Financial Results for the year ended 30 Sept 2019

RNS Number : 5668V
IXICO plc
04 December 2019
 

4 December 2019

 

IXICO plc

 

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

 

Financial Results for the year ended 30 September 2019

 

First profitable full year built upon increased penetration of growing market combined with operational leverage

 

IXICO plc (AIM: IXI), the AI data analytics company delivering insights in neuroscience, today announces its final results for the year ended 30 September 2019.

 

Highlights

 

Financial

·      First year of profitability since admission to AIM;

·      Another year of record revenue of £7.6 million (2018: £5.4 million) representing 40% growth over prior year;

·      Gross margin of 65.4% (2018: 58.8%) representing 660 basis points over prior year;

·      EBITDA profit of £0.5 million (2018: loss of £0.6 million) due to operational leverage and controlled administrative costs;

·      Operating profit of £0.4 million (2018: loss of £0.8 million);

·      Profit per share of 0.92 pence (2018: loss of 2.0 pence);

·      Closing cash of £7.3 million (2018: £7.9 million), with operating cash outflows being held at £0.1 million (2018: £0.1 million);

·      A healthy contracted order book of £15.9 million (2018: £19.3 million) with further contracts signed since year end; and

·      Two new institutional shareholders, BGF Investment Management and Canaccord Genuity Group, joined the share register.

 

Commercial and Operational

·      Secured £7.7 million of (both new and expanded) multi-year contracts across all phases of clinical development;

·      Strengthened visibility for continued revenue growth despite £3.5 million client trial cessation in August 2019;

·      Expansion of key scientific collaborations to develop new artificial intelligence algorithms for imaging and digital biomarkers, enabling further diversification into a broad range of neurological disease therapeutic areas; and

·      Investment in further strengthening of the leadership team to drive future growth.

 

Post year-end events

As previously reported:

·      A start up agreement with a new client for a multi-study programme in Progressive Supranuclear Palsy (PSP), with an initial value of c. £0.4 million over 12 months;

·      New contract worth c. £0.35 million for a 3-year expansion of an existing study to add a significant patient cohort in China; and

·      2-year contract worth c. £0.45 million for a new US biotech client to support a Phase IV study exploring a new application for a marketed drug for mental health.

 

Giulio Cerroni, CEO of IXICO, said:

"2019 has been a pivotal year in strengthening IXICO as a trusted technology partner in clinical development. Revenue of £7.6 million built on the growth in 2018, resulting in a 3-year CAGR of 35%. We also achieved our first full year of profitability since admission to AIM. Our strengthened leadership team has allowed us to scale operations and enhanced our strategic planning. With a healthy order book of £15.9 million, new contracts signed since the year end, and a new US-based Chief Business Officer we continue to execute our ambitious growth plans with the aim of delivering another record year."

 

Notice of AGM

IXICO also announces that its Annual General Meeting (AGM) will be held at BGF Investment Management, 13 - 15 York Buildings, London, WC2N 6JU on Friday, 17 January 2020 at 9:30am. The full annual report and accounts along with notice of annual general meeting will be posted to shareholders on 16 December 2019.

 

For further information please contact:

 

IXICO plc

+44 (0) 20 3763 7498

Giulio Cerroni, Chief Executive Officer

Grant Nash, Chief Financial Officer

 

 

 

Cenkos Securities PLC (Nominated adviser and sole broker)

+44 (0) 20 7397 8900

Giles Balleny / Max Gould (Corporate Finance)

 

Michael F Johnson / Russell Kerr (Sales)

 

 

 

Optimum Strategic Communications

 +44 (0) 203 950 9144

Mary Clark / Supriya Mathur / Manel Mateus

 

IXICO@optimumcomms.com

 

 

 

About IXICO

IXICO's purpose is to advance medicine and human health by turning data into clinically meaningful information, providing valuable new insights in neuroscience.

 

Our goal is to be a leading proponent in the use of AI in clinical development, to improve biopharma R&D productivity through the adoption of breakthrough data analytics in precision healthcare. Through the deployment of novel AI algorithms, we analyse and interpret brain scans and digital biosensor data to enable better trial design, patient selection and ultimately clinical outcomes across all phases of clinical evaluation. Our data analytics services are deployed on some of the most important clinical trials in neuroscience and rare disease, providing valuable insights to disease progression and patient safety, enabling our clients to make better informed decisions earlier in the clinical development pathway.

 

 More information is available on www.IXICO.com

 

 

 

 

Chairman's Statement

 

A year of outstanding growth and first profitability

I am pleased to report that IXICO is now profitable and delivered this important milestone in the Group's evolution a full 2 years ahead of the market's expectation at the beginning of the year. This follows a third consecutive year of accelerating revenue growth and effective strategic execution by our strengthened leadership team.

Overview

IXICO is an Artificial Intelligence (AI) data analytics company, with strong links into the biotech, pharma and the academic community, delivering intelligent insights in neuroscience.

 

Our purpose is to advance medicine and human health in neuroscience by converting raw clinical trial data into clinically meaningful information. Our data analytics services provide clinical insights to improve the efficiency of biopharma clinical development. Through the deployment of novel AI algorithms, we analyse and interpret brain scans and wearable biosensor data to enable better trial design, patient selection and ultimately clinical outcomes across all phases of clinical evaluation.

 

In FY19, we have reported record revenue, strengthened gross margins, and most significantly, our first operating profit since admission to AIM in 2013.

 

During the year we announced several new contracts with leading biopharmaceutical clients. These multi-year contracts give good visibility to future revenue and provide confidence that we enter the new year with a continued growth trajectory.

 

We close the year with a strong balance sheet that underpins continued investment in our data analytics platform, AI algorithms and commercial team. These investments are designed to drive our ambitious growth plans for further international market penetration and thereby realise our full potential in the growing neuroscience market.

Governance & people

As the Group leverages data analytics and AI algorithms to provide specialist technology services to the clinical trials market, our people remain an integral part of our unique value proposition. We seek to recruit and retain highly qualified technical and scientific staff who develop deep understanding of our clients' requirements and drive forward our development programmes to provide innovative technology solutions.

As in any successful, high growth business, IXICO's future success depends on its people. In a competitive market for skilled individuals, we have focused significant efforts to develop the IXICO culture. This engenders hard work and accountability while offering a place where employees are empowered to be creative within a clearly defined structure. Our refreshed values - Ability, Aspiration, Accountability and Agility - reflect this evolving culture and underpin our approach to employee recruitment and performance management.

In addition, the Board uses the 10 principles outlined in the Quoted Companies Alliance ('QCA') Corporate Governance Code to ensure it maintains appropriate governance arrangements. The Board conducts itself in a manner which places IXICO's values and the QCA principles at the core of the Group's culture.

Board

During the year we have seen a couple of changes on the Board. Grant Nash, Chief Financial Officer and Executive Director, was appointed in April and joined the Board in August. Tim Sharpington, Non-Executive Director, stepped down from the Board in September. We thank Tim for his long and excellent service. We welcome Grant who brings over fifteen years of life science experience to the next phase of our planned growth.

At the 2020 Annual General Meeting ('AGM'), in accordance with the Company's Articles of Association, Giulio Cerroni and Grant Nash will stand for re-election, supported by the Board of Directors' recommendation.

Shareholders

During the year we welcomed BGF Investment Management and Canaccord Genuity Wealth Management to the register as new institutional shareholders. They join an impressive list of leading institutions who have invested in the Company over the last 2 years during which we have refreshed and diversified our institutional shareholder base. As we reflect on 2019, it is also pleasing to note the wider recognition in the market of the impact that our commercially-led growth strategy has had in delivering value to our clients. 

Based on direct feedback, we believe our major shareholders are well aligned with the Group's vision and strategy set by our executive team, led by our Chief Executive Officer, Giulio Cerroni. This is important, as it is from these shareholders that we will seek support as we continue to accelerate our growth plans.

Outlook

Over the last year, we have seen increasing interest in IXICO from both the industry we serve and the investment community.  As we improve how we communicate our capabilities, and as our sector continues to embrace the rapidly advancing benefits of AI data analytics, so the Group is ever better placed to support new and growing numbers of clinical trials. This, alongside the investments we have made in diversifying into new therapeutic areas and wearable biosensor analytics, underpins the Board's confidence in IXICO delivering continued profitable growth.

 

 

Chief Executive's Statement

 

Strengthening IXICO's position as a trusted technology partner in clinical development 

With continued clarity of purpose and our focused investment for growth programmes in place, we go into the new year with confidence to continue to deliver on our ambitious goals.

Delivering our data analytics strategy

2019 has been a pivotal year in the delivery of our vision to transform IXICO into a leading proponent of AI in clinical development.

The year has seen the Group transformed not only by a significantly strengthened financial performance and balance sheet to support ongoing organic investment, but also by its ability to scale in support of growing client demand for our specialist technology-driven services.

Clarity of purpose

IXICO's purpose is to advance medicine and human health in neurological disease by turning data into clinically meaningful information, providing valuable insights. After some costly and disappointing drug trial failures in central nervous system ('CNS') diseases, the field is welcoming a renewed funding surge in tackling one of humanity's greatest clinical and societal challenges.

Accelerated commercial traction

The long-term runway for growth is driven by the increasing outsourcing requirements of the biopharmaceutical industry and the value that they derive from AI data analytics to increase R&D productivity. This is reflected in this year's revenue of £7.6 million (+40%), building on the revenue of £5.4 million (+32%) in 2018 and a 3-year compound annual growth rate ('CAGR') of 35%. Furthermore we are entering 2020 with strong commercial momentum and an order book at the 2019 year-end of £15.9 million (2018: £19.3 million).

We expect to continue to add new clients in all global regions and to expand our reach in existing client programmes. Revenue growth will continue to be fuelled by executing on our strategy of expanding our portfolio of proprietary imaging and digital biomarkers from wearable biosensors and further diversification into new adjacent neurological therapeutic areas. In addition, we plan to make significant investments in commercial capabilities and leadership, in particular to directly address the world's largest market, North America. 

Achieving operational leverage

Our strengthened management brings a strong focus on delivery and we will continue to identify areas for enhanced client service levels and increased automation to enable even greater operational leverage in the future. This strengthened focus on operational efficiency resulted in significant progress in our productivity Key Performance Indicators ('KPIs'), including over 600 bps improvement in gross margin to 65% and revenue per FTE increasing from £94k to £124k.

Science & innovation

The primary focus of our investment for growth programmes is to further accelerate revenue contributed by our data analytics. To do so, we have developed five strategic R&D programmes to address additional identified opportunities in both current and new markets.  A central part of this is focusing our efforts on developing partnerships with both academic and industrial partners in the coming year to maintain our position as the go-to people for AI in clinical development in neuroscience.

Innovation will be the key element by which we will build accretive, high margin growth and long-term value. We are setting out to grow into attractive adjacent markets, with a focus on developing leading edge algorithms and adapting our proven technology to new applications focused on neurological disease.

Business as usual: profitable growth

In 2019, we have delivered on the promise of accelerating commercial traction, executing on our ambitious growth plans and a strengthened organisation.

I sign off this year by thanking all my colleagues at IXICO for a truly pivotal, profitable year. With a clarity of purpose to advance medicine and human health in neurological disease, I look forward to 2020 being another year of achievement in establishing IXICO as a leading proponent of AI in clinical development to the global biopharmaceutical industry.

 

Risk management


The Board holds responsibility for monitoring risks to which the Group is exposed, and for reviewing and assessing the effectiveness of the internal control framework used by the Group to manage those risks.

The Group has designed its internal controls with the aim of providing a proportionate level of assurance for the organisation, taking account of its size, stage of development and risk exposure. Whilst the Board is confident that the control framework is fit for purpose, it continues to seek ways to further mitigate against the risk of material misstatement or loss.

In assessing the risks faced by the Group, a detailed risk identification and control framework is adopted.  It is the responsibility of each department head to update the risk and control matrix for their area; these are then consolidated into a single matrix which is reviewed by the Leadership Team and Executive Directors.  The Board receives a summary of the risk and control matrix for the purpose of further review and challenge.

 

Principal risks and uncertainties

The following table presents the principal risks and uncertainties that the Board considers could have a material impact on the Group's operational results, financial condition and prospects.

 

These risks and uncertainties reflect the business environment within which the Group operates, together with risks in the execution of its business strategy.  The risks are separated into four specific risk areas being Strategic, Financial, Operational, and Legal/Compliance & Reputational.

 

Strategic risks

Principal Risks

Risk Context

Mitigation

Change in the Year

The Group fails to exploit the opportunities available to it and does not deliver the full potential for shareholder (and other stakeholder) returns

The Board anticipates that its strategic initiatives will lead to increased market penetration and open up new market opportunities for the Group. The rapid development of its end markets means that the Group's projections for its strategic initiatives will inevitably require a level of judgement risk.

·      Annual review by the Board of Group strategy and annual budget priorities;

·      Monthly Leadership review of delivery of specific strategic initiatives;

·      Board appraisal of significant investments before funds are committed and subsequent review of each investment's performance; and

·      External key opinion leaders' advice to inform strategic initiatives.

↓

Likelihood reduced following improved strategic review process

Changes to international trading environment due to political events

New impediments to international trade resulting from political actions such as Brexit or US trade tariffs may disadvantage the Group's position in its marketplace.

·      Regular Board review of likely risks associated with Brexit and other potential changes to the trading environment.

 

↔

No significant impact is anticipated at the current time

 

Operational risks

Principal Risks

Risk Context

Mitigation

Change in the Year

Failure of IT infrastructure

 

A significant failure of IT infrastructure might disrupt the Group's operations.

·      Multiple controls are in place to reduce the impact of any single hardware failure; and

·      Investment in IT infrastructure (including expanding use of cloud services) will mitigate risk of prolonged down time as a result of hardware failure.

↓

Likelihood reduced due to improved controls and investment programme

Resource constraints which impact operational delivery

The Group employs highly qualified expertise to deliver its services; its ability to recruit and retain this expertise is critical to operations running smoothly.

·      With research links to London-based universities the Group is able to attract highly qualified individuals as they complete their academic commitments; and

·      Opportunities for ongoing skills development and promotion to more senior roles are supported as the Group continues to grow.

↑

Likelihood increased due to growing pipeline of work

 

Financial risks

Principal Risks

Risk Context

Mitigation

Change in the Year

Early termination of a client's clinical trial

The Group's client contracts bear a risk of early termination in the event of:

·      an interim data review demonstrating no material benefit; or

·      a serious adverse event.

 

·      Commercial contracts include up-front payment, close-out cost recovery and termination notice clauses; and

·      Continued growth of the Group dilutes this risk across a larger portfolio of clinical trials.

↓

Impact reduced as adopted contractual terms are strengthened

Loss of a key commercial relationship with a client

Although the Group's portfolio of clients has increased across the year there remains a risk that if one of its larger clients terminated its relationship with the Group, there would be a significant impact on the Group's short and/or medium-term revenue expectations. This risk is most notable in respect of its largest client which constitutes a significant portion of Group revenue.

·      Leadership monitoring of service levels across projects and dedicating additional resources to supporting its largest client;

·      All projects operate within clear governance and escalation frameworks with leadership oversight; and

·      Further development of sales pipeline, to support the continued broadening of the client portfolio across all phases of clinical trials.

↔

Whilst client concentration risk has increased, the Group has taken steps to further support delivery of client objectives

Financial risks are set out in further detail under note 22 to the financial statements and include:

Liquidity risks

Credit risks

Currency risks

The Group is exposed to financial risks typical of all commercial companies.  These include the risks of a cash shortfall, experiencing a significant client payment delay and/or exposure to a foreign currency rate fluctuation which is against the interests of the Group.

·      Standard controls are applied around all of these risks;

·      The Group has a strong cash position and a diverse client portfolio which includes large, well-funded organisations; and

·      The majority of contracts are denominated in GBP.

↓

Impact of foreign exchange rate change reduced due to a greater proportion of client contracts being denominated in GBP and an increase of costs denominated in USD

 

Legal/compliance & reputational risks

Principal Risks

Risk Context

Mitigation

Change in the Year

Reputational damage due to error or system failure in delivery of analysis services

If the Group provided incorrect results in the course of delivering its services to a clinical trial this may impact on the trial and/or patient outcomes and result in reputational damage for the Group.

·      Operational checks are used to control for data error, duplication or transfer issues and to highlight when an analysis fails; and

·      Continued investment to scale controls surrounding increased data volumes as the business grows.

↔

Similar risk position across the year

Breach of data protection regulations

The Group captures personal data from clinical trial subjects. As such, it must be appropriately managed according to GDPR or other equivalent data protection regulations.

·      Data captured from client sites is pseudonymised on receipt into the Group's 'TrialTracker' software; and

·      Controls over the protection of personal data have been implemented. Data outputs to clients and key stakeholders are issued within a control framework to reduce the likelihood of unintended release.

↓

Likelihood reduced as improved and clearer contract terms implemented.

Failure to comply with the requirements of its VCT/EIS Funding

It is a requirement of the VCT/EIS funding that the Group received in May 2018 that it is fully employed within a period of 2 years. Failure to do so would result in the VCT/EIS investors losing some of the tax benefits associated with their investment.

·      Significant funds have been employed already; and

·      Detailed plans are in place to employ the remaining funding within the remainder of the 2-year period and these are reviewed at least monthly.

↑

Likelihood increased as end of VCT/EIS term nears

A cyber-attack results in a breach of the Group's IT systems

Any successful cyber-attack may create operational (and potentially financial) risks and may have a significant reputational impact for the Group.

·      Strong levels of control exist over the Group's IT infrastructure, including ongoing investments in improved security infrastructure, training for all staff on data security and standard controls such as password protection and policies.

↓ Likelihood reduced as improved controls implemented

 

 

 

Financial review

 

A breakthrough year of strong results providing a solid basis for future investment and growth

 

The Group has delivered an exceptional financial performance across the year to 30 September 2019, further accelerating growth rates previously reported in 2017 and 2018.

 

This review includes a comparison of the financial KPIs that we use to measure our progress over the prior year as shown below:

 

 

KPI

2019 result

2018 result

Movement

Revenue

£7.6m

£5.4m

£2.2m (40%)

↑

Gross profit

£4.9m

£3.2m

£1.7m (56%)

↑

Gross margin

65.4%

58.8%

660 bps

↑

EBITDA profit/(loss)

£0.5m

(£0.6m)

£1.1m

↑

Operating profit/(loss)

£0.4m

(£0.8m)

£1.2m

↑

Profit/(loss) per share

0.92p

(2.00)p

2.92p

↑

Order book

£15.9m

£19.3m

(£3.4m)

↓

Cash

£7.3m

£7.9m

(£0.6m)

↓

 

Revenue

Revenue for the period of £7.6 million (2018: £5.4 million) represents a year-on-year increase of 40%. This growth was driven by an increasing portfolio of clinical trial projects, a widening of neurological therapeutic areas being serviced and the impact of a Phase III clinical trial accelerating enrolment in the second half of the year.

 

Gross profit

The Group reports gross profit of £4.9 million in the year.  This is an increase of £1.7 million or 56% compared to 2018 and equates to a gross margin of 65%.  This improved gross profit performance reflects a combination of a favourable sales mix and the leveraging of operational efficiencies as the Group grows.

 

Earnings before interest, tax, depreciation and amortisation ('EBITDA')

The Group generated its first EBITDA profit since it listed on the AIM market in 2013.  This profit of £0.5 million (2018: £0.6 million loss) reflects the impact of strong revenue growth, improved operational leverage (and therefore overall productivity), and control of administrative costs whilst enabling a level of investment in research and development and in sales and marketing.

 

Operating profit/loss

Operating expenditure in the year reflected investment in people and product development:

 

·      research and development expenses of £1.0 million (2018: £1.0 million) included the innovation of new algorithms to support image analysis as well as enhancements of the Group's platforms to enable operational scalability.  The Group, in addition, capitalised £0.2 million of development expenditure in the year (2018: £nil);

 

·      sales and marketing expenses were £1.2 million (2018: £0.8 million) reflecting increased investment to support continued future growth; and

 

·      general and administrative expenses were controlled at £3.0 million (2018: £2.7 million).

 

The reported operating profit of £0.4 million reflected 40% revenue growth, improved gross profit performance and controlled operating expenditure.

 

Order book

The Group continues to benefit from a healthy contracted order book. At 30 September 2019 this totalled £15.9 million (2018: £19.3 million), which takes account of £7.6 million of business executed during the year and £7.7 million of (both new and expanded) multi-year contracts secured across all phases of clinical development as well as a client's early trial cessation as reported on 9 August 2019. This means the Group retains a strong position to deliver continued revenue growth.

 

Cash

The Group reported a small (£0.1 million) operating cash outflow before tax receipts in the year (2018: £0.1 million cash outflow) reflecting operational profits offset by a reduction in working capital as up-front client receipts received in 2018 unwound across 2019.

 

The Group had a closing cash balance at 30 September 2019 of £7.3 million (2018: £7.9 million) with the reduction reflecting capital investment in the Group to support future scalability and deliver further process efficiencies. The cash balance remains strong and means the Group is well positioned to drive continued growth.

 

Profit/loss per share

The Group reports its first profit per share since listing on the AIM market in 2013. The profit per share of 0.92p improved from a 2.00p loss in 2018 and reflects the strong financial performance achieved across the year.

 

The Group is growing rapidly, is now profitable, and remains well capitalised, providing a strong basis to further accelerate investment across 2020 and thereby continue execution of its commercially-led growth strategy.

 

Corporate Governance Report

 

The Board has adopted, and complies with, the Quoted Companies Alliance ('QCA') Corporate Governance Code ('Code') and has published a statement on the Group website that sets out, in broad terms, how the Group complies with the Code at the date of this report. The Board provides annual updates about compliance with the Code.

The Board is responsible for ensuring that IXICO is managed for the long-term benefit of all shareholders, through effective and efficient decision-making. Corporate governance is an important part of the Board's role by providing oversight and guidance to help manage risk and build long-term value.

The Code comprises 10 principles, with which companies undertake to comply as part of their corporate governance arrangements.  A summary of how the Group complies with these principles is outlined below with further detail being available on the Group's website (https://ixico.com/investors/governance/oversight/).

Focus Area

Governance Principle

Group Approach

Further Reading

Deliver value in a manner aligned to shareholder and wider stakeholder aspirations

1: Establish a strategy and business model which promotes long-term value for shareholders

The Group delivers insights to biopharmaceutical companies developing drugs to address neurological disease. To achieve our business goals, the Group is accelerating growth and has achieved profitability in the financial year to 30 September 2019 by:

·      building scale and market presence for our technology solutions; and

·      developing and commercialising new products and services.

These activities promote and are delivering long-term value for shareholders.

Our 5-point growth plan is detailed in the full annual report.

Our approach to innovation and recent product launches is described in the full annual report.

2: Seek to understand and meet shareholder needs and expectations

The Board is committed to encouraging open communication between itself and shareholders.  The Chief Executive Officer and Chief Financial Officer arrange to meet with major shareholders at least twice a year to update them on strategy, progress against this strategy and obtain feedback.  The Chairman also makes himself available for discussions with major shareholders as and when appropriate.

Further, should the Board consider any significant divergence from strategy it will seek feedback from major shareholders as part of its deliberations.

The Board uses publications on its website and its Annual Report to keep all shareholders informed of its progress.  It uses the AGM to invite feedback from any shareholder.

The CEO and CFO are responsible for investor relations and any feedback received from shareholders is communicated to the wider Board

 

3: Take into account wider stakeholder and social responsibilities and their implications for long-term success

The Group is highly conscious of the requirements of its wider stakeholders in supporting its long-term success.  It views its wider stakeholders as its clients, suppliers, employees and patients.  The Board has implemented approaches to support the requirements of each group and, where it identifies, or is notified of, any risks or concerns in respect of any of these stakeholder groups, it puts in place actions to address these.

Our stakeholders are described in our business model in the full annual report.

4: Embed effective risk management, considering both opportunities and threats, throughout the organisation

The Board has ultimate responsibility for the Group's system of risk management and internal control and for reviewing its effectiveness.

The Board instils control to the Group's operations by overseeing the following:

·      competent and prudent management;

·      sound planning;

·      adequate systems of control;

·      adequate and accurate accounting records; and

·      compliance with statutory and regulatory obligations.

The Risk Management Report is provided in more detail above.

Maintain a strong and dynamic management framework that places value on developing the Group in an ethical manner

5: Maintain the Board as a well-functioning, balanced team led by the Chair

The Board comprises the Non-Executive Chairman, two Executive Directors and two Non-Executive Directors, one of whom acts as Senior Independent Director.

The Board has an appropriate balance between independence and knowledge of the Group and its target markets which allows it to discharge its duties and responsibilities effectively.

The Directors use their independent judgement and challenge matters affecting the business whether strategic or operational. The Non-Executive Directors are in regular contact with the Executive Directors and the Chairman has regular one-to-one meetings with the Chief Executive Officer.  The Board has access to independent advisers to support it in its decisions, where additional skills or expertise is deemed necessary.

The Board has procedures in place to deal with a situation in which a Director has, or may have, a conflict of interest. The Board is aware of other commitments and interests as they are disclosed by each Board member.

The Board meets formally not fewer than four times per year in addition to the annual strategy day. Additional Board meetings are held by telephone to discuss key strategic priorities.

More information on Board membership is provided in the full annual report.

6: Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities

The Board has an effective and appropriate balance of skills and experience and is mindful of the need to continuously review the needs of the business to ensure that this remains true, so that the Group can drive performance as well as comply with regulations.

The Group's Articles of Association require that all Directors must stand for re-election every 3 years and that any new Directors appointed during the year must stand for election at the AGM following their appointment.

Further details of the Board's skills and experience can be found in the full annual report.

7: Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

The Board undertakes self-reviews from time to time in order to assess its performance. The Chairman provides leadership to the Board and assesses the individual Directors to ensure that their contribution is relevant and effective and that they are committed members of the Board.

In July 2019 the Board reviewed the outcome of its latest self-assessment.  As a result, it introduced changes to the timing and format of information it reviews from the leadership team and streamlined the flow of information from the 2 Board sub-committees to the Board itself.

 

8: Promote a corporate culture that is based on ethical values and behaviours

The Group operates in a highly regulated environment in accordance with an integrated Management System (including ISO 13485:2016) which is subject to third-party audit. The Group is focused on a therapeutic area which has a high unmet medical need and our employees are motivated to support our clients in their quest to develop and provide safe, effective treatments for people living with neurological diseases.

The Group employs a diverse workforce and embraces a culture where employees are treated equitably within an environment of mutual respect and understanding.

The Group's values are described in the full annual report.

9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

The Board is collectively responsible for the long-term success of the Group. Its principal function is to provide the Group with a framework of prudent and effective controls, which enables risk to be assessed and managed and its strategy executed. Further details as to how the governance processes are structured to achieve this are outlined within this Governance Report.

 

Build trust based on open communication with stakeholders

10: Communicate how the Group is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

The Group communicates with shareholders (and other stakeholders) via its website, its Annual Report and the AGM as well as via issuing RNS announcements and presenting to major shareholders and analysts.

This Governance Report, alongside the wider Strategic and Directors' Reports are designed to provide full and relevant updates on how the Group is governed and how it is performing.  These are drafted with both shareholders and the wider stakeholder community in mind.

The Strategic Report and the Directors' Report can be found in the full annual report.

The Financial Review can be found above.

 

The Board and Board Subcommittees

The Board meets at least 4 times per year in accordance with a pre-determined meeting calendar. The Board is supported by 2 subcommittees, the Audit Committee and the Remuneration Committee.  The subcommittees discharge responsibilities on behalf of the Board and are entitled to such internal or external advice as is required to allow them to fulfil their duties.

The table below shows the membership of the Board and each subcommittee as at the end of 30 September 2019:

 

Board

Audit Committee

Remuneration Committee

Charles Spicer (Non-Executive Chairman)

-

-

Giulio Cerroni (Chief Executive Officer)

-

-

Grant Nash (Chief Financial Officer & Company Secretary)

Secretary

Secretary

Mark Warne (Senior Independent Non-Executive Director)

Member

Chairman

John Bradshaw (Independent Non-Executive Director)

Member

Chairman

Member


The Board and its Committees receive appropriate and timely information prior to each meeting including a formal agenda. Any Director may challenge Group proposals. Decisions are taken democratically after appropriate discussion. Specific actions arising from Board meetings are agreed by the Board or relevant Committee and are then followed up by the Executive Directors.

The Board and subcommittees all operate against terms of reference which are summarised on the Group website (https://ixico.com/investors/governance/).

Audit Committee

The Audit Committee is chaired by John Bradshaw. Mark Warne is a member of the Committee.  The terms of reference of the Audit Committee include the following responsibilities:

·      monitoring the integrity of the Group's financial statements and application of accounting policies;

·      reviewing the effectiveness of the Group's internal control and risk management systems; and

·      oversight of the Group's external auditors.

Audit Committee meetings are usually held twice per financial year.
 

Remuneration Committee

The Remuneration Committee was chaired during the year by Tim Sharpington until his resignation from the Board on 30 September 2019.  Mark Warne, who was a member of the Committee until 30 September 2019 has taken over the role of Chairman of the Committee from 30 September 2019. John Bradshaw is a member of the Committee.

The terms of reference of the Remuneration Committee include the following responsibilities:

·      determine and agree with the Board the framework or broad policy for the remuneration of the Executive Directors and other such members of the executive management as it is designated to consider;

·      approve the design of, and determine targets for any performance-related pay schemes and approve the total annual payments made under such schemes;

·      approve all long-term incentive scheme structures and option schemes;

·      approve all option grants for ratification by the Board; and

·      within the terms of the agreed policy, determine the total individual remuneration package of each Executive Director including, where appropriate, bonuses, incentive payments and share options.

Remuneration Committee meetings are usually held twice per financial year.

 

Consolidated Statement of Comprehensive Income

for the years ended 30 September 2019 and 30 September 2018

 

 

 

2019

2018

 

 

 

 

 

Note

£000

£000

Revenue

5

7,561

5,394

 

 

 

 

Cost of sales

 

(2,619)

(2,221)

Gross profit

 

4,942

3,173

 

 

 

 

Other income

7

588

562

 

 

 

 

Operating expenses

 

 

 

Research and development expenses

 

(986)

(1,033)

Sales and marketing expenses

 

(1,154)

(754)

General and administrative expenses

 

(3,026)

(2,745)

Total operating expenses

10

(5,165)

(4,532)

Operating profit / (loss)

 

364

(797)

 

 

 

 

Finance income

 

2

4

Profit / (loss) on ordinary activities before taxation

 

366

(793)

 

 

 

 

Taxation credit

11

66

125

 

 

 

 

Profit / (loss) attributable to equity holders for the period

 

432

(668)

 

 

 

 

Other comprehensive expense:

 

 

 

Items that will be reclassified subsequently to profit or loss

 

 

 

Foreign exchange translation differences

 

(1)

(1)

Total other comprehensive income / (expense)

 

(1)

(1)

 

 

 

 

Total comprehensive income / (expense) attributable

to equity holders for the period

 

431

(669)

 

 

 

 

 

 

 

 

Profit / (loss) per share (pence)

12

 

 

Basic profit / (loss) per share

 

0.92

(2.00)

Diluted profit / (loss) per share

 

0.92

(2.00)

 

 

 

Consolidated Statement of Financial Position

as at 30 September 2019 and at 30 September 2018

 

 

 

 

 

 

 

 

 

 

2019

2018

 

 

 

 

 

 

 

 

 

Note

£000

£000

Assets

 

 

 

 

 

Non-current assets

 

 

 

 

 

Property, plant and equipment

 

 

13

316

77

Intangible assets

 

 

14

292

32

Total non-current assets

 

 

 

608

109

 

 

 

 

 

 

Current assets

 

 

 

 

 

Trade and other receivables

 

 

16

2,379

2,140

Current tax receivables

 

 

11

450

229

Cash and cash equivalents

 

 

 

7,264

7,861

Total current assets

 

 

 

10,093

10,230

 

 

 

 

 

 

Total assets

 

 

 

10,701

10,339

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

 

17

2,782

3,013

Total current liabilities

 

 

 

2,782

3,013

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Ordinary shares

 

 

19

7,925

7,923

Share premium

 

 

19

84,436

84,389

Merger relief reserve

 

 

19

1,480

1,480

Reverse acquisition reserve

 

 

19

(75,308)

(75,308)

Foreign exchange translation reserve

 

 

 

(81)

(80)

Accumulated losses

 

 

 

(10,533)

(11,078)

Total equity

 

 

 

7,919

7,326

 

 

 

 

 

 

Total liabilities and equity

 

 

 

10,701

10,339

 

 

 

 

Company Statement of Financial Position

as at 30 September 2019 and at 30 September 2018

 

 

 

 

 

 

 

 

 

 

2019

2018

 

 

 

 

 

 

 

 

 

Note

£000

£000

Assets

 

 

 

 

 

Non-current assets

 

 

 

 

 

Investments in Group undertakings

 

 

15

5,516

5,434

Total non-current assets

 

 

 

5,516

5,434

 

 

 

 

 

 

Current assets

 

 

 

 

 

Trade and other receivables

 

 

16

4,710

685

Cash and cash equivalents

 

 

 

2,187

7,229

Total current assets

 

 

 

6,897

7,914

 

 

 

 

 

 

Total assets

 

 

 

12,413

13,348

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

 

17

112

140

Total current liabilities

 

 

 

112

140

 

 

 

 

 

 

Equity

 

 

 

 

 

Ordinary shares

 

 

19

7,925

7,923

Share premium

 

 

19

84,436

84,389

Merger relief reserve

 

 

19

1,480

1,480

Accumulated losses

 

 

 

(81,540)

(80,584)

Total equity

 

 

 

12,301

13,208

 

 

 

 

 

 

Total liabilities and equity

 

 

 

12,413

13,348

 

Parent Company Income Statement

As permitted by Section 408 of the Companies Act 2006, the income statement of the Company is not presented as part of these financial statements. The Company's loss for the financial year was £1,069,000 (2018: £1,296,000).

 

 

 

Consolidated Statement of Changes in Equity

for the years ended 30 September 2019 and 30 September 2018

 

 

 

 

 

 

Foreign

 

 

 

 

 

Merger

Reverse

exchange

 

 

 

Ordinary

Share

relief

acquisition

translation

Accumulated

 

 

shares

premium

reserve

reserve

reserve

losses

Total

 

£000

£000

£000

£000

£000

£000

£000

Balance at 30 September 2017

7,727

79,421

1,480

(75,308)

(79)

(10,552)

2,689

 

 

 

 

 

 

 

 

Total comprehensive expense

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

-

(668)

(668)

Other comprehensive expense:

 

 

 

 

 

 

 

Foreign exchange translation

-

-

-

-

(1)

-

(1)

Total comprehensive expense

-

-

-

-

(1)

(668)

(669)

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

Charge in respect of share options

 

-

 

-

 

-

 

-

 

-

142

142

Exercise of share options

-

4

-

-

-

-

4

Proceeds from shares issued

196

5,304

-

-

-

-

5,500

Transaction costs for issue of shares

-

(340)

-

-

-

-

(340)

Total transactions with owners

196

4,968

-

-

-

142

5,306

 

 

 

 

 

 

 

 

Balance at 30 September 2018

7,923

84,389

1,480

(75,308)

(80)

(11,078)

7,326

 

Total comprehensive income/(expense)

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

432

432

Other comprehensive expense:

 

 

 

 

 

 

 

Foreign exchange translation

-

-

-

-

(1)

-

(1)

Total comprehensive income/(expense)

-

-

-

-

(1)

432

431

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

Charge in respect of share options

-

-

-

-

-

113

113

Exercise of share options

2

47

-

-

-

-

49

Total transactions with owners

2

47

-

-

-

113

162

 

 

 

 

 

 

 

 

Balance at 30 September 2019

7,925

84,436

1,480

(75,308)

(81)

(10,533)

7,919

 

 

 

Company Statement of Changes in Equity

for the years ended 30 September 2019 and 30 September 2018

 

 

 

 

Merger

 

 

 

Ordinary

Share

relief

Accumulated

 

 

shares

premium

reserve

losses

Total

 

£000

£000

£000

£000

£000

Balance at 30 September 2017

7,727

79,421

1,480

(79,430)

9,198

 

 

 

 

 

 

Total comprehensive expense for the period

-

-

-

(1,296)

(1,296)

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

Charge in respect of share options

-

-

-

142

142

Exercise of share options

-

4

-

-

4

Proceeds from shares issued

196

5,304

-

-

5,500

Transaction costs for issue of shares

-

(340)

-

-

(340)

Total transactions with owners

196

4,968

-

142

5,306

 

 

 

 

 

 

Balance at 30 September 2018

7,923

84,389

1,480

(80,584)

13,208

 

 

 

 

 

 

Total comprehensive expense for the period

-

-

-

(1,069)

(1,069)

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

Charge in respect of share options

-

-

-

113

113

Exercise of share options

2

47

-

-

49

Total transactions with owners

2

47

-

113

162

 

 

 

 

 

 

Balance at 30 September 2019

7,925

84,436

1,480

(81,540)

12,301

 

 

 

Consolidated and Company Statements of Cash Flows

for the years ended 30 September 2019 and 30 September 2018

 

 

       Group

        Company

 

2019

2018

2019

2018

 

 

 

 

 

 

£000

£000

£000

£000

Cash flows from operating activities

 

 

 

 

Profit / (loss) for the period

432

(668)

(1,069)

(1,296)

Finance income

(2)

(4)

(40)

-

Taxation

(66)

(125)

-

-

Depreciation

72

38

-

-

Amortisation of acquired intangibles

40

114

-

-

Impairment of subsidiaries

-

-

-

 

Research and development expenditure credit

(155)

(126)

-

-

Share option charge

113

142

31

28

 

434

(629)

(1,078)

(1,268)

Changes in working capital

 

 

 

 

(Increase)/decrease in trade and other receivables

(239)

(653)

(3,983)

2,910

(Decrease)/increase in trade and other payables

(325)

1,214

(29)

27

Cash (used in)/generated from operations

(130)

(68)

(5,090)

1,669

Taxation received

-

423

-

-

Net cash (used in)/generated from operating activities

(130)

355

(5,090)

1,669

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchase of property, plant and equipment

(217)

(60)

-

-

Purchase of intangible assets including staff costs capitalised

(300)

(15)

-

-

Finance income

4

4

-

-

Net cash used in investing activities

(513)

(71)

-

-

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Issue of shares

48

5,504

48

5,504

Transaction costs associated with issue of shares

-

(340)

-

(340)

Net cash generated from financing activities

48

5,164

48

5,164

 

 

 

 

 

Movements in cash and cash equivalents in the period

(595)

5,448

(5,042)

6,833

Cash and cash equivalents at start of period

7,861

2,414

7,229

396

Effect of exchange rate fluctuations on cash held

(2)

(1)

-

-

Cash and cash equivalents at end of period

7,264

7,861

2,187

7,229

 

 

Notes to the financial statements

 

The financial information set out in these results does not constitute the company's statutory accounts for 2019 or 2018. Statutory accounts for the years ended 30 September 2019 and 30 September 2018 have been reported on by the Independent Auditors; their report was (i) unqualfied; (ii) did not draw attention to any matters by way of emphasis; and (iii) did not contain a statement under 498 (2) or 498 (3) of the Companies act 2006.

 

Statutory accounts for the year ended 30 September 2018 have been filed with the Registrar of Companies. The statutory accounts for the year ended 30 September 2019 will be delivered to the Registrar in due course. Copies of the Annual Report 2019 will be posted to shareholders on or about 16 December 2019.

 

1.       Presentation of the financial statements

 

a.       General information

 

IXICO plc (the 'Company') is a public limited company incorporated in England and Wales and is admitted to trading on the AIM market of the London Stock Exchange under the symbol IXI. The address of its registered office is 4th Floor, Griffin Court, 15 Long Lane, London EC1A 9PN.

 

The Company is a parent of a number of subsidiaries detailed in note 15, together referred to throughout as 'the Group'. The Group is an established provider of technology-enabled services to the global biopharmaceutical industry. The Group's services are used to select patients for clinical trials and assess the safety and efficacy of new drugs in development within the field of neurological disease.

 

b.       Basis of preparation

 

The consolidated financial statements have been prepared on a going concern basis and in accordance with IFRS as adopted by the EU, IFRIC interpretations and the Companies Act 2006 applicable to companies operating under IFRS.

 

The consolidated financial statements comprise a Statement of Comprehensive Income, a Statement of Financial Position, a Statement of Changes in Equity, a Statement of Cash Flows, and accompanying notes. These financial statements have been prepared under the historical cost convention modified by the revaluation of certain financial instruments.

 

The consolidated financial statements are presented in Great British Pounds ('£' or 'GBP') and are rounded to the nearest thousand unless otherwise stated. This is the predominant functional currency of the Group, and is the currency of the primary economic environment in which it operates. Foreign currency transactions are accounted in accordance with the policies set out below.

 

c.       Basis of consolidation

 

The consolidated financial statements incorporate the accounts of the Company and its subsidiary companies adjusted to eliminate intra-Group balances and any unrealised gains and losses or income and expenses arising from intra-Group transactions. The Company's subsidiaries are detailed in note 15. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies.

 

The Group controls a subsidiary when the Group is exposed to, or has rights to, variable returns from its involvement with a subsidiary and has the ability to affect those returns through its power over a subsidiary. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.

 

The results of subsidiary companies are included in the consolidated financial statements from the date that control commences until the date that control ceases. The assets and liabilities of foreign operations are translated into GBP at exchange rates prevailing at the end of the reporting period. Income statements and cash flows of foreign operations are translated into GBP at average monthly exchange rates which approximate foreign exchange rates at the date of the transaction. Foreign exchange differences arising on retranslation are recognised directly in a separate translation reserve.

 

d.       Going concern

 

At the time of approving the consolidated financial statements, the Directors have considered the expected future performance together with the Group's estimated future cash inflows from existing long-term contracts and sales pipeline. Changes to the cost base are made in the normal course of business, so that operating expenditure and planned investment are in line with the Group's strategy and financial resources. After due consideration and taking into account management's estimate of future revenue and expenditure, the Directors have a reasonable expectation that the Company and the Group will have adequate financial resources to continue in operation for the foreseeable future.

 

2.       New and amended accounting standards and interpretations

 

a.       Adoption of new accounting standards for the year ended 30 September 2019

 

The Group has adopted all new and amended accounting standards and interpretations issued by the International Accounting Standards Board ('IASB') that are mandatory for the current reporting period. Analysis of the impacts of these standards are set out below.

IFRS 9 - Financial Instruments

The Group adopted IFRS 9 from 1 October 2018. IFRS 9 is required to be applied prospectively only and therefore comparative figures are not restated. This standard replaces IAS 39 Financial Instruments Recognition and Measurement. The Group applied the model required for expected credit losses based on historical default rates experienced. This did not result in any change in circumstances and as such had no impact. The Group also has no complex financial instruments and the Directors' assessment of the financial instruments held in the Group results in no changes to the financial statements following the adoption of IFRS 9.

IFRS 15 - Revenue from Contracts with Customers

The Group adopted IFRS 15 early, applying it for the first time to the financial statements for the year to 30 September 2018. The Group has continued to apply IFRS 15 consistently throughout the period.

b.       Accounting developments affecting financial statements in subsequent periods

 

At the date of authorisation of these financial statements, several new, but not yet effective, standards and amendments to existing standards and interpretations have been published by the IASB. The only standard that the Group consider will have a material impact on the financial statements is IFRS 16 Leases.

IFRS 16 - Leases

The standard requires a lessee to recognise assets and liabilities, currently accounted for as operating leases, on the Statement of Financial Position, with subsequent recognition of depreciation of the lease assets and interest on the lease liabilities over the term of the lease.

This standard is effective for periods beginning on or after 1 January 2019 and is therefore only applicable to the Group for the financial year starting 1 October 2019. The Group has assessed the current leases in operation throughout the Group and estimates that the discounted value of the lease commitments to be approximately £0.4 million at the 30 September 2019, based on current incremental borrowing rates. Due to the length of the lease, the impact on profitability will not be material.

Other standards or amendments

Other standards and amendments that are not yet effective and have not been adopted early by the Group include:

•       IFRIC 23 Uncertainty over Income Tax Treatments

•       Prepayment Features with Negative Compensation (Amendments to IFRS 9)

The Directors anticipate, based on current business processes, that the introduction of the above standards and amendments will not have a material impact on the Group and Company financial statements and therefore the impact of these changes on the financial statements have not been made.

3.       Significant accounting policies

 

3.1    Revenue

Revenue is principally derived from service revenue. This revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

 

In determining whether to recognise revenue, the Group follows a 5-step process:

 

1.     Identifying the contract with a client;

2.     Identifying the performance obligations;

3.     Determining the transaction price;

4.     Allocating the transaction price to the performance obligations; and

5.     Recognising revenue when/as performance obligation(s) are satisfied.

 

Each type of revenue has separate recognition criteria depending on the type of service provided. These services are agreed at the inception of a project through contracts with clients. A critical part of the contract is a detailed schedule of work that provides the list of services to be provided by the Group. Performance obligations are attached to each service, with revenue being recognised once these are satisfied. The transaction price associated to each performance obligation is allocated based on their relative stand-alone selling price.

 

Revenue types

Many of the Group's contracts comprise a variety of performance obligations including, but not limited to, project set-up and management, site set-up and management, TrialTracker configuration and access, data reading and analysis, data management and quality control and scientific study reporting.

 

The most significant service revenue streams to the Group and the respective recognition criteria are:

 

Project and site set-up

At the point a client approaches the Group to complete work, a project manager is assigned. The project manager co-ordinates the project set-up and ongoing delivery of the service. At inception, the project manager will also prepare the clinical study protocol and other essential study documents.

 

Once the project and/or the site is set-up, all performance obligations are satisfied. These services are therefore recognised at a point in time, being when the Group has delivered the relevant material to the client.

 

Project and site management

Each contract requires various project management activities, provided by the project manager. These services are provided throughout the duration of a contract. Site management services are provided throughout the duration of a site being operational, typically being shorter than the project management cycle.

 

The services provided for project and site management represents a provision of on-going services. Therefore, revenue for these items are recognised on a straight-line basis.

 

Site training and materials

A contract will typically include training of each individual site. Various materials are prepared in advance and provided to clients as tools for site training. Site training is provided either through live online training or through a self-paced training module. These activities are combined in one revenue transaction per site.

 

Revenue from site training is recognised when each site has completed the training activity.

 

TrialTracker configuration and access

The TrialTracker platform delivers a robust and comprehensive set of centralised imaging services designed to efficiently manage the complex imaging workflow from: image upload, quality control, reading and analysis. The platform also allows for reporting and data transfer.

 

The Group has identified 2 separate performance obligations in the TrialTracker platform:

 

1.     A set-up fee is recognised at a point in time once TrialTracker access is provided to the client;

 

2.     An ongoing access fee is recognised over the duration of the project, with revenue being recognised on a straight-line basis.

 

Data reading and analysis

The Group provides data analysis services across a range of biomarkers, providing high-quality, clinically meaningful data. Fees are charged to clients on a 'per data read'.

 

As these services have no ongoing obligations from the Group, revenue is recognised once the data read and analysis has taken place.


Data management and quality control

Ensuring data are managed appropriately and that the data are of a high quality is critical in the delivery of the Group's service. The data management and imaging teams work in collaboration to ensure ongoing integrity of data.

 

The performance of data management represents the provision of an on-going service and so the straight-line method of recognition is used.

 

Revenue recorded from data quality control is recognised at a point in time when the Group has delivered the service to the client.

 

Scientific reports

Scientific reports are provided at interim points and at the end of a study. Such reports contain data analysis and statistical interpretation.

 

These reports represent an individual performance obligation with no further work required by the Group. Revenue from these services is recognised at a point in time when the Group provides the report to the client.

 

Licence revenue

Revenue relating to licensing is entirely attributable to TrialTracker. Each agreement will grant the user rights to use the software and receive associated technical support during the licence period.

 

The licence is a distinct performance obligation and revenue is recognised over the contract term. 

 

Change orders

Throughout the duration of a contract, the client may request additional services or service changes to be made. For revenue recognition purposes, the Group treats a change order or contract modification to a client agreement as a separate contract, if both:

 

·      the scope changes due to the addition of 'distinct' services; and

·      the price change reflects the services' stand-alone selling prices ('SSP') under the circumstances of the modified contract.

 

The revenue recognition for the change order is applied in the same way as the original contract, as detailed above, with the original client agreement remaining unchanged.

 

3.2    Other income

Government grants

A government grant is recognised only when there is reasonable assurance that the Group will comply with any conditions attached to the grant and the grant will be received. The grants are recognised as income over the period necessary to match them with the related costs, for which they are intended to compensate, on a systematic basis. The Group recognises grant income as an item of other income.

 

 

Research and Development Expenditure Credit ('RDEC')

The Group has elected to take advantage of the RDEC introduced in the Finance Act 2013. A company may surrender corporation tax losses on research and development expenditure incurred on or after 1 April 2013 for a corporation tax refund. Relief is given as a taxable credit on 12% of qualifying research and development expenditure. The Group recognises research and development expenditure credit as an item of other income, taking advantage of the 'above the line' presentation.

 

3.3    Research and development expenditure

In all instances across the Group, research expenditure is expensed through the income statement. For development expenditure, items will be expensed where the recognition criteria for internally generated intangible assets is not met.

 

The main criteria used to assess this, as required under IAS 38 - Intangible Assets, are:

-       Demonstrating technical feasibility of completing the intangible asset;

-       Intention to complete the asset;

-       Ability to use or sell the asset in order to generate future economic benefit;

-       Availability of adequate technical or other resources to complete development; and

-       Ability to measure reliably the expenditure attributable to the asset.


During the year, it was determined that the Group has met the above criteria in respect of specific developments to its TrialTracker platform and data analytics service offering. As a result, associated development costs are capitalised in the year in relation to TrialTracker and an intangible asset is recognised as set out in note 14.

 

3.4    Share-based payments

Equity-settled share-based payments are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions.

 

Any changes that impact the original estimates, for example the effect of employees who have left the Group in the year and have forfeited their options, is recognised in the Consolidated Statement of Comprehensive Income such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

 

Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 20 of the consolidated financial statements.

 

3.5    Employee benefits

All employee benefit costs are recognised in the Consolidated Statement of Comprehensive Income as they are incurred. These principally relate to holiday pay and contributions to the Group defined contribution plan.

 

The assets of the Group scheme are held separately from those of the Group in independently administered funds. The Group does not offer any other post-retirement benefits.

 

3.6    Leased assets

The Group has entered into leases that have a duration of longer than a year. The rental charge payable under these operating leases are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the lease term.

 

The Group is currently preparing for the introduction of IFRS 16 'Leases' which will require the capitalisation of these leases. The impact of this assessment is in note 2.

 

3.7    Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and, where appropriate, less provisions for impairment. The initial recognition and subsequent measurement of property, plant and equipment are:

 

Initial recognition

Property, plant and equipment is initially recognised at acquisition cost, including any costs directly attributable to bringing the assets to the location and condition necessary for them to be capable of operating. In most circumstances, the cost will be its purchase cost, together with the cost of delivery.

 

Subsequent measurement

An asset will only be depreciated once it is ready for use. Depreciation is charged so as to write off the cost of property, plant and equipment, less its estimated residual value, over the expected useful economic lives of the assets.

 

Depreciation is charged on a straight-line basis as follows:

 

Leasehold improvements

shorter of 5 years or the lease term

Fixtures and fittings

3 years

Equipment

3 years

 

The disposal or retirement of an asset is determined by comparing the sales proceeds with the carrying amount. Any gains or losses are recognised within the Consolidated Statement of Comprehensive Income.

3.8    Intangible assets

Acquired intangibles

Intangible assets that are acquired through business combinations are recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal rights. These assets will only be recognised if they are also expected to generate future economic benefits and its fair value can be reliably measured.

 

Initial recognition

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition.

 

Subsequent measurement

Following capitalisation, the intangible assets are carried at cost less any accumulated amortisation, and where appropriate, less provisions for impairment.

 

Intangible assets are amortised using the straight-line method over their estimated useful economic life as follows:

 

Intangibles acquired through business combinations

5 years

Computer software

3 years

 

Amortisation is disclosed under general and administrative expenses in the Consolidated Statement of Comprehensive income.

 

Internally generated intangible assets

Intangible assets that are capitalised internally are deemed to have met the recognition criteria set out in IAS38. These items relate to research and development costs and are considered in note 3.3.

 

Initial recognition

Internally generated intangible assets are initially recognised at cost once the recognition criteria of IAS 38 are met.

 

 

Subsequent measurement

Any assets that are not yet ready for use will be capitalised as assets under construction and will not be amortised. Once the asset is ready for use, amortisation will begin. The amortisation rates adopted are based on the expected useful economic life of the projects to which they relate. The assets useful economic life is as follows:

 

Internally generated technology

3 - 5 years

 

3.9    Impairment of non-current assets

Each category of non-current assets is reviewed for impairment both annually and when there is an indication that an asset may be impaired, being when events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognised in the Consolidated Statement of Comprehensive Income for the amount by which the asset's carrying value exceeds its recoverable amount.

 

The recoverable amount is the higher of an asset's fair value less cost to sell and value in use. Non-financial assets, other than goodwill, which have suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

 

3.10  Investments in Group undertakings

Investments in Group undertakings are initially recognised at cost and subsequently measured at cost less any impairment provision. Investments are subject to an annual impairment review, with any impairment charge being recognised through the Consolidated Statement of Comprehensive Income.

 

3.11  Trade and other receivables

Trade and other receivables are initially recognised at fair value and subsequently stated at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or significant delinquency in payments (exceeding credit terms) are considered indicators that the trade receivable should be impaired.

 

The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Consolidated Statement of Comprehensive Income within general and administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against general and administrative expenses in the Consolidated Statement of Comprehensive Income.

 

3.12  Taxation

Current tax

Current tax represents amounts recoverable within the United Kingdom and is provided at amounts expected to be recovered using the tax rates and laws that have been enacted at the Statement of Financial Position date.

Research and development credits

The benefit associated with UK-based research and development is recognised under the UK's Research and Development Expenditure Credit scheme. Details of the recognition are set out in note 3.2.

Deferred taxation

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements in accordance with IAS 12 'Income taxes'. Deferred tax liabilities are recognised for all taxable temporary differences. A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available in future years to utilise the temporary difference. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither the accounting, nor taxable profit or loss.

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the Statement of Financial Position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

 

Deferred tax assets and liabilities are offset only when there is a legally enforceable right to set off current tax assets against current tax liabilities, they relate to income taxes levied by the same taxation authority and the Group intends to settle these on a net basis.

 

3.13  Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand with original maturities at inception of 3 months or less.

 

3.14  Foreign currency translation

Transactions denominated in foreign currencies are translated into Great British Pounds at actual rates of exchange prevailing at the date of transaction. Monetary assets and liabilities expressed in foreign currencies are translated into Great British Pounds at rates of exchange prevailing at the end of the financial year. All foreign currency exchange differences are taken to the Consolidated Statement of Comprehensive Income in the year in which they arise.

 

Non-monetary items are not retranslated at year end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

 

3.15  Trade and other payables

Trade and other payables are non-interest bearing and are initially recognised at fair value and subsequently stated at amortised cost.

 

3.16  Equity instruments

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

 

3.17  Financial instruments

Financial assets and financial liabilities are recognised on the Consolidated Statement of Financial Position when the Group or the Company becomes a party to the contractual provisions of the instrument. Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

 

Further information relating to financial instruments and the policies adopted by the Group to manage risk is found in note 22.

 

4.       Significant management judgement in applying accounting policies and estimation uncertainty

 

When preparing the consolidated financial statements, the Directors make a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses.

 

Significant management judgements

The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the consolidated financial statements.

 

Revenue recognition

The Group recognises revenue in accordance with amounts charged to clients under service contracts. All contracts include an agreed, detailed work order which defines the deliverables. The service contracts are typically multi-year and may be amended through a change order process, which may include changes to data volumes (increased or decreased), different methods of data analysis or changes to the timing of providing the deliverables. 

 

Revenue is recognised upon achievement of deliverables set out in the service contract. The recognition is expected to approximate to the timing of the physical performance of the contracts. The Group records the performance of the contractual obligations to determine that the deliverables and actual work performed is in accordance with the contract and agreed change orders. The scope of the project and contract terms are reviewed to determine whether the Group is acting as principal or agent in respect of the project, which depends on facts and circumstances and requires judgement.

 

Client contracts include an agreed work order so the transaction price for a contract is allocated against distinct performance obligations based on their relative stand-alone selling prices. Management determines the fair value of individual components based on actual amounts charged by the Group on a stand-alone basis. The transaction price for a contract excludes any amounts collected on behalf of third parties.

 

Capitalisation of internally developed software

Distinguishing the research and development phases of a new software product and determining whether the requirements for the capitalisation of development costs are met requires judgement. Management will assess whether a project meets the recognition criteria as set out in IAS 38 based on an individual project basis. Where the criteria are not met, the research and development expenditure will be expensed in the Consolidated Statement of Comprehensive Income. Where the recognition criteria are met, the items will be capitalised as an intangible asset.

 

During the year ended 30 September 2019, total research and development expenses totalled £1,147,000 (2018: £1,033,000). Of this amount, £161,000 (2018: £nil) was capitalised as an intangible asset. The balance of expenditure being £986,000 (2018: £1,033,000) is recognised in the Consolidated Statement of Comprehensive Income as an expense.

 

Recovery of deferred tax assets

Deferred tax assets have not been recognised for deductible temporary differences and tax losses. The Directors consider that there is not sufficient certainty that future taxable profits will be available to utilise those temporary differences and tax losses. Further information of the Group's deferred tax asset can be found in note 18 of the consolidated financial statements.

 

Estimation uncertainty

Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Changes to these estimations may result in substantially different results for the year.

 

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. Details of the estimations used in determining the fair value of the options in issue are detailed in note 20.

 

Useful lives of depreciable assets

The useful lives of depreciable assets are determined by management at the date of purchase based on the expected useful lives of the assets. These are subsequently monitored and reviewed annually and where there is objective evidence of changes in the useful economic lives, these estimates are adjusted. Any changes to these estimates may result in significantly different results for the period.

 

5.       Revenue

 

An analysis of the Group's revenue by type is as follows:

 

 

 

 

 

 

2019

 

2018

 

 

 

 

 

£000

£000

Service revenue

 

 

 

 

7,561

5,394

 

 

For the year ended 30 September 2019, revenue includes £1,271,000 (2018: £249,000) held in contract liabilities within trade and other payables at the beginning of the period.

 

 

6.       Segmental Information

 

The Board considers there to be only one core operating segment for the Group's activities. This is based on the Group's development, commercial and operational delivery teams operating across the entirety of the Group, which is wholly based in the United Kingdom. The projects undertaken by the Group are managed by project managers, who receive inputs for each project by other team members. Performance information is reported as a single business unit to the leadership team, who review the Group's management information.

 

The information gathered for each project is subsequently reported to the Group's Chief Executive Officer, who is considered to be the chief operating decision maker. This information is used for resource allocation and assessment of performance. Therefore, the entirety of the Group's revenue and assets can be attributed wholly to this operating segment with reference to the Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position.

 

During the year ended 30 September 2019, the group had 2 clients (2018: 3 clients) that exceeded 10% of total revenue. In 2019 the individual percentage revenue associated with each of these clients was 39% (£2,976,000) and 14% (£1,086,000). In 2018 the individual percentage revenue associated with each of these clients was 14% (£764,000), 13% (£690,000) and 12% (£630,000).

 

Geographical information

 

The Group's revenue can be categorised by type of revenue and by country, based on the contracting client location.

 

 

 

 

 

 

2019

 

2018

 

 

 

 

 

£'000

£000

United States

 

 

 

 

3,388

3,926

United Kingdom

 

 

 

 

2,764

481

Europe

 

 

 

 

1,404

951

Rest of World

 

 

 

 

5

36

Revenue

 

 

 

 

7,561

5,394

 

 

As the Group is domiciled in the United Kingdom, the entirety of the revenue originates from this location.

 

 

 

7.       Other Income

 

Items of other income principally relate to government grants received, originating solely in the United Kingdom. Grants are recognised as income over the period required to match them with the related costs, for which they are intended to compensate, on a systematic basis.

 

The Group also recognises Research and Development Expenditure Credit ('RDEC') as other income.

 

 

 

2019

 

2018

 

£000

£000

Grant income

433

436

RDEC

155

126

Other income

588

562

 

 

 

8.       Auditor's remuneration

 

 

2019

 

2018

 

£000

£000

 

 

 

Audit services

 

 

   - Group and Parent Company

31

29

   - subsidiary companies

20

19

 

 

 

Total audit fees

51

48

 

 

 

Audit-related assurance services

6

5

Tax compliance services

9

11

Tax advisory services

1

16

 

 

 

Total auditor's remuneration

67

80

 

 

 

 

9.       Employees and Directors

 

The average monthly number of persons (including Executive and Non-Executive Directors) employed by the Group was:

               

 

2019

 

2018

 

Number

Number

Administration

17

13

Operations, research and development

51

50

Average total persons employed

68

63

 

 

The aggregate remuneration of employees in the group was:

 

 

2019

 

2018

 

£000

£000

Wages and salaries

4,630

4,007

Social security costs

535

377

Other pension costs

177

187

Share-based payments' charge

113

142

Total remuneration for staff

5,455

4,713

Staff costs capitalised

(161)

-

Net staff costs

5,294

4,713

 

 

The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group in independently administered funds. The amounts outstanding at 30 September 2019 in respect of pension costs were £27,000 (2018: £22,000).

 

The remuneration of the Group's Directors is set out in note 23 under related party transactions.

 

The Company did not directly employ any staff and therefore there is no cost recognised in respect of staff costs.

 

 

 

10.    Operating profit / (loss)

 

An analysis of the Group's operating profit / (loss) has been arrived at after charging:

               

 

2019

2018

 

 

£000

£000

Research and development expenses

986

1,033

Sales and marketing expenses

1,154

754

Operating lease charges: land and building

144

131

Depreciation of property, plant and equipment

72

38

Gain on disposal of property, plant and equipment

-

(6)

Amortisation of intangible assets

40

114

Foreign exchange loss

27

17

Administrative expenses

2,743

2,451

Total operating expenses

5,166

4,532

 

 

 

11.    Taxation

 

The tax charge for each period can be reconciled to the result per the Consolidated Statement of Comprehensive Income as follows:

 

 

2019

2018

 

 

 

 

 

£000

£000

 

Profit / (loss) on ordinary activities before taxation

366

(793)

 

 

 

 

 

Profit / (loss) before tax at the effective rate of corporation tax

 

 

 

 in the United Kingdom of 19% (2018: 19%)

70

(151)

 

 

 

 

 

Effects of:

 

 

 

Expenses not deductible for tax purposes

(2)

19

 

Temporary differences

(85)

7

 

Research and development uplifts net of losses surrendered for tax credits

(28)

3

 

Prior period adjustment

(21)

(3)

 

Tax credit for the period

(66)

(125)

 
           

 

The tax credit for each period can be reconciled as follows:

 

 

2019

2018

 

 

 

 

 

£000

£000

 

Small or medium enterprise research and development credit

(74)

(128)

 

Deduction for corporation tax on RDEC

29

24

 

Tax due by foreign subsidiary undertakings

-

1

 

Deferred tax movement on amortisation

-

(19)

 

Prior period adjustment

(21)

(3)

 

Tax credit for the period

(66)

(125)

 
           

 

 

The Group has elected to take advantage of the RDEC, introduced in the Finance Act 2013 whereby a company may surrender corporation tax losses on research and development expenditure incurred on or after 1 April 2013 for a corporation tax refund.

 

The following is a reconciliation between the tax charge and the tax receivable within the Consolidated Statement of Financial Position:

 

2019

2018

 

 

£000

£000

Current tax receivable at start of period

229

420

Current period credit

221

232

Corporation tax repayment

-

(423)

Current tax receivable at end of period

450

229

 

 

The tax credit for each period can be reconciled to the current period credit recognised in tax receivable within the Consolidated Statement of Financial Position in each period as follows:

 

 

2019

2018

 

 

£000

£000

Tax credit for the year

66

125

Deferred tax movement on amortisation

-

(19)

RDEC gross of corporation tax deduction

155

126

Current period credit

221

232

 

 

 

12.    Earnings per share

 

The calculation of basic and diluted earnings per share ('EPS') of the Group is based on the following data:

 

2019

2018

 

 

 

 

 

 

 

 

Earnings

 

 

 

Earnings for the purposes of basic and diluted EPS, being net profit / (loss) attributable to the owners of the Company (£000)

432

(668)

 

 

 

 

 

Number of shares

 

 

 

Weighted average number of shares for the purposes of basic EPS

46,786,375

33,761,428

 

 

 

 

 

Effect of potentially dilutive ordinary shares:

 

 

 

-       Weighted average number of share options

9,182

-

 

 

 

 

 

Weighted average number of shares for the purposes of diluted EPS

46,795,557

33,761,428

 
           

 

Basic earnings per share is calculated by dividing earnings attributable to the owners of the Company by the weighted average number of shares in issue during the year. The diluted EPS is calculated by dividing earnings attributable to the owners of the Company by the weighted average number of shares in issue taking into account the share options outstanding during the year. For the year to 30 September 2018, there was no dilutive effect as the share options in issue would be anti-dilutive due to the loss made in the year.


The basic and diluted earnings per share for the Group and Company is:

 

2019

2018

 

 

 

Basic earnings per share

0.92p

(2.00p)

Diluted earnings per share

0.92p

(2.00p)

 

 

 

 

 

 

13.    Property, plant and equipment

 

Group

 

 

Leasehold

Fixtures and

 

 

 

improvement

 fittings

Equipment

Total

 

 

 

 

 

Cost

£000

£000

£000

£000

At 01 October 2017

62

7

207

276

Additions

-

-

60

60

Disposals

-

-

(116)

(116)

Transfer to computer software

-

-

(11)

(11)

At 30 September 2018

62

7

140

209

Additions

102

5

204

311

Disposals

(62)

(7)

(61)

(130)

At 30 September 2019

102

5

283

390

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

At 01 October 2017

41

5

170

216

Charge for the period

12

2

24

38

Disposals

-

-

(114)

(114)

Transfer to computer software

-

-

(8)

(8)

At 30 September 2018

53

7

72

132

Charge for the period

11

2

59

72

Disposals

(62)

(7)

(61)

(130)

At 30 September 2019

2

2

70

74

 

 

 

 

 

Net book value

 

 

 

 

At 30 September 2018

9

-

68

77

At 30 September 2019

100

3

213

316

 

 

Company

At 30 September 2019 and 30 September 2018, the Company had no property, plant and equipment.

 

14.    Intangible assets

 

Group

 

 

Intangibles acquired through business combinations

Computer

software

Internally developed technology

Total

 

£000

£000

£000

£000

Cost

 

 

 

 

At 01 October 2017

1,804

28

-

1,832

Additions

-

15

-

15

At 30 September 2018

1,804

46

-

1,850

Additions

-

139

161

300

Disposals

(1,804)

(3)

-

(1,807)

At 30 September 2019

-

182

161

343

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

At 01 October 2017

1,704

-

-

1,704

Amortisation

100

14

-

114

At 30 September 2018

1,804

14

-

1,818

Amortisation

-

23

17

40

Disposals

(1,804)

(3)

-

(1,807)

At 30 September 2019

-

34

17

51

 

 

 

 

 

Net book value

 

 

 

 

At 30 September 2018

-

32

-

32

At 30 September 2019

-

148

144

292

 

Amortisation is charged to the Consolidated Statement of Comprehensive Income within general and administrative expenses.

 

Internally developed technology

The Group has capitalised research and development costs during the year in relation to the development of its proprietary TrialTracker software. Development includes TrialTracker platform upgrades as well as additional algorithm development. The costs capitalised include time and expenses in relation to staff costs. In recognising these assets, the Group has applied the recognition criteria of IAS 38 relating to internally generated intangible assets, where costs in relation to the development phase must be capitalised under certain circumstances. More information in relation to this is included in the accounting policies of the Group in notes 3 and 4.

 

Company

At 30 September 2019 and 30 September 2018, the Company had no intangible assets.

15.    Investments

 

The consolidated financial statements of the Group as at 30 September 2019 and at 30 September 2018 include:

 

 

Name of subsidiary

Class of share

Country of incorporation

Principal activities


Directly held:

 

 

 

IXICO Technologies Limited

Ordinary

United Kingdom

Data collection and analysis of neurological diseases

IXITech Limited

Ordinary

United Kingdom

Dormant

 

 

 

 

Indirectly held:

 

 

 

IXICO US LLC

Members' interest

United States

Dormant

Optimal Medicine Limited

Ordinary

United Kingdom

Dormant

IXICO Technologies Inc.

Ordinary

United States

Sales and marketing

 

 

 

 

 

The Company and Group has no investments other than the holdings in the above subsidiaries that are all 100% owned. The carrying amount of the investments in subsidiaries for the Company are:

 

 

 

                Company

 

2019

 

2018

 

£000

£000

Investments in subsidiary undertakings

 

 

At beginning of the period

5,434

5,320

Capital contribution

82

114

Total investments at end of the period

5,516

5,434

 

 

The capital contribution represents the charge in the year for share-based awards issued by the Company to employees of IXICO Technologies Limited.

 

All investments in subsidiaries, other than IXICO Technologies Limited, are not expected to be recoverable have been impaired in previous periods and therefore the carrying amount is £nil (2018: £nil).

 

Since the year end, both Optimal Medicine Limited and IXITech Limited entered voluntary liquidation and have been struck off.

 

 

 

 

16.    Trade and other receivables

 

 

 

               Group

                 Company

 

2019

2018

2019

2018

 

 

£000

£000

£000

£000

Trade receivables

1,933

1,864

-

-

Less provision for bad and doubtful debts

-

-

-

-

Net carrying amount of trade receivables

1,933

1,864

-

-

 

 

 

 

 

Other receivables

-

4

-

-

Other taxation and social security

27

13

5

3

Prepayments and accrued income

419

259

34

25

Amounts due from subsidiary undertakings

-

-

4,671

657

Trade and other receivables

2,379

2,140

4,710

685

 

All amounts are classified as short term and are expected to be received within one year. The average credit period granted to clients ranges from 30 to 90 days (2018: 30 to 90 days).

 

A provision for bad and doubtful debts is made when there is uncertainty over the ability to collect the amounts outstanding from clients. This is determined based on specific circumstances relating to each individual client. The Directors consider that the carrying amount of trade and other receivables approximates their fair value and therefore as at 30 September 2019, the Group has not recognised an allowance for doubtful debts (2018: £nil).

 

As at the year-end, the ageing of trade receivables which are past due but not impaired is as follows:

               

 

              Group

             Company

 

2019

2018

 

2019

2018

 

£000

£000

£000

£000

Amounts not past due

1,812

1,705

-

-

Past due:

 

 

 

 

Less than 30 days

91

155

-

-

31 - 60 days

30

-

-

-

61 - 90 days

-

4

-

-

More than 90 days

-

-

-

-

Total trade receivables

1,933

1,864

-

-

 

As at 30 September 2019, the average age of trade receivables is 89 days (2018: 77 days). The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 22.

 

 

 

 

17.    Trade and other payables

 

 

              Group

             Company

 

2019

 

2018

2019

2018

 

£000

£000

£000

£000

Trade payables

597

339

59

39

Other taxation and social security

196

189

-

-

Contract liabilities

414

1,399

-

-

Accrued expenses

1,569

1,070

53

101

Other payables

6

16

-

-

Trade and other payables

2,782

3,013

112

140

 

 

Trade payables and accrued expenses principally comprise amounts outstanding for trade purchases and ongoing costs, all of which are short term. As at 30 September 2019, the average credit period taken for trade purchases is 41 days (2018: 51 days). No interest is charged on the trade payables. The Group's policy is to ensure that payables are paid within the pre-agreed credit terms and to avoid incurring penalties and/or interest on late payments.

 

The fair value of trade and other payables approximates their current book values.

 

 

18.    Deferred tax

 

Deferred tax asset (unrecognised)

 

 

               Group

                  Company

 

2019

2018

2019

 

2018

 

£000

£000

£000

£000

Tax effect of temporary differences:

 

 

 

 

Depreciation in excess of tax allowances

102

(63)

(1)

(2)

Accumulated losses

(11,268)

(12,344)

(1,699)

(1,719)

Deductible temporary differences

(49)

9

(5)

(5)

Deferred tax asset (unrecognised)

(11,215)

(12,398)

(1,705)

(1,726)

 

The unrecognised deferred tax is based on material temporary differences that have originated but not reversed at the Consolidated Statement of Financial Position date from transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future.

 

The unrecognised deferred tax asset is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which temporary differences will reverse. Based on tax rates and laws enacted or substantively enacted at the latest balance date, the rate when the above temporary differences are expected to reverse is currently 17% (2018: 19%).

 

 

 

Deferred tax liability

 

 

               Group

                Company

 

2019

2018

2019

2018

 

 

£000

£000

£000

£000

Balance at start of period

-

19

-

-

Amortisation

-

(19)

-

-

Reversal on impairment

-

-

-

-

Balance at end of period

-

-

-

-

 

A deferred tax liability was recognised due to the temporary difference arising from the recognition of the intangible assets acquired through the reverse acquisition on 14 October 2013 and business combination on 8 December 2015. The deferred tax liability is measured at 19%, the current effective rate of corporation tax in the United Kingdom. The deferred tax liability was amortised using the straight-line method over 5 years, reflecting the estimated useful economic life of the intangible asset. On 14 October 2018, the assets had fully amortised and therefore the deferred tax liability had been released in its entirety.

 

 

 

19.    Issued capital and reserves

 

Ordinary shares and share premium

The Company has 1 class of ordinary shares. The share capital issued has a nominal value of £0.01 and all carry the right to one vote at shareholders' meetings and are eligible to receive dividends. Share premium is recognised when the amount paid for a share is in excess of the nominal value.

 

The Group and Company's opening and closing share capital and share premium reserves are:

 

 

Group and Company

 

Ordinary

Share

Share

 

shares

capital

 

premium

 

Number

£000

£000

Authorised, issued and fully paid

 

 

 

At 30 September 2018

46,777,000

7,923

84,389

Share options exercised

125,294

2

47

At 30 September 2019

46,902,294

7,925

84,436

 


Exercise of share options

On 20 August 2019, a member of key management personnel exercised 37,647 share options at an exercise price of £0.305.

On 10 September 2019, a member of key management personnel exercised 37,647 share options at an exercise price of £0.490.

On 10 September 2019, a member of key management personnel exercised 50,000 share options at an exercise price of £0.365.

 

The exercise of these share options resulted in an additional 125,294 shares being issued in the year. This resulted in an increase in share capital of £1,253 and an increase in share premium of £46,927.

 

 

Other reserves

Accumulated losses

This reserve relates to the cumulative results made by the Group and Company in the current and prior periods.

 

Merger relief reserve

In accordance with Section 612 of the Companies Act 2006 'Merger Relief', the Company issuing shares as consideration for a business combination, accounted at fair value, is obliged, once the necessary conditions are satisfied, to record the share premium to the merger relief reserve.

 

Reverse acquisition reserve

Reverse accounting under IFRS 3 'Business Combinations' requires that the difference between the equity of the legal parent and the issued equity instruments of the legal subsidiary, pre-combination is recognised as a separate component of equity.

 

Foreign exchange translation reserve

This reserve represents the cumulative impact of foreign exchange translations in the year.

 

 

20.    Share-based payments

 

Certain Directors and employees of the Group hold options to subscribe for shares in the Company under share option schemes. There are 2 separate structures to the share options in operation in the Group (2018: 2). Both structures relate to a single scheme outlined in the EMI Share Option Plan 2014.

                                                               

Total share options outstanding have a range of exercise prices from £0.01 to £0.49 per option and the weighted average contractual life is 4.6 years (2018: 5.6 years). The total charge for each period relating to employee share-based payment plans for continuing operations is disclosed in note 9 of the consolidated financial statements.

 

                                                                                                                               

EMI Share Option Plan 2014

 

This scheme is open, by invitation, to Executive Directors and key management personnel. Participants are granted share options in the Group which contain standard and enhanced vesting conditions. These are subject to the achievement of individual employee and Group performance criteria as determined by the Board. The vesting period varies by award and the conditions approved by the Board. Options are forfeited if the employee leaves the Group before the options vest.

 

Details of the share options outstanding during the year are as follows:                                                               

 

 

2019

2018

 

Number

Weighted average exercise price

Number

Weighted average exercise price

Outstanding at start of the period

2,707,835

£0.35

2,836,012

£0.35

Granted

-

-

325,000

£0.36

Exercised

(125,294)

£0.38

(15,000)

£0.31

Lapsed

(710,491)

£0.33

(438,177)

£0.33

Outstanding at end of the period

1,872,050

£0.35

2,707,835

£0.35

Exercisable at end of the period

1,068,110

£0.36

537,096

£0.36

 

There were no grants issued under the EMI Share Option Plan 2014 during the year ended 30 September 2019. The model used to value the grants in the prior year was the Monte Carlo method followed by 'Hull White' trinomial lattice and the inputs used were as follows:

 

 

2018

 

 

 

Weighted average share price

 

£0.35

Weighted average exercise price

 

£0.36

Expected volatility

 

46.70%

Expected life

 

6 years

Expected dividend yield

 

0%

Risk-free interest rate

 

1.05%

 

 

 

"Long-Term Incentive Plan"

On 4 June 2018, the Group issued options with an exercise price of £0.01 as an alternative approach to incentivising employees under the EMI Share Option Plan 2014. It termed this approach of issuing options with an exercise price of £0.01 its Long-Term Incentive Plan ('LTIP'). The 4 June 2018 grant consisted of a grant of 2,571,910 options. The LTIP was approved by shareholders on 29 May 2018. The LTIP operates under the umbrella of the EMI Share Option Plan 2014.

The share options granted are subject to share price performance, measured against the 3-month volume weighted average price of the Company's ordinary shares. The measurement date will be made in the 3 months prior to the third anniversary from the date of the grant. The performance conditions of the LTIP Award are as follows:

-       0% of the LTIP will vest if the share price increases by less than 50%;

-       25% of the LTIP will vest if the share price increases by 50% from the date of issue of the grant;

-       25% - 100% of the LTIP will vest on a straight-line basis if the share price increases by up to 100% from the date of issue of the grant.

 

 

The share price at the date of issue of the grant was £0.28. Upon vesting, the LTIP Award is subject to a holding period of up to 2 years from the point of exercising. Options are subject to continued employment, malus and clawback provisions.

The Board intends to issue further options under the LTIP structure in future periods and is reviewing the vesting and holding conditions of the 2018 LTIP award as part of its considerations.

Details of the share options outstanding during the year are as follows:

 

2019

 

2018

 

 

Number

Weighted average exercise price

Number

Weighted average exercise price

Outstanding at start of the period

2,571,910

£0.01

-

£0.00

Granted

-

£0.00

2,571,910

£0.01

Exercised

-

£0.00

-

£0.00

Lapsed

(753,388)

£0.01

-

£0.00

 

 

 

 

 

Outstanding at end of the period

1,818,522

£0.01

2,571,910

£0.01

Exercisable at end of the period

-

-

-

-

 

There were no grants issued under the LTIP during the year ended 30 September 2019. The model used to value the grants in the prior year was the Monte Carlo method followed by 'Hull White' trinomial lattice and the inputs used were as follows:

 

 

2018

 

 

 

Weighted average share price

 

£0.35

Weighted average exercise price

 

£0.01

Expected volatility

 

46.70%

Expected life

 

6 years

Expected dividend yield

 

0%

Risk-free interest rate

 

1.05%

 

 

 

 

21.    Operating lease arrangements

 

The Group has outstanding commitments relating to future minimum lease payments. The operating lease payments represent the rental payable by the Group for its registered office and other leases, including printers.

               

 

 

                Group

 

 

 

2019

 

2018

 

 

 

£000

£000

Total undiscounted future committed payments falling due:

 

 

 

 

     Within 1 year

 

 

178

129

     In the 1 and 5 years

 

 

263

430

     After more than 5 years

 

 

-

-

 

 

 

441

559

 

 

The average length of the leases remaining, excluding any break clauses, is 2.5 years (2018: 3.5 years).

 

At 30 September 2019, the Company had no operating lease commitments outstanding (2018: £nil).

 

 

 

22.    Financial risk management

 

In common with all other areas of the business, the Group is exposed to risks that arise from the use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them.

 

The main risks arising from the Group's financial instruments are liquidity, interest rate, foreign currency and credit risk. The Group's financial instruments comprise cash and various items such as trade receivables and trade payables, which arise directly from its operations.

 

Categories of financial instruments

 

 

             Group

                Company

 

2019

 

2018

2019

2018

 

£000

£000

£000

£000

Financial assets held at amortised cost

 

 

 

 

Trade and other receivables excluding prepayments

2,082

1,868

4,671

657

Cash and cash equivalents

7,264

7,861

2,187

7,229

 

9,346

9,729

6,858

7,886

 

 

 

 

 

Financial liabilities held at amortised cost

 

 

 

 

Trade and other payables excluding statutory liabilities

2,197

1,161

112

140

 

2,197

1,161

112

140

 

 

Fair value of financial assets and liabilities

There is no material difference between the fair value and the carrying values of the financial instruments because of the short maturity period of these financial instruments or their intrinsic size and risk.

 

 

Liquidity risk management

Liquidity risk is the risk that the Group will not be able to meet its obligations as they fall due through having insufficient resources. The Group monitors its levels of working capital to ensure that it can meet its liabilities as they fall due. Ultimate responsibility for liquidity risk management rests with the Board, which has built an appropriate framework for the management of the Group's short-, medium- and long-term funding and liquidity requirements.

 

The principal current asset of the business is cash and cash equivalents and is therefore the principal financial instrument employed by the Group to meet its liquidity requirements. The Board ensure that the business maintains surplus cash reserves to minimise any liquidity risk.

 

The Group's financial liabilities are all due within 3 months (2018: 3 months) of the Consolidated Statement of Financial Position date. The Group does not have any borrowings or payables on demand which would increase the risk of Group not holding sufficient reserves for repayment.

 

 

Market risk

Interest rate risk management

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate. The Group operates an interest rate policy designed to minimise interest costs and reduce volatility in reported earnings.

 

The Group holds all cash and cash equivalents with institutions with a recognised high credit rating. Interest rates on current accounts are floating. Changes in interest rates may increase or decrease the Group's finance income.

 

The Group does not have any committed interest-bearing borrowing facilities and consequently there is no material exposure to interest rate risk in respect of financial liabilities.

 

Foreign currency risk management

Foreign currency risk is the risk that the fair value or future cash flows of a foreign currency exposure will fluctuate because of changes in foreign exchange rates.

 

The Group's exposure to the risk of changes in foreign exchange rates relates to the Group's overseas operating activities, primarily denominated in US Dollars, Euros and Swiss Francs. There  is also an investment by the Company in a foreign subsidiary. The Group's exposure to foreign currency changes for all other currencies is not material.

 

During the year, the Group has not made use of financial instruments to minimise any foreign exchange gains or losses, and fluctuations in foreign exchange movements are reflected in the results from operating activities. The Group seeks to minimise the exposure to foreign currency risk by matching local currency income with local currency costs where possible. The Group will use financial instruments to minimise foreign exchange fluctuations where it is appropriate to do so. 

 

 

The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities as at 30 September are as follows:

 

 

             Group

                Company

 

2019

2018

2019

2018

US Dollar exposure

USD'000

USD'000

USD'000

USD'000

Balance at end of period

 

 

 

 

Monetary assets

944

535

-

-

Monetary liabilities

(89)

(101)

-

-

Total exposure

855

434

-

-

 

 

 

 

             Group

               Company

 

2019

2018

2019

2018

Euro exposure

EUR'000

EUR'000

EUR'000

EUR'000

Balance at end of period

 

 

 

 

Monetary assets

284

151

-

-

Monetary liabilities

(112)

(113)

-

-

Total exposure

172

38

-

-

 

 

 

 

             Group

               Company

 

2019

2018

2019

2018

Swiss Franc exposure

CHF'000

CHF'000

CHF'000

CHF'000

Balance at end of period

 

 

 

 

Monetary assets

99

79

-

-

Monetary liabilities

(123)

(78)

-

-

Total exposure

(24)

1

-

-

 

 

Foreign currency sensitivity analysis

As at 30 September 2019, the sensitivity analysis assumes a +/-10% change of the USD/GBP, EUR/GBP and CHF/GBP exchange rates, which represents management's assessment of a reasonably possible change in foreign exchange rates (2018: 10%). The sensitivity analysis was applied on the fair value of financial assets and liabilities.

 

 

 

2019

2018

 

10% weaker1

 

10% stronger

10% weaker

 

10% stronger

 

£000

£000

£000

£000

US Dollar

(70)

70

(78)

95

Euro

(15)

15

(56)

67

Swiss Franc

2

(2)

(14)

17

 

(83)

83

(148)

179

 

1 10% weaker relates to the Great British Pound strengthening against the currency and therefore the Group would be in a weaker monetary position.

 

 

 

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's financial assets are cash and cash equivalents and trade and other receivables. The carrying value of these assets represents the Group's maximum exposure to credit risk in relation to financial assets.

 

The Group's credit risk is primarily attributable to its trade receivables. The amounts presented in the Consolidated Statement of Financial Position are net of allowances for doubtful receivables, estimated by the Group's management based on prior experience and their assessment of the current economic environment, and any specific criteria identified in respect of individual trade receivables. An allowance for impairment is made where there is an identified loss event, which, based on previous experience, is evidence of a reduction in the recoverability of future cash flows.

 

Prior to entering in to an agreement to provide services, the Group makes appropriate enquiries of the counterparty and independent third parties to determine credit worthiness. The Group has not identified any significant credit risk exposure to any single counterparty or Group of counterparties as at the period end.

 

The Group continually reviews client credit limits based on market conditions and historical experience. Any provision for impairment, as well as the ageing analysis of overdue trade receivables, is set out in note 16.

 

The Group's policy is to minimise the risks associated with cash and cash equivalents by placing these deposits with institutions with a recognised high credit rating.

 

 

Capital risk management

The Group considers capital to be shareholders' equity as shown in the Consolidated Statement of Financial Position, as the Group is primarily funded by equity finance and is not yet in a position to pay a dividend. The Group had no borrowings at 30 September 2019.

 

The 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 for other stakeholders. In order to maintain or adjust the capital structure the Group may return capital to shareholders or issue new shares.

 

 

 

23.    Related party transactions

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

 

During the year ended 30 September 2019, the Group was charged monitoring fees totalling £nil (2018: £23,000) from IP Group plc, a previous shareholder. The amount owed to IP Group plc at 30 September 2019 was £nil (2018: £nil).

 

In the previous year to 30 September 2018, the Company was charged consultancy fees totalling £18,000 from Panoramic Digital Health SASU, owned by a former Executive Director. The amount owed to Panoramic Digital Health SASU at 30 September 2018 was £3,000.

 

Remuneration and transactions of Directors and key management personnel

 

Key management remuneration:

 

2019

 

2018

 

£000

£000

Short-term employee benefits

1,604

1,723

Post-employment benefits

29

39

Share-based payments

70

-

Termination benefits

76

-

Total remuneration

1,779

1,762

 

Key management includes Executive Directors, Non-Executive Directors and senior management who have the responsibility for managing, directly or indirectly, the activities of the Group.

 

The aggregate Directors' remuneration, including employers' national insurance and share-based payments' expense, was £1,043,000 (2018: £958,000) and aggregate pension of £8,000 (2018: £21,000).

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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