost |
|
|
|
|
|
|
At 1 November 2015 |
1,009 |
514 |
184 |
- |
1,707 |
|
Additions |
554 |
64 |
61 |
- |
679 |
|
Additions on acquisition |
65 |
10 |
- |
- |
75 |
|
Internal reallocation to intangible assets |
(12) |
- |
- |
- |
(12) |
|
Disposals |
(359) |
(105) |
- |
- |
(464) |
|
At 31 October 2016 |
1,257 |
483 |
245 |
- |
1,985 |
|
FX on opening balances |
- |
9 |
- |
- |
9 |
|
Additions |
1,542 |
38 |
3 |
- |
1,583 |
|
Additions on acquisition |
99 |
212 |
- |
384 |
695 |
|
Disposals |
(806) |
(102) |
(233) |
(384) |
(1,525) |
|
Internal reallocation of asset category |
113 |
(137) |
- |
- |
(24) |
|
At 31 October 2017 |
2,205 |
503 |
15 |
- |
2,723 |
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
At 1 November 2015 |
393 |
104 |
133 |
- |
630 |
|
Provided in the year |
355 |
139 |
90 |
- |
584 |
|
Eliminated on disposal |
(359) |
(75) |
- |
- |
(434) |
|
Fair value adjustment |
63 |
27 |
- |
- |
90 |
|
At 31 October 2016 |
452 |
195 |
223 |
- |
870 |
|
Provided in the year |
889 |
264 |
19 |
- |
1,172 |
|
Eliminated on disposal |
(731) |
(138) |
(233) |
- |
(1,102) |
|
Internal reallocation of asset category |
74 |
(98) |
- |
- |
(24) |
|
At 31 October 2017 |
684 |
223 |
9 |
- |
916 |
|
|
|
|
|
|
|
|
Net book amount at 31 October 2017 |
1,521 |
280 |
6 |
- |
1,807 |
|
|
|
|
|
|
|
|
Net book amount at 31 October 2016 |
805 |
288 |
22 |
- |
1,115 |
The Group has pledged the above assets to secure banking facilities granted to the Group.
11 INTANGIBLE ASSETS
|
|
Goodwill |
Customer relation- ships |
Trade names |
Software |
Development costs |
Database |
Order backlog |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
Cost |
|
|
|
|
|
|
|
|
|
At 1 November 2015 |
49,091 |
21,760 |
9,613 |
11,908 |
7,328 |
569 |
4,321 |
104,590 |
|
FX on opening balance |
- |
- |
- |
29 |
109 |
- |
20 |
158 |
|
Additions |
- |
- |
- |
1,393 |
2,799 |
- |
- |
4,192 |
|
Additions on acquisition |
2,925 |
245 |
1,924 |
3,970 |
- |
- |
- |
9,064 |
|
Internal reallocation |
- |
- |
- |
12 |
- |
- |
- |
12 |
|
Fair value adjustment |
630 |
- |
- |
(238) |
- |
- |
- |
392 |
|
At 31 October 2016 |
52,646 |
22,005 |
11,537 |
17,074 |
10,236 |
569 |
4,341 |
118,408 |
|
Revaluation of opening balance |
- |
- |
- |
|
95 |
- |
(4) |
91 |
|
Additions |
- |
- |
- |
921 |
4,767 |
- |
- |
5,688 |
|
Additions on acquisition |
24,516 |
12,312 |
2,714 |
5,362 |
1,545 |
- |
170 |
46,619 |
|
Disposals |
- |
(3,510) |
(1,383) |
(7,080) |
(3,972) |
(569) |
(4,200) |
(20,714) |
|
Fair value adjustment |
101 |
- |
(275) |
(275) |
- |
- |
- |
(449) |
|
At 31 October 2017 |
77,263 |
30,807 |
12,593 |
16,002 |
12,671 |
- |
307 |
149,643 |
|
|
|
|
|
|
|
|
|
|
|
Amortisation |
|
|
|
|
|
|
|
|
|
At 1 November 2015 |
647 |
9,336 |
4,007 |
7,085 |
3,968 |
569 |
4,166 |
29,778 |
|
FX on opening balance |
- |
- |
- |
21 |
34 |
- |
4 |
59 |
|
Amortisation for the year |
- |
1,903 |
740 |
2,082 |
1,261 |
- |
66 |
6,052 |
|
At 31 October 2016 |
647 |
11,239 |
4,747 |
9,188 |
5,263 |
569 |
4,236 |
35,889 |
|
Revaluation of opening balance |
- |
- |
- |
- |
13 |
- |
(3) |
10 |
|
Amortisation for the year |
- |
2,085 |
928 |
3,104 |
2,305 |
- |
46 |
8,468 |
|
Impairment |
3,231 |
- |
- |
- |
- |
- |
- |
3,231 |
|
Disposals |
- |
(3,510) |
(1,383) |
(7,075) |
(3,972) |
(569) |
(4,200) |
(20,709) |
|
At 31 October 2017 |
3,878 |
9,814 |
4,292 |
5,217 |
3,609 |
- |
79 |
26,889 |
|
|
|
|
|
|
|
|
|
|
|
Carrying amount at 31 October 2017 |
73,385 |
20,993 |
8,301 |
10,785 |
9,062 |
- |
228 |
122,754 |
|
|
|
|
|
|
|
|
|
|
|
Carrying amount at 31 October 2016 |
51,999 |
10,766 |
6,790 |
7,886 |
4,973 |
- |
105 |
82,519 |
During the year, goodwill and intangibles were reviewed for impairment in accordance with IAS 36, 'Impairment of Assets'. An impairment charge of £2,681,000 (was processed in the period in relation to the Health division. An impairment charge of £550,000 was processed in the period in relation to a cash refund relating to the historical acquisition price of Rippleffect Limited. There were no impairment charges identified in the prior year.
Fair value adjustments are in relation to Rippleffect Limited. Further information on these fair value adjustments is provided in note 25.
The Group has pledged the above assets to secure banking facilities granted to the Group.
11 INTANGIBLE ASSETS (CONTINUED)
The remaining useful lives and carrying value of the above intangible assets is as follows:
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
2017 |
2016 |
2017 |
2016 |
||
|
|
Remaining amortisation period (years) |
Remaining amortisation period (years) |
Carrying value £000 |
Carrying value £000 |
||
|
CAPS intangibles |
|
|
|
|
||
|
Customer relationships |
9.5 |
10.5 |
2,786 |
3,079 |
||
|
Trade names |
9.5 |
10.5 |
1,186 |
1,310 |
||
|
Software |
- |
0.5 |
- |
150 |
||
|
|
|
|
|
|
||
|
Plantech intangibles |
|
|
|
|
||
|
Customer relationships |
10 |
11 |
578 |
636 |
||
|
Trade names |
10 |
11 |
261 |
286 |
||
|
Software |
- |
1 |
- |
84 |
||
|
J4B intangibles |
|
|
|
|
||
|
Customer relationships (project) |
1.5 |
2.5 |
20 |
33 |
||
|
Trade names |
1.5 |
2.5 |
31 |
51 |
||
|
|
|
|
|
|
||
|
Grantfinder intangibles |
|
|
|
|
||
|
Trade name |
2.5 |
3.5 |
58 |
82 |
||
|
|
|
|
|
|
||
|
Strand intangibles |
|
|
|
|
||
|
Customer relationships |
2.8 |
3.8 |
638 |
870 |
||
|
|
|
|
|
|
||
|
LAMP contracts intangibles |
|
|
|
|
||
|
Backlog order book |
- |
1 |
- |
3 |
||
|
|
|
|
|
|
||
|
McLaren intangibles |
|
|
|
|
||
|
Customer relationships |
3.1 |
4.1 |
317 |
418 |
||
|
|
|
|
|
|
||
|
Lalpac intangibles |
|
|
|
|
||
|
Customer relationships |
3.5 |
4.5 |
576 |
741 |
||
|
Trade names |
3.5 |
4.5 |
57 |
74 |
||
|
Software |
3.5 |
4.5 |
115 |
148 |
||
|
|
|
|
|
|
||
|
Interactive Dialogues intangibles |
|
|
|
|
||
|
Customer relationships |
4 |
5 |
141 |
176 |
||
|
Trade names |
4 |
5 |
82 |
103 |
||
|
Software |
4 |
5 |
165 |
206 |
||
|
|
|
|
|
|
||
|
CT Space intangibles |
|
|
|
|
||
|
Trade names |
4 |
5 |
495 |
619 |
||
|
Software |
4 |
5 |
593 |
743 |
||
|
|
|
|
|
|
||
|
Opt2Vote intangibles |
|
|
|
|
||
|
Customer relationships |
- |
0.4 |
- |
64 |
||
|
Trade names |
4.4 |
5.4 |
233 |
286 |
||
|
Software |
4.4 |
5.4 |
311 |
381 |
||
|
|
|
|
|
|
|
|
|
11 INTANGIBLE ASSETS (CONTINUED) |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
2017 |
2016 |
2017 |
2016 |
|
|
|
|
Remaining amortisation period (years) |
Remaining amortisation period (years) |
Carrying value £000 |
Carrying value £000 |
|
|
|
Currency Connect intangibles |
|
|
|
|
|
|
|
Customer relationships |
4.4 |
5.4 |
871 |
1,068 |
|
|
|
Trade names |
4.4 |
5.4 |
115 |
141 |
|
|
|
Software |
4.4 |
5.4 |
124 |
152 |
|
|
|
|
|
|
|
|
|
|
|
FMx intangibles |
|
|
|
|
|
|
|
Customer relationships |
- |
0.9 |
- |
124 |
|
|
|
Trade names |
4.9 |
5.9 |
109 |
132 |
|
|
|
Software |
4.9 |
5.9 |
164 |
197 |
|
|
|
|
|
|
|
|
|
|
|
Artesys intangibles |
|
|
|
|
|
|
|
Trade names |
5.4 |
6.4 |
163 |
193 |
|
|
|
Software |
5.4 |
6.4 |
194 |
229 |
|
|
|
|
|
|
|
|
|
|
|
Digital Spirit intangibles |
|
|
|
|
|
|
|
Customer relationships |
7 |
8 |
325 |
371 |
|
|
|
Trade names |
7 |
8 |
143 |
164 |
|
|
|
Software |
7 |
8 |
143 |
164 |
|
|
|
|
|
|
|
|
|
|
|
Cloud Amber intangibles |
|
|
|
|
|
|
|
Customer relationships |
7.7 |
8.7 |
787 |
889 |
|
|
|
Trade names |
7.7 |
8.7 |
256 |
290 |
|
|
|
Software |
7.7 |
8.7 |
384 |
434 |
|
|
|
|
|
|
|
|
|
|
|
Miria contracts intangibles |
|
|
|
|
|
|
|
Backlog order book |
2.7 |
3.7 |
73 |
102 |
|
|
|
|
|
|
|
|
|
|
|
Reading Room intangibles |
|
|
|
|
|
|
|
Customer relationships |
8 |
9 |
1,838 |
2,068 |
|
|
|
Trade names |
8 |
9 |
1,047 |
1,178 |
|
|
|
|
|
|
|
|
|
|
|
Open Objects intangibles |
|
|
|
|
|
|
|
Customer relationships |
3.7 |
4.7 |
180 |
229 |
|
|
|
Trade names |
12.7 |
13.7 |
748 |
807 |
|
|
|
Software |
5.7 |
6.7 |
2,083 |
2,450 |
|
|
|
|
|
|
|
|
|
|
|
Rippleffect intangibles |
|
|
|
|
|
|
|
Trade names |
10.7 |
11.8 |
731 |
1,074 |
|
|
|
Software |
1.7 |
2.8 |
630 |
1,279 |
|
|
|
|
|
|
|
|
|
|
|
6PM intangibles |
|
|
|
|
|
|
|
Customer relationships |
19.3 |
- |
9,288 |
- |
|
|
|
Trade names |
13.3 |
- |
2,284 |
- |
|
|
|
Software |
3.3 - 4.3 |
- |
3,933 |
- |
|
|
|
|
|
|
|
|
|
|
|
Halarose intangibles |
|
|
|
|
|
|
|
Customer relationships |
19.8 |
- |
2,648 |
- |
|
|
|
Trade names |
11.8 |
- |
302 |
- |
|
|
|
Order backlog |
2.8 |
- |
155 |
- |
|
|
|
Software |
3.8 - 4.8 |
- |
657 |
- |
|
|
|
|
|
|
|
|
|
|
|
Development costs |
1 - 5 |
5 |
9,062 |
4,973 |
|
|
|
|
|
|
|
|
|
|
|
Software costs |
3 |
3 |
1,289 |
1,269 |
|
|
11 INTANGIBLE ASSETS (CONTINUED)
Impairment test for goodwill
For this review, goodwill was allocated to individual Cash Generating Units (CGU) on the basis of the Group's operations as disclosed in the segmental analysis. As the Board reviews results on a segmental level, the Group monitors goodwill on the same basis.
The carrying value of goodwill by each CGU is as follows:
|
|
2017 |
2016 |
|
Cash Generating Units (CGU) |
£000 |
£000 |
|
|
|
|
|
Public Sector Software |
32,016 |
30,191 |
|
Engineering Information Management |
11,773 |
11,774 |
|
Content |
7,154 |
7,154 |
|
Digital |
2,431 |
2,880 |
|
Health |
20,011 |
- |
|
|
73,385 |
51,999 |
The recoverable amount of all CGUs has been determined using value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering the next five financial years. The key assumptions used in the financial budgets relate to revenue and EBITDA growth targets. Cash flows beyond this period are extrapolated using the estimated growth rates stated below. Growth rates are reviewed in line with historic actuals to ensure reasonableness and are based on an increase in market share.
For value-in-use calculations, the growth rates and margins used to estimate future performance are based on financial year 2018 budgets (as approved by the Board) which is management's best estimate of short term performance based on an assessment of market opportunities and macro-economic conditions. In the year to 31 October 2017, the Weighted Average Cost of Capital for each CGU has been used as an appropriate discount rate to apply to cash flows. The same basis was used in the year to 31 October 2016.
The assumptions used for the value- in-use calculations are as follows and are considered appropriate for each of the risk profiles of the respective CGUs:
|
Cash Generating Unit (CGU) |
Discount rate Current year |
Growth rate Current year |
Discount rate Prior year |
Growth rate Prior year |
|
Public Sector Software |
11.19% |
2% |
11.41% |
2% |
|
Engineering Information Management |
10.55% |
2% |
12.89% |
2% |
|
Content |
12.04% |
2% |
10.94% |
2% |
|
Digital |
11.05% |
2% |
10.94% |
2% |
|
Health |
10.55% |
2% |
|
|
Individual Weighted Average Cost of Capital were calculated for each CGU and adjusted for the market's assessment of the risks attaching to each CGU's cash flows. The Weighted Average Cost of Capital is recalculated at each period end.
Management considered the level of intangible assets within the Health division in comparison to the future budgets and have processed an impairment charge of £2,681,000 within the year (2016: £nil).
Sensitivities have been run on cash flow forecasts for all CGUs. Management are satisfied that the key assumptions of revenue and EBITDA growth rates are achievable and that reasonable possible changes to those key assumptions would not lead to the carrying amount of the relevant CGU exceeding the recoverable amount for PSS, EIM and Content divisions. The carrying amount of the Digital CGU is close to recoverable amount and depending on future results and projections an impairment could be required in the future. Management have calculated that a reduction in the budgeted gross margin by 1% would lead to a required impairment charge of £300,000. The Heath division was impaired during year ended 31 October 2017 based on future budget projections. If the future budget is not met then the carrying amount of this CGU would exceed the recoverable amount and further impairment could be required.
Sensitivities have also been run on the discount rate applied and management are satisfied that a reasonable increase in the discount rate would not lead to the carrying amount of the relevant CGU exceeding the recoverable amount.
12 INVESTMENT
The investment relates to a 22.5% shareholding Javaili LLC a company incorporated in USA. This investment was acquired as part of the acquisition of the 6PM Group in February 2017.
13 deferred INCOME tax
|
Deferred tax assets and liabilities are summarised as follows: |
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Deferred tax assets |
1,085 |
2,114 |
|
|
|
|
|
Deferred tax liabilities (non-current) |
(7,010) |
(4,351) |
|
|
(5,925) |
(2,237) |
The movement in the year in the net deferred tax provision was as follows:
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
At 1 November |
(2,237) |
(2,708) |
|
Credit to income for the year |
426 |
961 |
|
Adjustment for changes in rate |
(3) |
252 |
|
Prior year adjustment |
(20) |
(2) |
|
Other movements |
56 |
93 |
|
Charged to goodwill for the year |
(3,697) |
(1,105) |
|
Transferred to equity |
(450) |
272 |
|
At 31 October |
(5,925) |
(2,237) |
The movement in deferred income tax assets and liabilities during the year is as follows:
|
|
Share-based payments |
Other temporary differences |
Tax losses carried forward |
Accelerated tax depreciation |
Total deferred tax asset |
Total deferred tax liability |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
|
At 1 November 2015 |
747 |
31 |
456 |
415 |
1,649 |
(4,357) |
|
Charge to income |
218 |
56 |
21 |
64 |
359 |
750 |
|
Charge to equity |
272 |
- |
- |
- |
272 |
- |
|
Changes in rate |
(75) |
(3) |
(46) |
(42) |
(166) |
361 |
|
Deferred tax recognised on acquisition |
- |
- |
- |
- |
- |
(1,105) |
|
At 31 October 2016 |
1,162 |
84 |
431 |
437 |
2,114 |
(4,351) |
|
|
|
|
|
|
|
|
|
At 1 November 2016 |
1,162 |
84 |
431 |
437 |
2,114 |
(4,351) |
|
Charge to income |
(516) |
(51) |
(152) |
76 |
(643) |
1,038 |
|
Charge to equity |
(451) |
- |
- |
- |
(451) |
- |
|
Changes in rate |
- |
- |
(5) |
- |
(5) |
- |
|
Deferred tax recognised on acquisition |
- |
8 |
62 |
- |
70 |
(3,697) |
|
At 31 October 2017 |
195 |
41 |
336 |
513 |
1,085 |
(7,010) |
The deferred tax liability relates to deferred tax on intangible assets acquired on acquisition of subsidiaries.
14 FINANCIAL ASSETS AND LIABILITIES
Categories of financial assets and liabilities
The disclosures detailed below are as required by IFRS 7 'Financial Instruments: Disclosures'. The carrying amounts presented on the consolidated balance sheet relate to the following categories of assets and liabilities:
|
Financial assets |
|
2017 |
2016 |
|
|
|
Note |
£000 |
£000 |
|
|
Financial assets measured at amortised cost: |
|
|
|
|
|
Current: |
|
|
|
|
|
Trade and other receivables |
15 |
19,841 |
18,929 |
|
|
Cash and cash equivalents |
16 |
3,260 |
3,787 |
|
|
|
|
23,101 |
22,716 |
|
|
Loans and receivables: |
|
|
|
|
|
Non-current: |
|
|
|
|
|
Amounts recoverable on contracts |
15 |
8,738 |
6,094 |
|
|
|
|
8,738 |
6,094 |
|
|
Current: |
|
|
|
|
|
Amounts recoverable on contracts |
15 |
14,305 |
12,677 |
|
|
|
|
14,305 |
12,677 |
|
|
|
|
|
|
|
|
Financial liabilities |
|
2017 |
2016 |
|
|
|
Note |
£000 |
£000 |
|
|
Financial liabilities measured at amortised cost: |
|
|
|
|
|
Non-current: |
|
|
|
|
|
Bonds in issue |
20 |
11,394 |
- |
|
|
Bank borrowings |
21 |
21,519 |
26,410 |
|
|
|
|
32,913 |
26,410 |
|
|
Current: |
|
|
|
|
|
Bank borrowings |
21 |
2,410 |
2,425 |
|
|
Trade and other payables |
17 |
11,019 |
7,643 |
|
|
Other liabilities |
18 |
2,681 |
1,387 |
|
|
|
|
16,110 |
11,455 |
|
|
Financial liabilities measured at fair value through profit or loss: |
|
|
|
|
|
Non-current: |
|
|
|
|
|
Other liabilities* |
|
- |
1,600 |
|
|
|
|
- |
1,600 |
|
|
Current: |
|
|
|
|
|
Other liabilities* |
|
1,600 |
478 |
|
|
|
|
1,600 |
478 |
|
|
|
|
|
|
|
*Hierarchy 3 being inputs for the asset or liability which are not based on observable market data. The current year liability relates to deferred consideration on the acquisition of Open Objects Limited. The prior year liability relates to a deferred consideration on the acquisition of Open Objects Limited and Cloud Amber Limited.
The Group's financial liabilities per the fair value hierarchy classifications under IFRS 13 'Financial Instruments: Disclosures' are described below:
|
Category of financial liability |
Fair value at 31 October 2017 £000 |
Level in hierarchy |
Description of valuation technique |
Inputs used for financial model |
Total gains recognised in profit or loss £000 |
|
Contingent consideration due on acquisitions |
1,600 |
3 |
Based on future revenue and probability that vendor will meet obligations under sale and purchase agreement |
Management estimate on probability and timescale of vendors meeting revenue targets specified in sale and purchase agreement |
228 |
There have been no changes to valuation techniques or any amounts recognised through 'Other Comprehensive Income'. The adjustment of £228,000 is included in 'Acquisition credits' in the Consolidated Statement of Comprehensive Income.
15 TRADE AND OTHER RECEIVABLES
|
|
|
|
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Trade receivables, gross |
19,337 |
18,784 |
|
Allowance for credit losses |
(497) |
(437) |
|
Trade receivables, net |
18,840 |
18,347 |
|
Amounts recoverable on contracts |
14,305 |
12,677 |
|
Other receivables |
1,001 |
582 |
|
Financial assets |
34,146 |
31,606 |
|
|
|
|
|
Prepayments |
2,596 |
2,147 |
|
Non-financial assets |
2,596 |
2,147 |
|
Trade and other receivables due within one year |
36,742 |
33,753 |
|
|
|
|
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Amounts recoverable on contracts |
8,738 |
6,094 |
|
Trade and other receivables due after one year |
8,738 |
6,094 |
The carrying amount of trade and other receivables approximates to their fair value, which has been calculated based on expectations of debt recovery from historic performances feeding into impairment provision calculations.
Trade receivables are reviewed regularly for impairment and judgement made as to any likely impairment based on historic trends and the latest communication with customers.
Amounts recoverable on contracts represent work completed and delivered to the customer but due to the contractual payment terms have not yet been invoiced. £15.1m of the balance is in relation to deferred payment deals on local authority contracts, which typically have three to five year payment terms. Amounts recoverable due after one year have been discounted to amortised cost.
All of the closing Group trade receivables are in UK sterling with the exception of:
|
|
2017 |
2016 |
|
Euros |
€4,768,000 |
€5,694,000 |
|
Australian Dollars |
AUD35,000 |
AUD10,000 |
|
Emirati Dirham |
- |
AED34,000 |
|
US Dollars |
$3,091,000 |
$2,726,000 |
|
Canadian Dollars |
- |
$19,000 |
|
Swiss Franc |
SWF12,000 |
- |
|
Norwegian Krone |
NOK386,000 |
- |
|
New Zealand Dollars |
NZD16,000 |
- |
|
Polish Zloty |
PLZ1,000 |
- |
Credit quality of financial assets
The maximum exposure for the Group to credit risk for trade receivables at the reporting date by type of customer was:
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Local authorities and other public bodies |
9,800 |
7,814 |
|
Private companies |
9,537 |
10,970 |
|
|
19,337 |
18,784 |
The ageing of trade receivables at the reporting date for the Group was:
|
|
Gross |
Impairment |
Gross |
Impairment |
|
|
2017 |
2017 |
2016 |
2016 |
|
|
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
Not past due |
11,509 |
- |
11,375 |
- |
|
Past due 0 to 30 days |
2,425 |
- |
2,485 |
- |
|
Past due 31 to 60 days |
1,155 |
- |
424 |
- |
|
More than 61 days |
4,248 |
497 |
4,500 |
437 |
|
|
19,337 |
497 |
18,784 |
437 |
Movements in the provision for impairment of receivables for the Group were as follows:
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
At 1 November |
437 |
421 |
|
Charge for the year |
693 |
1,004 |
|
Relating to acquisitions |
- |
104 |
|
Utilised |
(633) |
(1,092) |
|
At 31 October |
497 |
437 |
The provision allowance in respect of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible. At that point, the amounts are considered irrecoverable and are written off against the trade receivable directly. Where trade receivables are past due, an assessment is made of individual customers and the outstanding balance.
16 cash and cash equivalents
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Cash at bank and in hand |
3,260 |
3,787 |
|
Cash and cash equivalents per cash flow statements |
3,260 |
3,787 |
The credit quality of the holders of the cash at bank is A and AA rated.
17 TRADE AND OTHER PAYABLES
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Trade payables |
6,102 |
3,922 |
|
Accruals |
4,917 |
3,721 |
|
|
11,019 |
7,643 |
The carrying values of trade and other payables are considered to be reasonable approximations of fair value. Accruals represent liabilities which have been recognised at the balance sheet date. The majority of these will be paid during the next six months.
18 OTHER LIABILITIES
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
Current: |
|
|
|
Social security and other taxes |
4,913 |
2,453 |
|
Other payables - deferred consideration |
1,600 |
478 |
|
Other payables |
2,681 |
1,387 |
|
Deferred income |
19,843 |
15,896 |
|
|
29,037 |
20,214 |
|
|
£000 |
£000 |
|
Non-current: |
|
|
|
Other payables - deferred consideration |
- |
1,600 |
Deferred income represents software revenue, where billing milestones have been reached but the appropriate proportion of work has not been completed, and maintenance, managed service and subscription revenues that are spread over the period, typically one year, for which the service is supplied.
19 PROVISIONS
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
At 1 November |
39 |
29 |
|
Provision made during the year |
161 |
10 |
|
Provision utilised during the year |
(39) |
- |
|
At 31 October |
161 |
39 |
The opening and closing provisions relate to estimated dilapidation costs expected to arise on exit of leased properties. The full provision of £161,000 is expected to be payable during the year ended 31 October 2018.
20 bonds IN ISSUE
Bonds in issue are measured at amortised cost.
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
130,000 bonds at €100 each |
11,394 |
- |
|
|
11,394 |
- |
The bonds were acquired following the acquisition of 6PM Holdings plc. The bonds were issued in 2015 at a nominal value of €100 each bearing interest at 5.1% per annum. They are redeemable at par value in 2025. Interest on the bonds is paid annual in arrears in July each year.
The bonds are listed on the Official Companies List of the Malta Stock Exchange
21 borrowings
All borrowings are held at amortised cost and after set-off for unamortised loan facility fees:
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
Current: |
|
|
|
Bank borrowings |
2,410 |
2,425 |
|
|
|
|
|
Non-current: |
|
|
|
Bank borrowings |
21,519 |
26,410 |
|
|
|
|
|
Total borrowings |
23,929 |
28,835 |
The Group has two loan facilities in place through a two-bank facility with Royal Bank of Scotland and Silicon Valley Bank. The facilities consist of a term loan of £9.5m and a revolving credit facility of £23m. The facility is available until February 2019.
At the balance sheet date, the term loan had an outstanding balance of £9.5m (2016: £12m) and during the period the loan was held, the average interest rate was 2.81% (2016: 3.06%).
At the balance sheet date, the revolving credit facility had an outstanding balance of £14.5m (2016: £17m) and during the period the loan was held, the average interest rate was 2.58% (2016: 2.75%).
There are unamortised loan fees of £90,000 (2016: £190,000) at the balance sheet date.
An accounting adjustment of £19,000 has been processed during the period to take into account the effective rate of interest on the bank facilities.
As security for the above loans, Royal Bank of Scotland and Silicon Valley Bank hold a fixed and floating charge over the assets of Idox plc and certain subsidiaries, a guarantee supported by Idox plc and certain subsidiaries and a share pledge in respect of the entire issued share capital of each subsidiary company.
The acquisition of 6PM Holdings plc led to a breach in our Guarantor coverage covenant at the year end as the operations of a number of 6PM individual legal entities amount to more than 5% of group turnover, EBITDA and gross assets. As a result, we have an obligation to add the relevant legal entities as Guarantors to the facility. This process is in progress and the banks have provided a covenant waiver, which was in place at 31 October 2017, wwerjmkhnkmrhile the legal formalities are completed.
The Board highlighted to the lenders that due to a limitation of scope in relation to the 6PM sub-group the audit would result in a qualified audit opinion. It was explained to the lenders that due to poor record keeping in the early months of the period within 6PM there is a limitation of scope on 6PM revenue and deferred revenue and the books and records of the three immaterial subsidiaries, particularly relating to the period up to July 2017 when 6PM was integrated into Idox finance and the record keeping has been improved. Following discussions with the Board the bank was satisfied that, whilst this is technically a breach, they have given an advance waiver to cover the period of signing the statutory accounts.
During the period, the Group repaid two term loans from Oseo, France. At 31 October 2016, the total outstanding amount was £25,000 and the average interest rate paid during that period the facility was held was 8.10%.
The Directors estimate that the fair value of the Group's borrowing is not significantly different to the carrying value.
22 RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group's principal financial instruments comprise cash and cash equivalents, short term deposits, bonds and bank borrowings. The main purpose of these financial instruments is to finance the Group's operations. The Group has other financial instruments, which mainly comprise trade receivables and trade payables that arise directly from its operations.
Risk management is carried out by the finance department under policies approved by the Board. The Group's finance department identifies, evaluates and manages financial risks. The Board provides guidance on overall risk management including foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity. The Board have evaluated the risks and are satisfied that the risk management objectives are met.
The impact of the risks required to be discussed under IFRS 7 are detailed below:
Market risk
(i) Foreign exchange risk
Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the functional currency of the operations. The Group has minimal exposure to foreign exchange risk as a result of natural hedges arising between sales and cost transactions.
(ii) Cash flow and fair value interest rate risk
The Group is exposed to interest rate risk in respect of cash balances held with banks and other highly rated counterparties.
The Group's main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During 2017 and 2016, all the Group's borrowings at variable rates were denominated in UK Sterling. The average interest rate during the year ended 31 October 2017 was 2.81% for the term loan and 2.58% for the revolving credit facility. Interest payable in the year was £709,000. If the average interest rate during the year had been 1% different, this would have had an impact of £266,000 on the interest payable during the period.
Credit risk
The Group's maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting date, as summarised below:
|
|
2017 |
2016 |
|
Classes of financial assets - carrying amounts |
£000 |
£000 |
|
|
|
|
|
Cash and cash equivalents |
3,260 |
3,787 |
|
Trade receivables |
18,840 |
18,347 |
|
Amounts recoverable on contracts |
23,043 |
18,771 |
|
Other receivables |
1,001 |
582 |
|
Financial assets at fair value |
46,144 |
41,487 |
Credit risk is managed on a Group basis. Credit risks arise from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions.
The Group's credit risk is primarily attributable to its trade receivables. It is the policy of the Group to present the amounts in the balance sheet net of allowances for doubtful receivables, estimated by the Group's management based on prior experience and the current economic environment. The Group reviews the reliability of its customers on a regular basis and these reviews take into account the nature of the Group's trading history with the customer.
The credit risk on liquid funds is limited because the majority of funds are held with two banks with high credit-ratings assigned by international credit-rating agencies. Management does not expect any losses from non-performance of these counterparties.
None of the Group's financial assets are secured by collateral or other credit enhancements.
Liquidity risk
The Group closely monitors its access to bank and other credit facilities in comparison to its outstanding commitments on a regular basis, to ensure that it has sufficient funds to meet obligations of the Group as they fall due.
The Board receives regular debt management forecasts, which estimate the cash inflows and outflows over the next twelve months, so that management can ensure that sufficient financing is in place as it is required. Surplus cash
within the Group is put on deposit in accordance with limits and counterparties agreed by the Board, the objective being to maximise return on funds whilst ensuring that the short-term cash flow requirements of the Group are met.
Detailed analysis of the debt facilities taken out and available to the Group are disclosed in note 21.
As at 31 October 2017, the Group's financial liabilities have contractual maturities (including interest payments where applicable) as summarised below:
|
|
Current |
Non-current |
|||
|
|
Within 1 month |
1 - 3 months |
3 - 12 months |
1 - 5 years |
Later than 5 years |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
Bonds in issue |
- |
- |
437 |
2,341 |
13,222 |
|
Bank borrowings |
32 |
1,389 |
1,622 |
21,773 |
- |
|
Trade and other payables |
7,086 |
3,464 |
64 |
181 |
224 |
This compares to the maturity of the Group's financial liabilities in the previous reporting period as follows:
|
|
Current |
Non-current |
|||
|
|
Within 1 month |
1 - 3 months |
3 - 12 months |
1 - 5 years |
Later than 5 years |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
Bank borrowings |
44 |
1,423 |
1,701 |
27,190 |
- |
|
Trade and other payables |
5,718 |
1,664 |
261 |
- |
- |
The above amounts reflect the contractual undiscounted cash flows, which may differ from the carrying values of the liabilities at the reporting date.
Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts.
|
Capital for the reporting periods under review is summarised as follows: |
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Total equity |
91,148 |
65,232 |
|
Less unrestricted cash and cash equivalents (note 16) |
(3,260) |
(3,787) |
|
|
87,888 |
61,445 |
|
|
|
|
|
Total equity |
91,148 |
65,232 |
|
Bonds in issue (note 20) |
11,394 |
- |
|
Borrowings (note 21) |
23,929 |
28,835 |
|
|
126,471 |
94,067 |
|
|
|
|
|
Capital-to-overall financing ratio |
0.69 |
0.65 |
23 SHARE CAPITAL
|
|
|
|
2017 |
2016 |
|
|
|
|
£000 |
£000 |
|
Authorised: |
|
|
|
|
|
650,000,000 ordinary shares of 1p each (2016: 650,000,000) |
|
6,500 |
6,500 |
|
|
|
|
|
|
|
|
Allotted, called up and fully paid: |
|
|
|
|
|
As at 1 November |
|
|
3,640 |
3,587 |
|
Issued and allotted during the year |
|
|
505 |
53 |
|
|
|
|
|
|
|
414,464,265 ordinary shares of 1p each (2016: 364,012,063) |
|
4,145 |
3,640 |
|
Movement in issued share capital in the year
During the year to 31 October 2017, six employees exercised share options across seventeen separate exercises. To satisfy the exercise of sixteen of these transactions, the Company issued and allotted 6,663,971 new ordinary shares of 1p each. The one remaining exercise was settled with treasury shares totalling 1,500,000 ordinary shares of 1p each.
During the year, the Company issued new 1p ordinary shares totalling 34,166,667 as part of a placing in respect of the acquisition of 6PM Holdings plc, then subsequently 7,182,540 as part of the consideration for the 6PM Holdings plc and 2,439,024 as part of the consideration for Halarose Holdings Limited.
The Company has one class of ordinary share which carries no right to fixed income.
At 31 October 2017, there were 2,479,532 (2016: 2,259,329) shares in issue under ESOP. During the year, the average issue share price was 67p (2016: 57p).
At 31 October 2017, there were 1,491,219 (2016: 2,991,219) shares held in treasury.
24 SHARE OPTIONS
The Company has an unapproved share option scheme for all employees (including Directors). All share options are exercisable at a price equal to the average market price of the Company's shares on the date of grant. The vesting period is quarterly from the date of grant. Per the contractual agreements, the options are settled in equity once exercised.
An Employee Share Investment Trust is in place to allow employees a tax efficient way of investing in the Company. The Company purchases matching shares which become the property of the employee after a three year vesting period.
|
At start of year |
Granted |
Exercised |
Lapsed |
At end of year |
Exercise price |
Exercise date from |
Exercise date to |
|
666,000 |
- |
666,000 |
- |
- |
7.50p |
May 2007 |
May 2017 |
|
341,000 |
- |
341,000 |
- |
- |
8.125p |
Jun 2007 |
Jun 2017 |
|
3,311,727 |
- |
1,701,971 |
- |
1,609,756 |
10.25p |
Mar 2010 |
Mar 2020 |
|
5,750,000 |
- |
3,500,000 |
- |
2,250,000 |
20.00p |
Mar 2011 |
Mar 2021 |
|
965,000 |
- |
575,000 |
- |
390,000 |
18.00p |
Mar 2011 |
Mar 2021 |
|
430,000 |
- |
250,000 |
- |
180,000 |
35.00p |
Apr 2012 |
Apr 2022 |
|
300,000 |
- |
300,000 |
- |
- |
44.00p |
Sep 2012 |
Sep 2022 |
|
200,000 |
- |
- |
- |
200,000 |
35.75p |
Jul 2013 |
Jul 2023 |
|
500,000 |
- |
500,000 |
- |
- |
39.12p |
Mar 2014 |
Mar 2024 |
|
446,668 |
- |
- |
- |
446,668 |
39.00p |
Jul 2014 |
Jun 2024 |
|
1,130,000 |
- |
330,000 |
- |
800,000 |
38.38p |
Feb 2016 |
Feb 2025 |
|
2,395,000 |
- |
- |
- |
2,395,000 |
50.00p |
Apr 2017 |
Apr 2026 |
|
700,000 |
- |
- |
- |
700,000 |
50.00p |
Apr 2016 |
Apr 2026 |
|
17,135,395 |
- |
8,163,971 |
- |
8,971,424 |
|
|
|
Details of all share options over 1p Ordinary shares, falling within the measurement and recognition criteria of IFRS 2 "Share-based Payment" and forming part of the unapproved share scheme, including their contractual life and exercise prices are as follows:
The following table sets out the number of share options and associated weighted average exercise price (WAEP) outstanding during the year:
|
|
2017 |
2016 |
||
|
|
|
WAEP |
|
WAEP |
|
|
No. |
Pence |
No. |
Pence |
|
Outstanding at the beginning of the year |
17,135,395 |
25.95 |
17,728,081 |
20.23 |
|
Granted during the year |
- |
- |
3,095,000 |
50.00 |
|
Exercised during the year |
(8,163,971) |
19.57 |
(3,437,686) |
17.43 |
|
Lapsed during the year |
- |
- |
(250,000) |
35.75 |
|
Outstanding at the end of the year |
8,971,424 |
31.75 |
17,135,395 |
25.95 |
|
Exercisable at the end of the year |
8,796,424 |
31.39 |
15,313,635 |
23.15 |
24 SHARE OPTIONS (CONTINUED)
The share options outstanding at the end of the year have a weighted average remaining contractual life of 6 years. The share options exercised during the year had a weighted average exercise price of 19.57p and a weighted average market price of 63.05p.
No share options were granted during the year ended 31 October 2017.
The Group recognised a total charge of £146,000 (2016: £419,000) for equity-settled share-based payment transactions related to the unapproved share option scheme during the year. The charge of £146,000 (2016: £419,000) related to share options granted and £nil (2016: £nil) related to share options exercised.
Long-Term Incentive Plan (LTIP)
During the year, no further options were granted under the Long-Term Incentive Plan.
The Group recognised a total charge of £178,000 (2016: £178,000) for equity-settled share-based payment transactions related to the LTIP during the year. The total cost was in relation to share options granted and £nil (2016: £nil) related to share options exercised.
The number of options in the LTIP scheme is as follows:
|
|
2017 |
2016 |
|
|
No. |
No. |
|
|
|
|
|
Outstanding at the beginning of the year |
3,600,000 |
3,600,000 |
|
Granted |
- |
- |
|
Forfeited |
- |
- |
|
Vested |
- |
- |
|
Outstanding at the end of the year |
3,600,000 |
3,600,000 |
|
Exercisable at the end of the year |
- |
- |
Richard Kellett-Clarke stepped down as CEO on 9 November 2016. The Nomination & Remuneration Committee of the Idox Board agreed that on the anniversary of that date, namely 9 November 2017, Richard's outstanding LTIP award of 1,900,000 shares will become unconditional and therefore vest on that date.
As part of the conditions of the LTIP under a Lock In deed, Richard is restricted from selling any or all of them, unless required to settle tax liability, for a further two years from that date.
Andrew Riley's LTIP entitlement, consisting of 1,700,000 shares at an exercise price of 1p, was forfeited following the end of the year on account of the failure to meet all specified criteria for vestment.
25 ACQUISITIONS
6PM Holdings plc
On 3 February 2017, the Group acquired the entire share capital of 6PM Holdings plc for a total consideration of £18.46m, being £13.63m in cash and £4.83m in shares. 6PM Group delivers healthcare solutions, principally to the NHS within the UK, using a combination of proprietary software, infrastructure, and professional services that enables healthcare organisations to enhance and optimise efficiency. The products consist of primarily Hospital Management Solutions, Clinical Systems and Mobile Health Solutions. The acquisition supports the Group's strategy of expanding its health and social care presence.
Goodwill arising on the acquisition of 6PM has been capitalised and consists largely of the workforce value, synergies and economies of scale expected from combining the operations of 6PM with Idox. None of the goodwill recognised is expected to be deductible for income tax purposes. The purchase of 6PM has been accounted for using the acquisition method of accounting.
As the 6PM Group audit for the period ending 31 December 2016 has now concluded, the book value of the assets and liabilities of the 6PM Group has been updated from those previously reported in the Idox Group Interim Results.
|
|
Book value £000 |
Provisional fair value adjustments £000 |
Fair value £000 |
|
Intangible assets - goodwill |
- |
- |
- |
|
Intangible assets - other |
2,215 |
16,054 |
18,269 |
|
Property, plant and equipment |
1,420 |
(1,115) |
305 |
|
Investment property |
721 |
(337) |
384 |
|
Investment |
20 |
- |
20 |
|
Stock |
341 |
(69) |
272 |
|
Trade receivables |
1,330 |
(92) |
1,238 |
|
Other receivables |
1,249 |
(1,115) |
134 |
|
Deferred tax asset |
71 |
- |
71 |
|
Cash at bank |
(1,907) |
- |
(1,907) |
|
TOTAL ASSETS |
5,460 |
13,326 |
18,786 |
|
|
|
|
|
|
Bank loans |
(538) |
- |
(538) |
|
Bond |
(10,980) |
- |
(10,980) |
|
Trade payables |
(821) |
- |
(821) |
|
Other liabilities |
(1,996) |
(543) |
(2,539) |
|
Deferred income |
(4,111) |
14 |
(4,097) |
|
Corporation tax |
(39) |
- |
(39) |
|
Social security and other taxes |
(989) |
(7) |
(996) |
|
Deferred tax liability |
- |
(3,004) |
(3,004) |
|
TOTAL LIABILITIES |
(19,474) |
(3,540) |
(23,014) |
|
NET LIABILITIES |
|
|
(4,228) |
|
Purchased goodwill capitalised |
|
|
22,693 |
|
Total consideration |
|
|
18,465 |
Satisfied by:
|
Cash to vendor |
|
|
13,635 |
|
Issue of share capital |
|
|
4,830 |
|
Total consideration |
|
|
18,465 |
Due to the timing of the acquisition, the fair values stated above are provisional based on management's best estimate. The fair value adjustment for the intangible assets includes £16.7m in relation to customer relationships, trade names and software. A related deferred tax liability has also been recorded as a fair value adjustment. Adjustments were also processed to align company policies with Idox Group policies. These included £633,000 in
25 ACQUISITIONS (CONTINUED)
respect of intangible assets, £1,115,000 in relation to property, plant and equipment, £337,000 in relation to the investment property, £69,000 in relation to stock, £661,000 in relation to trade & other receivables, £546,000 in relation to accrued income and £550,000 in relation to accruals and deferred income.
The fair value of trade receivables is equal to the gross contractual amounts receivable. An initial review of trade receivables has not indicated any recoverability issues.
The revenue included in the consolidated statement of comprehensive income since 3 February 2017, contributed by 6PM was £7,640,000. 6PM also made a loss after tax of £1,441,000 for the same period. If the 6PM Group had been included from 1 November 2016, it would have contributed £9,103,000 to Group revenue and a loss after tax of £2,517,000.
Acquisition costs of £152,000 have been written off in the consolidated statement of comprehensive income.
Halarose Holdings Limited
On 16 August 2017, the Group acquired the entire share capital of Halarose Holdings Ltd ("Halarose") for a total initial consideration of £5.0m, being £3.5m in cash and £1.5m in shares. As Halarose was acquired on a debt-free and cash-free basis, the total consideration on acquisition rose to £8.1m due to the net assets acquired on completion. Halarose, originally established in 1978 and based in Oxfordshire, develops, markets, sells and supports a range of electoral back office software and services to UK local authorities. It enables its customers to be more efficient both in the production and management of the electoral register and in the running of elections and referenda. The acquisition is in line with Idox's strategic focus on, and investment in, the public sector and will be fully integrated into Idox's existing elections business unit, Idox Elections.
Goodwill arising on the acquisition of Halarose has been capitalised and consists largely of the workforce value, synergies and economies of scale expected from combining the operations of Halarose with Idox. None of the goodwill recognised is expected to be deductible for income tax purposes. The purchase of Halarose has been accounted for using the acquisition method of accounting.
|
|
Book value £000 |
Provisional fair value adjustments £000 |
Fair value £000 |
|
Intangible assets |
2,405 |
1,447 |
3,852 |
|
Property, plant and equipment |
17 |
- |
17 |
|
Trade receivables |
537 |
- |
537 |
|
Accrued Income |
209 |
- |
209 |
|
Other receivables |
125 |
- |
125 |
|
Cash at bank |
3,634 |
- |
3,634 |
|
TOTAL ASSETS |
6,927 |
1,447 |
8,374 |
|
|
|
|
|
|
Trade payables |
(21) |
- |
(21) |
|
Other liabilities |
(224) |
- |
(224) |
|
Deferred Income |
(930) |
- |
(930) |
|
Social security and other taxes |
(185) |
- |
(185) |
|
Deferred tax liability |
- |
(693) |
(693) |
|
TOTAL LIABILITIES |
(1,360) |
(693) |
(2,053) |
|
NET ASSETS |
|
|
6,321 |
|
Purchased goodwill capitalised |
|
|
1,824 |
|
Total consideration |
|
|
8,145 |
Satisfied by:
|
Cash to vendor |
|
|
6,645 |
|
Issue of share capital |
|
|
1,500 |
|
Total consideration |
|
|
8,145 |
25 ACQUISITIONS (CONTINUED)
Due to the timing of the acquisition, the fair values stated above are provisional based on management's best estimate. The fair value adjustment for the intangible assets includes £3,852,000 in relation to customer relationships, software and brand & reputation. A related deferred tax liability has also been recorded as a fair value adjustment.
The fair value of trade receivables is equal to the gross contractual amounts receivable. An initial review of trade receivables has not indicated any recoverability issues.
The revenue included in the consolidated statement of comprehensive income since 16 August 2017, contributed by Halarose was £814,000. Halarose also made a profit after tax of £242,000 for the same period. If Halarose had been included from 1 November 2016, it would have contributed £3,474,000 to Group revenue and a profit after tax of £1,310,000.
There is no earn out period for Halarose.
Acquisition costs of £84,000 have been written off in the consolidated statement of comprehensive income.
Had the above acquisitions occurred at the beginning of the financial year, the revenue of the Group would be £93.0m and the profit after tax of the Group would be £2.5m.
Cloud Amber Limited
During the period the contingent consideration was adjusted from £478,000 to £250,000. The reduction was a result of missing the revenue target as set out in the Share Purchase Agreement. At the reporting date, the adjusted contingent consideration had been paid. The adjustment of £228,000 is included in 'Acquisition costs' in the Consolidated Statement of Comprehensive Income.
Rippleffect Studio Limited
During the period there have been further fair value adjustments in respect of the acquisition of Rippleffect Studio Limited on 22nd August 2016. The adjustments totalled £449,000. A number of adjustments were processed to align company policies with Idox Group policies. These included an adjustment of £18,000 in respect of accrued income and £467,000 in respect of deferred income.
In October 2017, due to the aforementioned fair value adjustments required to align revenue recognition with Group policy, there was a post completion adjustment which resulted in a settlement of £550,000 in favour of Idox plc. This inflow reduced the value of the investment in Rippleffect Studio Limited by £550,000 and, consequently, the value of the intangible assets allocated on acquisition by the same amount.
Acquisition cash flows
Acquisition cash flows in the year are as follows:
|
Subsidiaries acquired during the year: |
Net cash outflow £000 |
|
6PM Holdings plc |
15,542 |
|
Halarose Limited |
2,523 |
|
Rippleffect Studios Limited |
(550) |
|
|
17,515 |
No additional fair value adjustments have been made in the year in respect of prior year acquisitions.
26 OPERATING LEASE COMMITMENTS
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
|
|
2017 |
2016 |
|
Amounts due: |
£000 |
£000 |
|
|
|
|
|
Within one year |
2,640 |
2,160 |
|
Between one and five years |
6,138 |
3,979 |
|
After five years |
3,643 |
1,752 |
|
|
12,421 |
7,891 |
Operating lease payments represent rentals payable by the Group for office premises, motor vehicle leasing charges and equipment.
27 CAPITAL COMMITMENTS
The Group had no capital commitments at 31 October 2017 or 31 October 2016.
28 CONTINGENT LIABILITIES
There were no material Group contingent liabilities at 31 October 2017 or 31 October 2016.
29 RELATED PARTY TRANSACTIONS
Compensation paid to key management (which comprises the executive management team and the Board) of the Group:
|
|
|
2017 |
2016 |
|
|
|
£000 |
£000 |
|
Salaries and other short-term employee benefits including NIC |
|
2,705 |
1,669 |
|
Post-employment benefits |
|
55 |
30 |
|
Share-based payments |
|
178 |
178 |
|
|
|
2,938 |
1,877 |
During the year ended 31 October 2017, three directors and one member of the executive management team exercised share options resulting in a taxable gain of £3,318,000. No directors or executive management team members exercised share options in the year ended 31 October 2016.
Barbara Moorhouse, non-executive director of Idox plc, also acts as a non-executive director of Balfour Beatty plc. During the year ended 31 October 2017, Idox Software Limited generated revenue of £19,000 to subsidiaries of Balfour Beatty plc and at the year end there was an outstanding trade receivables balance of £25,000. McLaren Software Limited generated revenue of £18,000 to a subsidiary of Balfour Beatty plc and at the year end there was an outstanding trade receivables balance of £21,000.
30 POST BALANCE SHEET EVENTS
On 6 February 2018, the Group acquired the entire share capital of Atlas Adviesgroep Twente B.V. ("Atlas") for a total consideration of €270,000 (£237,000). Atlas is a small grants consultancy business based in the Netherlands, working predominantly with local and regional government bodies, and will complement the Group's existing grants business in the Netherlands.
Independent auditor's report to the members of Idox plc
Opinion
Our opinion on the parent company financial statements is unmodified
We have audited the parent company financial statements of Idox plc for the year ended 31 October 2017, which comprise the parent company Balance Sheet, the parent company Statement of Changes in Equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 'Reduced Disclosure Framework' (United Kingdom Generally Accepted Accounting Practice).
In our opinion, the parent company financial statements:
· give a true and fair view of the state of the parent company's affairs as at 31 October 2017;
· have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those standards are further described in the 'Auditor's responsibilities for the audit of the parent company financial statements' section of our report. We are independent of the parent company in accordance with the ethical requirements that are relevant to our audit of the parent company financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Who we are reporting to
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
· the directors' use of the going concern basis of accounting in the preparation of the parent company financial statements is not appropriate; or
· the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the parent company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
Overview of our audit approach
· Overall materiality: £1,638,000, which represents 1.5% of the company's total assets
· Key audit matters were identified as carrying value of investments
Our audit was scoped by obtaining an understanding of the company and its environment, including its internal controls, and assessing the risks of material misstatement
Key audit matters
§ The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement impact and the extent of management judgement.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the parent company financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the parent company financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
|
Key Audit Matter |
How the matter was addressed in the audit |
|
Carrying value of investments
Investments are the largest asset on the balance sheet, and there is a risk that the carrying amount of individual investments is in excess of the net assets of the subsidiary or the net present value of future cash flows. We therefore identified the carrying value of investments as a significant risk, which was one of the most significant assessed risks of material misstatement. |
Our audit work included, but was not restricted to: · Checking the details of the acquisitions in year to sale and purchase agreements; · Comparing the carrying value of investments to the net assets of each subsidiary to identify any indicators of impairment; and · Assessing the value of the investment against the net present value of future cash flows to obtain evidence about any investments with indicative impairment triggers.
The parent company's accounting policy on the carrying value of investments is shown in note 2 to the financial statements and related disclosures are included in note 6.
Key observations We have completed our testing on the carrying value of investments, and noted no indicators of impairment or impairment triggers. We have obtained sufficient audit evidence to conclude that the carrying value of investments is materially correct.
|
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our work and in evaluating the results of that work.
We determined materiality for the audit of the parent company financial statements as a whole to be £1,638,000, which is 1.5% of the company's total assets. This benchmark is considered the most appropriate because the company is a holding company with no trading revenue. Given the primary purpose of this company is to hold the investments in the group's subsidiaries, we determined total assets to be the most appropriate benchmark.
Materiality for the current year is higher than the level that we determined for the year ended 31 October 2016 to reflect the significant acquisitions of 6pm Holdings plc and Halarose Limited during the year.
We use a different level of materiality, performance materiality, to drive the extent of our testing. This was determined to be £517,000.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements.
We also determine a lower level of specific materiality for directors' remuneration, related party transactions and auditor's remuneration.
We determined the threshold at which we will communicate misstatements to the audit committee to be £81,900. In addition, we communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the company's business, its environment and risk profile and in particular included:
· obtaining an understanding of the company and its environment, including its internal controls, and assessing the risks of material misstatement;
· focusing our work on the carrying value of investments as the largest balance and most significant judgement in the financial statements; and
· there were no material changes in the overview of the scope of the current year audit from the scope of that of the prior year.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the parent company financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the parent company financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement of the parent company financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the strategic report and the directors' report for the financial year for which the parent company financial statements are prepared is consistent with the parent company financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Matter on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
· the parent company financial statements are not in agreement with the accounting records and returns; or
· certain disclosures of directors' remuneration specified by law are not made; or
· we have not received all the information and explanations we require for our audit.
Responsibilities of directors for the financial statements
As explained more fully in the statement of directors' responsibilities set out on page 26, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of parent company financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the parent company financial statements, the directors are responsible for assessing the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the parent company financial statements
Our objectives are to obtain reasonable assurance about whether the parent company financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent company financial statements.
A further description of our responsibilities for the audit of the parent company financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Other matter
We have reported separately on the group financial statements of Idox plc for the year ended 31 October 2017. That report includes details of the group key audit matters; how we applied the concept of materiality in planning and performing our audit; and an overview of the scope of our audit. The opinion in that report is qualified.
[**Signature**]
Simon Bevan
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
28 February 2018
Company Balance Sheet at 31 October 2017
|
|
Note |
|
2017 |
|
2016 |
|
|
|
|
£000 |
|
£000 |
|
Non-current assets |
|
|
|
|
|
|
Investments |
6 |
|
121,096 |
|
93,236 |
|
Debtors: falling due after one year |
7 |
|
56 |
|
145 |
|
|
|
|
121,152 |
|
93,381 |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Debtors: falling due within one year |
7 |
|
128 |
|
100 |
|
|
|
|
|
|
|
|
Creditors: amounts falling due within one year |
8 |
|
(14,086) |
|
(5,333) |
|
|
|
|
|
|
|
|
Net current liabilities |
|
|
(13,958) |
|
(5,233) |
|
|
|
|
|
|
|
|
Total assets less current liabilities |
|
|
107,194 |
|
88,148 |
|
|
|
|
|
|
|
|
Creditors: amounts falling due after more than one year |
9 |
|
(21,519) |
|
(26,500) |
|
|
|
|
|
|
|
|
Net assets |
|
|
85,675 |
|
61,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
|
|
Called up share capital |
10 |
|
4,145 |
|
3,640 |
|
Capital redemption reserve |
|
|
1,112 |
|
1,112 |
|
Share premium account |
|
|
34,109 |
|
13,480 |
|
Other reserve |
|
|
6,234 |
|
- |
|
Treasury reserve |
|
|
(621) |
|
(1,244) |
|
Share option reserve |
11 |
|
1,726 |
|
2,218 |
|
Retained earnings |
|
|
38,970 |
|
42,442 |
|
Shareholders' funds |
|
|
85,675 |
|
61,648 |
The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The parent company's loss for the year was £1,209,000 (2016: profit £37,159,000).
The financial statements were approved by the Board of Directors and authorised for issue on 28 February 2018 and are signed on its behalf by:
Richard Kellett-Clarke
Chief Executive Officer
28 February 2018
The accompanying accounting policies and notes form an integral part of these accounts.
Company name: Idox plc Company number: 03984070
Company Statement of Changes in Equity
|
|
Share Capital |
Capital redemption reserve |
Share premium account |
Other reserve |
Treasury reserve |
Share option reserve |
Retained earnings |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
At 31 October 2015 |
3,587 |
1,112 |
11,741 |
- |
(1,271) |
1,900 |
8,451 |
25,520 |
|
Issue of share capital |
53 |
- |
1,739 |
- |
- |
- |
- |
1,792 |
|
Share options reserve movement |
- |
- |
- |
- |
- |
318 |
- |
318 |
|
Exercise of options from treasury reserve |
- |
- |
- |
- |
27 |
- |
(19) |
8 |
|
Dividends paid |
- |
- |
- |
- |
- |
- |
(3,149) |
(3,149) |
|
Transactions with owners |
53 |
- |
1,739 |
- |
27 |
318 |
(3,168) |
(1,031) |
|
Profit for the year |
- |
- |
- |
- |
- |
- |
37,159 |
37,159 |
|
Total comprehensive income for the year |
- |
- |
- |
- |
- |
- |
37,159 |
37,159 |
|
At 31 October 2016 |
3,640 |
1,112 |
13,480 |
- |
(1,244) |
2,218 |
42,442 |
61,648 |
|
Issue of share capital |
505 |
- |
20,629 |
6,234 |
- |
- |
- |
27,368 |
|
Share options reserve movement |
- |
- |
- |
- |
- |
(492) |
- |
(492) |
|
Exercise of options catch-up |
- |
- |
- |
- |
- |
- |
2,278 |
2,278 |
|
Exercise of options from treasury reserve |
- |
- |
- |
- |
623 |
- |
(324) |
299 |
|
Dividends paid |
- |
- |
- |
- |
- |
- |
(4,217) |
(4,217) |
|
Transactions with owners |
505 |
- |
20,629 |
6,234 |
623 |
(492) |
(2,263) |
25,236 |
|
Profit for the year |
- |
- |
- |
- |
- |
- |
(1,209) |
(1,209) |
|
Total comprehensive income for the year |
- |
- |
- |
- |
- |
- |
- |
- |
|
At 31 October 2017 |
4,145 |
1,112 |
34,109 |
6,234 |
(621) |
1,726 |
38,970 |
85,675 |
Notes to the company financial statements
1 COMPANY INFORMATION
Idox plc is a company which is incorporated and domiciled in the UK. The address of its registered office is 2nd Floor, 1310 Waterside, Arlington Business Park, Theale, Reading, RG7 4SA. The registered number of the Company is 03984070.
2 ACCOUNTING POLICIES
Basis of preparation
These financial statements have been prepared in accordance with applicable accounting standards and in accordance with Financial Reporting Standard 101 - 'The Reduced Disclosure Framework' (FRS 101). The principal accounting policies adopted in preparation of these financial statements are set out below. These policies have all been applied consistently throughout the year unless otherwise stated.
The financial statements have been prepared on a historical cost basis as modified by the revaluation of certain financial assets and liabilities, being derivatives at fair value through profit or loss.
The financial statements are presented in Sterling (£).
Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS101. Therefore, these financial statements do not include:
· A statement of cash flows and related notes
· Disclosure of key management personnel compensation
· Certain disclosure in relation to share based payments
· Disclosures in relation to impairment of assets
· The effect of future accounting standards not adopted
Share based payment
All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 November 2006 are recognised in the financial statements.
All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets).
Employees to whom share options have been granted provide their services in subsidiary companies of Idox plc. All equity settled share-based payments are recognised as an expense in the profit and loss account of the relevant subsidiary company. In Idox plc, the cost is allocated to investments in subsidiaries.
If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options that have vested are not exercised.
Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to reserves.
Investments
Fixed asset investments in subsidiary undertakings are stated at cost less provision for impairment. If there is a subsequent change in the total consideration paid, such as a refund received from the seller, then the Company will recognise an adjustment to the acquisition price which will reduce the cost, and consequently the next book value, of that investment.
Financial instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet.
Share capital is classed as an equity instrument where the contractual terms do not have any terms meeting the definition of a financial liability. Dividends and distributions relating to equity instruments are debited direct to equity.
Interest and expenditure arising on financial instruments is recognised on the accruals basis and credited or charged to the profit and loss account in the financial period to which it relates
Reserves
Equity comprises the following:
· "Capital redemption reserve" for the Company was created during 2003 when the entire deferred ordinary share capital was bought in exchange for one ordinary 1p share.
· "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.
· "Other reserves" arose as a result of share premium arising on consideration shares issued on the acquisition of 6PM Holdings plc and Halarose Holdings Limited.
· Treasury reserve" represents shares repurchased by the Company to be held for redistribution as share options. The cost of treasury shares is debited to the Treasury reserve.
· "Share options reserve" represents shares to be issued on potential exercise of those share options that have been accounted for under FRS 101.
· "Retained earnings" represents retained profits.
3 DIRECTORS AND EMPLOYEES
There are no wages and salaries paid by the parent company.
The Company has no employees and Directors are remunerated by other Group companies. Details of the remuneration for each Director are included in the Report on Remuneration which can be found on pages 23 to 24 but which do not form part of the audited accounts.
4 dividends
|
|
|
2017 |
2016 |
|
|
|
£000 |
£000 |
|
|
|
|
|
|
Final dividend paid in respect of the year ended 31 October 2016 and 31 October 2015 |
|
2,627 |
1,885 |
|
|
|
|
|
|
Pence per ordinary share |
|
0.650p |
0.525p |
|
|
|
|
|
|
Interim dividend paid in respect of the year ended 31 October 2017 and 31 October 2016 |
|
1,590 |
1,263 |
|
|
|
|
|
|
Pence per ordinary share |
|
0.385p |
0.350p |
The Directors have proposed the payment of a final dividend of 0.655p per share, which would amount to £2,705,000 (2016: 0.650p).
5 PROFIT FOR THE FINANCIAL YEAR
The parent company's loss for the year was £1,209,000 (2016: profit £37,159,000). During the prior year, the Idox Group performed a review of intercompany balances and elected to waive various balances. This resulted in a credit of £32,816,000 to the Company's profit for the year ended 31 October 2016.
6 INVESTMENTS
|
|
Investment in Group undertakings |
|
|
£000 |
|
Cost or market value |
|
|
At 1 November 2016 |
96,293 |
|
Additions |
26,948 |
|
Reversal of disposals |
1,462 |
|
Adjustment to acquisition price |
(550) |
|
At 31 October 2017 |
124,153 |
|
|
|
|
Impairment |
|
|
At 1 November 2016 and 31 October 2017 |
3,057 |
|
|
|
|
Net book amount |
|
|
At 31 October 2017 |
121,096 |
|
|
|
|
At 31 October 2016 |
93,236 |
On review of the treatment of share option exercises which had previously been treated as disposals of investments, we do not believe this reflects the substance of the transactions. As a result, we have processed a catch up amount of £1,462,000 which is not material. We have reviewed the revised investment value and do not consider this value has any indicators of impairment.
The adjustment to the acquisition price of £550,000 (2016: £nil) was processed in the period in relation to a cash refund relating to the historical acquisition price of Rippleffect Limited.
6 INVESTMENTS (CONTINUED)
At 31 October 2017 the Company held investments in the following companies:
|
|
Country of registration |
Class of share held |
Proportion held |
Nature of business
|
|
|
|
|
|
|
|
Idox Trustees Limited* |
England |
Ordinary |
100% |
Corporate trustee of Employee share ownership trust |
|
Idox Software Limited |
England |
Ordinary |
100% |
Software services |
|
Cloud Amber Limited |
England |
Ordinary |
100% |
Dormant Company |
|
Open Objects Software Limited |
England |
Ordinary |
100% |
Dormant Company |
|
Reading Room Limited |
England |
Ordinary |
100% |
Dormant Company |
|
Reading Room London Limited |
England |
Ordinary |
100% |
Dormant Company |
|
Reading Room Studio Limited |
England |
Ordinary |
100% |
Dormant Company |
|
Reading Room Manchester Limited |
England |
Ordinary |
100% |
Dormant Company |
|
Rippleffect Studio Limited |
England |
Ordinary |
100% |
Dormant Company |
|
Idox Belgium NV |
Belgium |
Ordinary |
100% |
Information services |
|
Idox Netherlands BV |
Holland |
Ordinary |
100% |
Information services |
|
Idox Germany GmbH |
Germany |
Ordinary |
100% |
Software services |
|
McLaren Software Limited |
Scotland |
Ordinary |
100% |
Software services |
|
McLaren Software Inc |
USA |
Ordinary |
100% |
Software services |
|
Idox France SARL |
France |
Ordinary |
100% |
Software services |
|
Idox India Private Limited** |
India |
Ordinary |
100% |
Software services |
|
Interactive Dialogues Limited |
England |
Ordinary |
100% |
Dormant Company |
|
McLaren Software Group Limited |
Scotland |
Ordinary |
100% |
Holding Company |
|
McLaren Software GmbH |
Germany |
Ordinary |
100% |
Dormant Company |
|
McLaren Consulting BV |
Holland |
Ordinary |
100% |
Dormant Company |
|
McLaren Software SARL |
Switzerland |
Ordinary |
100% |
Dormant Company |
|
Buildonline Global Limited |
England |
Ordinary |
100% |
Dormant Company |
|
Buildonline Ireland Limited |
Ireland |
Ordinary |
100% |
Dormant Company |
|
CT Space Limited |
England |
Ordinary |
100% |
Dormant Company |
|
CT Space Inc |
USA |
Ordinary |
100% |
Dormant Company |
|
Citadon Inc |
USA |
Ordinary |
100% |
Dormant Company |
|
6PM Holdings plc |
Malta |
Ordinary |
100% |
Software services |
|
Halarose Holdings Limited |
England |
Ordinary |
100% |
Software services |
*i-documentsystems Trustees Limited was renamed Idox Trustees Limited during the accounting period.
**CT Space India Technologies Pvt Ltd was renamed Idox India Private Limited during the accounting period.
7 DEBTORS
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
Falling due within one year: |
|
|
|
Other debtors |
128 |
100 |
|
Falling due after one year: |
|
|
|
Other debtors |
- |
90 |
|
Amounts owed by Group undertakings |
56 |
55 |
|
|
56 |
145 |
Included in the above for the Company is £56,000 (2016: £55,000) owed by Group undertakings which is due after more than one year. The Directors consider this loan to be recoverable.
8 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Bank loan |
2,500 |
2,500 |
|
Amounts owed to Group undertakings |
9,246 |
452 |
|
Other creditors |
2,206 |
2,209 |
|
Accruals and deferred income |
134 |
172 |
|
|
14,086 |
5,333 |
|
|
|
|
9 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Bank loan |
21,519 |
26,500 |
At the balance sheet date, the Group had two loan facilities in place through a two-bank facility with Royal Bank of Scotland and Silicon Valley Bank. The facilities consist of a term loan of £9.5m and a revolving credit facility of £23m.
At the balance sheet date, the term loan had an outstanding balance of £9.5m (2016: £12m) and during the period the loan was held, the average interest rate was 2.81% (2016: 3.06%).
At the balance sheet date, the revolving credit facility had an outstanding balance of £14.5m (2016: £17m) and during the period the loan was held, the average interest rate was 2.58% (2016: 2.75%).
There are unamortised loan fees of £90,000 (2016: £190,000) at the balance sheet date.
An accounting adjustment of £19,000 has been processed during the period to take into account the effective rate of interest on the bank facilities.
As security for the above loans, Royal Bank of Scotland and Silicon Valley Bank hold a fixed and floating charge over the assets of Idox plc and certain subsidiaries, a guarantee supported by Idox plc and certain subsidiaries and a share pledge in respect of the entire issued share capital of each subsidiary company.
The Directors estimate that the fair value of the Group's borrowing is not significantly different to the carrying value.
10 SHARE CAPITAL
|
|
|
|
2017 |
2016 |
|
|
|
|
£000 |
£000 |
|
Authorised: |
|
|
|
|
|
650,000,000 ordinary shares of 1p each (2016: 650,000,000) |
|
6,500 |
6,500 |
|
|
|
|
|
|
|
|
Allotted, called up and fully paid: |
|
|
|
|
|
As at 1 November |
|
|
3,640 |
3,587 |
|
Issued and allotted during the year |
|
|
505 |
53 |
|
|
|
|
|
|
|
414,464,265 ordinary shares of 1p each (2016: 364,012,063) |
|
4,145 |
3,640 |
|
Movement in issued share capital in the year
During the year to 31 October 2017, six employees exercised share options across seventeen separate exercises. To satisfy the exercise of sixteen of these transactions, the Company issued and allotted 6,663,971 new ordinary shares of 1p each. The one remaining exercise was settled with treasury shares totalling 1,500,000 ordinary shares of 1p each.
During the year, the Company issued new 1p ordinary shares totalling 34,166,667 as part of a placing in respect of the acquisition of 6PM Holdings plc, then subsequently 7,182,540 as part of the consideration for the 6PM Holdings plc and 2,439,024 as part of the consideration for Halarose Holdings Limited.
The Company has one class of ordinary share which carries no right to fixed income.
At 31 October 2017, there were 2,479,532 (2016: 2,259,329) shares in issue under ESOP. During the year, the average issue share price was 67p (2016: 57p).
At 31 October 2017, there were 1,491,219 (2016: 2,991,219) shares held in treasury.
11 SHARE OPTIONS
The Company has an unapproved share option scheme for all employees (including Directors). All share options are exercisable at a price equal to the average market price of the Company's shares on the date of grant. The vesting period is quarterly from the date of grant. Per the contractual agreements, the options are settled in equity once exercised.
An Employee Share Investment Trust is in place to allow employees a tax efficient way of investing in the Company. The Company purchases matching shares which become the property of the employee after a three year vesting period.
|
At start of year |
Granted |
Exercised |
Lapsed |
At end of year |
Exercise price |
Exercise date from |
Exercise date to |
|
666,000 |
- |
666,000 |
- |
- |
7.50p |
May 2007 |
May 2017 |
|
341,000 |
- |
341,000 |
- |
- |
8.125p |
Jun 2007 |
Jun 2017 |
|
3,311,727 |
- |
1,701,971 |
- |
1,609,756 |
10.25p |
Mar 2010 |
Mar 2020 |
|
5,750,000 |
- |
3,500,000 |
- |
2,250,000 |
20.00p |
Mar 2011 |
Mar 2021 |
|
965,000 |
- |
575,000 |
- |
390,000 |
18.00p |
Mar 2011 |
Mar 2021 |
|
430,000 |
- |
250,000 |
- |
180,000 |
35.00p |
Apr 2012 |
Apr 2022 |
|
300,000 |
- |
300,000 |
- |
- |
44.00p |
Sep 2012 |
Sep 2022 |
|
200,000 |
- |
- |
- |
200,000 |
35.75p |
Jul 2013 |
Jul 2023 |
|
500,000 |
- |
500,000 |
- |
- |
39.12p |
Mar 2014 |
Mar 2024 |
|
446,668 |
- |
- |
- |
446,668 |
39.00p |
Jul 2014 |
Jun 2024 |
|
1,130,000 |
- |
330,000 |
- |
800,000 |
38.38p |
Feb 2016 |
Feb 2025 |
|
2,395,000 |
- |
- |
- |
2,395,000 |
50.00p |
Apr 2017 |
Apr 2026 |
|
700,000 |
- |
- |
- |
700,000 |
50.00p |
Apr 2016 |
Apr 2026 |
|
17,135,395 |
- |
8,163,971 |
- |
8,971,424 |
|
|
|
11 SHARE OPTIONS (CONTINUED)
Details of all share options over 1p Ordinary shares, falling within the measurement and recognition criteria of IFRS 2 "Share-based Payment" and forming part of the unapproved share scheme, including their contractual life and exercise prices are as follows:
The following table sets out the number of share options and associated weighted average exercise price (WAEP) outstanding during the year:
|
|
2017 |
2016 |
||
|
|
|
WAEP |
|
WAEP |
|
|
No. |
Pence |
No. |
Pence |
|
Outstanding at the beginning of the year |
17,135,395 |
25.95 |
17,728,081 |
20.23 |
|
Granted during the year |
- |
- |
3,095,000 |
50.00 |
|
Exercised during the year |
(8,163,971) |
19.57 |
(3,437,686) |
17.43 |
|
Lapsed during the year |
- |
- |
(250,000) |
35.75 |
|
Outstanding at the end of the year |
8,971,424 |
31.75 |
17,135,395 |
25.95 |
|
Exercisable at the end of the year |
8,796,424 |
31.39 |
15,313,635 |
23.15 |
The share options outstanding at the end of the year have a weighted average remaining contractual life of 6 years. The share options exercised during the year had a weighted average exercise price of 19.57p and a weighted average market price of 63.05p.
No share options were granted during the year ended 31 October 2017.
The Group recognised a total charge of £146,000 (2016: £419,000) for equity-settled share-based payment transactions related to the unapproved share option scheme during the year. The charge of £146,000 (2016: £419,000) related to share options granted and £nil (2016: £nil) related to share options exercised.
As the share option scheme is a Group scheme, there has been no charge recognised in the parent Company accounts.
Long-Term Incentive Plan (LTIP)
During the year, no further options were granted under the Long-Term Incentive Plan.
The Group recognised a total charge of £178,000 (2016: £178,000) for equity-settled share-based payment transactions related to the LTIP during the year. The total cost was in relation to share options granted and £nil (2016: £nil) related to share options exercised.
The number of options in the LTIP scheme is as follows:
|
|
2017 |
2016 |
|
|
No. |
No. |
|
Outstanding at the beginning of the year |
3,600,000 |
3,600,000 |
|
Granted |
- |
- |
|
Forfeited |
- |
- |
|
Vested |
- |
- |
|
Outstanding at the end of the year |
3,600,000 |
3,600,000 |
|
Exercisable at the end of the year |
- |
- |
As the LTIP share option scheme is a Group scheme, there has been no charge recognised in the parent Company accounts.
Richard Kellett-Clarke stepped down as CEO on 9 November 2016. The Nomination & Remuneration Committee of the Idox Board agreed that on the anniversary of that date, namely 9 November 2017, Richard's outstanding LTIP award of 1,900,000 shares will become unconditional and therefore vest on that date.
As part of the conditions of the LTIP under a Lock In deed, Richard is restricted from selling any or all of them, unless required to settle tax liability, for a further two years from that date.
Andrew Riley's LTIP entitlement, consisting of 1,700,000 shares at an exercise price of 1p, was forfeited following the end of the year on account of the failure to meet all specified criteria for vestment.
12 Related party disclosures
As permitted by FRS 101, related party transactions with wholly owned members of the Group have not been disclosed. Related party transactions regarding remuneration and dividends paid to key management of the Company have been disclosed in note 29 of the Group financial statements.
13 CAPITAL COMMITMENTS
The Company had no capital commitments at 31 October 2017 or 31 October 2016.
14 CONTINGENT LIABILITIES
There were no material Company contingent liabilities at 31 October 2017 or 31 October 2016.
15 ultimate controlling party
There is no ultimate controlling party.
This information is provided by RNS
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