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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Idox Plc | LSE:IDOX | London | Ordinary Share | GB0002998192 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 64.20 | 63.20 | 65.40 | 75,411 | 08:57:21 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Computer Related Svcs, Nec | 73.28M | 5.58M | 0.0122 | 52.62 | 293.08M |
From Apr 2019 to Apr 2024
TIDMIDOX
RNS Number : 3218G
IDOX PLC
01 March 2018
Idox plc
('Idox' or 'the Group' or 'the Company')
Final results for the year ended 31 October 2017
Idox plc (AIM: IDOX), a leading supplier of specialist information management solutions and services, today announces its final results for the year ended 31 October 2017.
Financial highlights:
-- Revenues up 16% to GBP88.9m (2016: GBP76.7m) -- Adjusted EBITDA* decreased 14% to GBP18.5m (2016: GBP21.5m) -- Adjusted EBITDA* margin 21% (2016: 28%) -- Adjusted profit before tax** GBP12.1m (2016: GBP16.7m) -- Adjusted EPS** 2.40p (2016: 4.11p)
-- Net debt as at 31 October 2017 stood at GBP32.1m (31 October 2016 GBP25.0m; GBP3.5m net cash outflow on two acquisitions in the financial year and GBP11.4m bond on 6PM acquisition)
-- Proposed final dividend of 0.655p (2016: 0.650p) making a total of 1.040p (2016: 1.000p), an increase of 4% for the financial year
Operational highlights:
-- Recurring and repeating revenues represented 84% of revenues -- Strategic focus on, and continued investment in, public sector
-- New digital services platform, enabled by recent acquisitions, underpinning public sector focus and future growth
-- Another strong performance from Public Sector Software (PSS):
o Represented 46% of Group revenues
o Strong election year and winning of market share
o Won 108 new local authority customers - 94% of all local authorities now customers
-- Acquisitions:
o 6PM Group delivers healthcare solutions, principally to the NHS within the UK, using a combination of proprietary software, infrastructure, and professional services that enables healthcare organisations to enhance and optimise efficiency.
o Halarose develops, markets, sells and supports a range of electoral back office software and services to UK local authorities. It enables its customers to be more efficient both in the production and management of the electoral register and in the running of elections and referenda. The acquisition is in line with Idox's strategic focus..
Statutory Equivalents
The above highlights are based on adjusted results. Reconciliations between adjusted and statutory results are contained within these financial statements. The statutory equivalents of the above results are as follows:
-- Profit before tax was GBP3.5m (2016: GBP13.0m) -- Basic EPS was 0.66p (2016: 3.30p)
* Adjusted EBITDA is defined as earnings before amortisation, depreciation, restructuring, acquisition, impairment, corporate finance costs and share option costs
** Adjusted profit before tax and adjusted EPS excludes amortisation on acquired intangibles, restructuring, impairment and acquisition costs
Richard Kellett- Clarke, Interim Chief Executive of Idox said:
'The failure to achieve the year end numbers has been disappointing and is the result of a perfect storm of issues including a recent complex acquisition.
However, in the early months of the new financial year the business has had an encouraging start with new contracts signed on the Bristol transport solution, the e-Count solution for the Government of Malta, and new solutions for the Isle of Man, Western Isles, Croydon and the South Downs National Park and Dorset Councils partnership.
Overall, the Board is confident that the Group will deliver an improved performance in the current financial year, driven by a combination of new contract momentum, management and organisational changes, savings made since the year end and the full year contributions from the 2017 acquisitions.
I remain confident of Idox's prospects and believe that the Group has good growth opportunities, through its continued focus on digital transformation and channel shift in the public sector, increasing market shares, ensuring existing acquisitions are fully bedded in, cross selling, and geographical expansion.'
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014.
Enquiries:
Idox plc +44 (0) 870 333 7101
Laurence Vaughan, Chairman
Richard Kellett-Clarke, Interim Chief Executive Officer
Jane Mackie, Chief Financial Officer
N+1 Singer (NOMAD and Broker) +44 (0) 20 7496 3000
Shaun Dobson
Liz Yong
MHP (Financial PR) +44 (0) 20 3128 8100
Reg Hoare / Charlie Barker
For more information see www.idoxplc.com
Chairman's Statement
Introduction
2017 proved to be a year of change and contrasting performance for Idox; after a promising start to the year, it is disappointing to report on a mixed set of results for the year as a whole.
The early part of the year was focused on completion of the acquisition of 6PM, a software and solutions business whose main customer is the UK NHS, which represented a significant expansion in the health and social care market. We made a further important acquisition in August, of Halarose, an electoral back office software and services business that has significantly enhanced our elections' capabilities.
However, we suffered a setback in the second half of the year due to a combination of factors which overall impacted our reported profits for the year; first, as a result of customer disruption in the wake of the June 2017 UK General Election, sign-off on some contract wins, especially within health and transport, was delayed; secondly, following an internal review by our finance team in preparation for the full year audit, we identified nine contracts where we did not consider revenue should be recognised in these results.
I am pleased to report that the year-end audit and subsequent review of revenue recognition did not show up any additional material problems around accounting irregularities, nor did it increase the size of the related adjustment materially.
Our finance team are to be congratulated for their diligence and integrity in standing up for the correct treatment and precise year end cut off. On the downside, we have expended considerable management time on resolving these issues.
There have been more robust discussions and technical analysis of revenue recognition accounting policies, in particular around the complex area of 6PM software licence treatment. As a result, an adjustment was made to management figures relating to 6PM licence revenue.
Board
Richard Kellett-Clarke, who had become a non-executive director of Idox in November 2016 after a successful tenure as our Chief Executive, stepped back in as Interim Chief Executive in December 2017 following the regrettable illness of his original successor Andrew Riley. Andrew remains on extended sick leave. I am pleased to report that Richard has been able to rapidly execute on a plan to get the business back on track as soon as possible and will help out for as long as necessary.
Peter Lilley, who joined the Board in 2005 will step down from his role at the Company's AGM as Senior non-executive director and chair of the Remuneration Committee after twelve years' service to the Group. We would like to take this opportunity of thanking him for his contribution to the Group over this period.
Results summary
A summary of our financial key performance indicators is presented below:
Hot Features
Premium
2017 2016 Change
Revenue GBP88.9m GBP76.7m 16%
Adjusted EBITDA* GBP18.5m GBP21.5m -14%
Adjusted EBITDA*
margin 21% 28% -7%
Adjusted EPS** 2.40p 4.11p -42%
*Adjusted EBITDA is defined as earnings before depreciation, amortisation, restructuring, acquisition, impairment, corporate finance and share option costs
**Adjusted EPS excludes amortisation on acquired intangibles, restructuring, impairment and acquisition costs
Idox grew revenues by 16% but organic growth suffered due to the one off issues that occurred during the year, as outlined in the Chief Executive's Statement. As a result, adjusted EBITDA declined by 13.9%. The overall Group margin declined to 21% from 28% in the previous year. This was the result of a change in mix and higher than anticipated one off costs in several parts of the business.
The miss of the originally expected EBITDA target of GBP27.2m by GBP8.7m can be summarised as follows:
GBPm
27.2
Accrued income adjustments relating to accounting
irregularities identified by Finance team (2.8)
Treatment of certain 6PM licences (see below) (1.0)
Contracts missed 2017 cut off (4.8)
Increased audit fees (0.1)
--------
18.5
--------
Management had an expectation that 6pm licences would be able to be recognised at a point in time and had budgeted for revenue in this way. In practice this was not possible and 6pm licences were recognised over time resulting in a GBP1m difference between expected revenues and actual revenues recognised.
Net debt (including the 6PM bond) as at 31 October 2017 stood at GBP32.1m (2016: GBP25.0m), and has not been impacted by the revenue recognition issues. Bank debt remains within the Group's banking facilities, and the net debt / EBITDA ratio as at 31 October was 1.7 times. Cash conversion has improved to 82% (2016: 63%).
Group Strategy
The Group continued its focus on providing digital solutions and services to the public sector in the United Kingdom and Europe. The key to our success is to ensure we deliver better user results and productivity improvements for customers through focusing on usability, functionality and application of integrated digital technologies and solutions.
The Group has had a setback this year but the Board believes it can bounce back quickly with the steps already taken to rectify the issues identified and reflecting the underlying strengths of the core business, its product offering and talented people.
Acquisitions
During the financial year two acquisitions were completed, 6PM for GBP18.5 million and Halarose for GBP5.0 million, both in line with our strategy, and both of which contributed to this year's financial results. 6PM represented a significant expansion into one of the most important and largest public services - healthcare. Halarose significantly consolidates our position in elections. The Board believes that both will deliver earnings enhancing contributions in future periods.
The 6PM acquisition was funded by means of a placing of new shares which raised gross proceeds of GBP20.5 million, whilst GBP3.5m of the Halarose acquisition was financed out of the Group's existing cash resources, with GBP1.5m settled in shares.
Dividends
The Board proposes, subject to approval at the Company's Annual General Meeting, that a final dividend of 0.655p (2016: 0.650p) be paid bringing the total for the year to 1.04p (2016: 1.00p), an increase of 4%, consistent with our progressive dividend policy. In reaching this decision, the Board has taken into account the disappointing results for the year.
Summary
Following the disappointment at the year-end regarding delayed contracts and revenue recognition, I am pleased that these matters have now been clarified and that we can look forward with confidence to the new financial year. Idox has an exceptionally strong market position in the public sector, a sound balance sheet, and multiple opportunities for growth. I am therefore confident of the Group's future prospects.
Laurence Vaughan
Chairman
28 February 2018
Market overview
The Group continues to operate successfully and has grown in challenging markets characterised by continued pressure on local government expenditure. Our diversity of offerings and tight integration of businesses into a single management structure allows us to take advantage of opportunities and respond to challenges in our markets as demonstrated by this year's performance.
We see no change in outlook for our core markets. Announcements concerning public sector savings over the next three years are in line with our planning and expectations and should drive take-up of our new cost saving solutions.
Our Business Model
Idox is the leading applications provider to UK local government for core functions relating to land, people and property, such as its market leading planning systems and election management software. Over 90% of UK local authorities are now customers for one or more of the Group's products.
Idox provides:
-- public sector organisations with tools to manage information and knowledge, documents, content, business processes and workflow as well as connecting directly with the citizen via the web and providing elections management solutions
-- decision support content such as grants and planning policy information and corporate compliance services
-- engineering document control, project collaboration and facility management applications to many leading companies in industries such as oil and gas, architecture and construction, mining, utilities, pharmaceuticals and transportation in North America and around the world.
The Group employs 845 staff located in the UK, the USA, Canada, Europe, India and Australia.
Strategy
Our strategy is to become the partner of choice due to our domain expertise, continued innovation, quality of service and guaranteed delivery. Through this focus on quality and delivery we expect to demonstrate to our customers improvements in operational efficiency and return on investment which will result in us increasing our market share, growing both organically and internationally.
Key Performance Indicators
Key financial performance indicators, including the management of profitability, monitored on an ongoing basis by management are set out below.
Indicator 2017 2016 Measure
Revenue GBP88.9m GBP76.7m
Profitability
ratios
Profit before interest, tax,
Adjusted EBITDA GBP18.5m GBP21.5m depreciation, amortisation,
restructuring costs, acquisition
costs, impairment, corporate
finance costs and share option
costs
Profit before interest, tax,
depreciation, amortisation,
restructuring costs, acquisition
costs, impairment, corporate
finance costs and share option
Adjusted EBITDA 21% 28% costs as a percentage of revenue
Adjusted EPS excludes amortisation
on acquired intangibles, restructuring,
acquisition and impairment
Adjusted EPS 2.40p 4.11p costs
Non-financial Indicators
Idox Group practises an integrated management system centred
around gaining and retaining ISO accreditations. These are
internally and externally audited annually to ensure compliance.
Quality Management The Group quality management system has
been accredited to BS EN ISO 9001:2015
for the development and the sale of products
for document, content and information
management.
Environmental The Group environmental management system
Management has been assessed and approved to accredited
BS EN ISO 14001:2015, the approved systems
apply to the following: the development
and sale of products for document, content
and information management.
Information The Group information security management
Security Management system has been accredited to BS EN ISO
27001:2015, the approved systems apply
to the following: for the development
and the sale of products for document,
content and information management..
Health and The Group health and safety management
Safety Management system has been accredited to OHSAS 18001:2007.
Composition of the Board
The Board of Directors comprises 29% female staff members.
Overview
It was quite unexpected to be back in this seat some 15 months after stepping down, but I have been pleased by the warmth of the reception from the Idox team, who have knuckled down in what has been a difficult few months. I am particularly grateful to Jane Mackie, our CFO, and her team who in difficult circumstances upheld the Company's standards of honesty and integrity. We are obviously disappointed by the impact these matters have had on the reputation of the business and fully intend to restore it to full health.
The failure to achieve the year end numbers is the result of a perfect storm of issues. Recent complex acquisitions, exacerbated by earn outs, and a time-consuming capital raise created a lot of work in the first half of the year and did not result in the customary tight integration and release of value. This was aggravated by a general election year, which served to push contract activity out towards the end of the financial year, and revenue recognition which was intended to ensure we hit year end targets but proved too aggressive.
The focus since I stepped back into the CEO role, has been on five core changes which are expected to deliver benefits in the current financial year:
1. The full integration of the last four acquisitions to deliver shareholder value. This will be completed during H1 2018 with a new streamlined organisational structure.
2. Target GBP7m of cost savings (10%) through the identification of cost synergies and technological overlaps in the business to aid productivity and efficiency. Introduction of Group policies and procedures to increase, security, accountability, productivity and compliance. This is well advanced with major changes already implemented.
3. A review of Group pricing and revenue recognition policy with external input from independent accountants to ensure consistency and clarity and improve cash conversion. This will be completed during H1 2018 and implemented by the end of 2018. It is expected to have an initially negative impact on revenues as a result of increased SaaS pricing although this is expected to have a medium-term benefit.
4. Acceleration of our digital, mobile and web technology strategy in partnership with our customers, and a refocus of our development resources to concentrate on core technologies and reduce capital costs.
5. Improve processes to reduce administration and improve cash collection
We have made rapid progress as these were all initiatives that were previously proposed, but deferred.
Public Sector Software
Post the year end we have completed a small reorganisation to integrate completely the recent acquisitions and to drive greater efficiency and more focus to our core public sector customer base.
Today our services facing government and the local public sector aimed at improving the usability and quality of services, account for 72% of revenues, an increase of 17% on the previous year.
The business had another strong election year which not only disrupted the business in the middle of the year with the uncertain outcome of the general election in May, but ended the year with the delayed completion of the national election system for Northern Ireland due to uncertainty around potential fresh elections, and the award of the e-Count contract for Malta.
We have continued to enhance our digital services platform and roll out the completed mobile application platform which aims to improve the customer experience and assist our customers in their productivity goals. The total number of customer solutions has now exceeded over 100. Building on this, consultation has begun on the next generation of web based solutions for local government which is scheduled for delivery in incremental stages starting in 2019 through to 2020.
Overall, we have continued to see further market share gains with 108 new local authority customers, 7 new system sales and 11 managed service customers.
Our Transport solutions have delivered and awaiting sign from the two major systems they have been working on for the past two years in Perth, Australia and Manchester. This has led to cost overruns but the resultant ground-breaking innovation in these solutions has resulted in further international interest and the closure of the Bristol Transport contract in Q1 2018.
These solutions offer real time adaptive traffic signaling, dynamic timetabling and printing, alters and monitoring solutions for multi modal journeys, dynamic stand management, performance monitoring of journey times, bus lateness and air quality, as well as "green wave" solutions to control vehicle speed for current and autonomous vehicles. They represent our long-term investment in smart City solutions, which we believe represents an attractive opportunity for the Group.
Facilities management ('FM') had another good year and has now started to work more closely with our health business to deliver FM solutions linked with asset tracking to hospitals.
6PM
Post-acquisition integration of 6PM quickly uncovered a number of issues which resulted in:
1. The restatement of 6PM's audited accounts due to material errors which were identified in due diligence
2. Discovery of additional unaccrued costs
3. Incurring one-off legal, auditing and consulting costs to expedite discipline in the business
4. Increased management time and resources to achieve the partial integration which detracted attention from the core business
5. The points above resulted in a reassessment of forecasts and an agreed impairment of GBP2.7m to the carrying value of goodwill in the accounts
6. Continued and extended discussions with our auditors over the recognition of revenues in 2017. The technical discussion was a complex area which focused on recognition of revenue either at a point in time or over time, with the difference in revenue and profits being GBP1m. Management had an expectation that 6pm licences would be able to be recognised at a point in time. In practice this was not possible and 6PM licence revenue continued to be recognised over time rather than at a point in time. This has resulted in the GBP1m revenue and profits which was expected by management to be recognised in 2017 not being recognised in the period and carried forward to future periods.
Now this is all behind us, we are concentrating on reviewing how we sell to the NHS to improve sales performance, time to closure and revenue recognition which may affect revenues in the short term.
Digital
The Digital business had an unexciting year in revenue terms but was very proud to have completed and delivered new designs and approaches for a diverse customer base including the Church of England, as well as several well-known premier league football clubs. It has started to work with both the transport, FM, and local government areas of the business to improve the usability of customer web sites and deliver better customer experiences and more relevant information, which is all part of our strategy to use digital technology to deliver better public services.
Content
The Compliance part of our business has been merged at the end of this year with our Grant's business as they are both content and services businesses. The combined Content business unit has stabilised after a poor performance in the prior year and grew revenues by 15% in 2017. New products this year included new modules to help corporates and local authorities with the education of staff around the European GDPR standard. Content has continued to take market share with strong sales for our Research connect platform.
Engineering Information Management (EIM)
Engineering revenue declined slightly by 8% year on year, the result of a more stringent revenue recognition policy and delayed completion of projects. The business has continued to invest in its SaaS platform which has received good reviews and is expected to be launched in the second half of 2018 as an upgrade to the current system.
Markets
Looking forward we see no material change in all our markets. We saw delays in decision making processes in 2017 as a result of the general election but no discernable impact from Brexit. The oil and gas market has seen a slight uptick as a result of the strengthening price of oil but this is yet to turn into substantial growth. The Content business remains a slower growth, lower margin business in highly competitive markets. Public sector customers continue to look at our digital, mobile and web offerings and we continue to see good growth in the use of these services.
Objectives for 2018
The Group's strategy remains to focus on the wider public sector (with the addition of Health last year). We intend to accelerate our international ambitions, and having consolidated our position in the UK elections market we are looking to expand this area of the business outside the UK.
The short-term focus has been to rectify the issues which developed in 2017. To that end we have started and will have completed by the end of H1 2018 the full integration of all the business we have bought in the past two years. This will result in some significant cost saving and improvements in quality standards across the Group as well as helping us to leverage our intellectual property.
This year will see the launch of a new Group web site which integrates all our solutions, capabilities and technologies to aid cross selling and to leverage the capability of the business. The investment strategy will result in an increased focus on our web cloud and smart city solutions.
The Board believes government bodies must invest in digital solutions to improve the quality of their services and continue their drive for improvements in productivity and accessibility. Idox is unique in having an extensive range of capabilities which it can integrate to deliver quick outcomes and is looking forward to building stronger links with its customers to deliver true innovation to the market with their help.
Outlook
In the early months of the new financial year the business has had an encouraging start with the majority of the delayed contracts from last year being signed; the Bristol transport solution, the e-Count solution for the Government of Malta, and new solutions for the Isle of Man, Western Isles, Croydon and the South Downs National Park and Dorset Councils partnership.
2018 will see a decisive move towards a change in product pricing and a focus on cash conversion; we believe this will deliver stronger future growth and a higher quality earnings, although in the short term it will depress revenue growth in 2018. We expect margins to improve following the cost saving measures being targeted and the completion of integration activity.
Overall, the Board is confident that the Group is well positioned for the current financial year, driven by a combination of new contract momentum, management and organisational changes, savings made since the year end and the full year contributions from the 2017 acquisitions.
I remain confident of Idox's prospects and believe that the Group has good growth opportunities, through its continued focus on digital transformation and channel shift in the public sector, increasing market shares, ensuring existing acquisitions are fully bedded in, cross selling, and geographical expansion.
Richard Kellett-Clarke
Chief Executive Officer
28 February 2018
Financial Review
Group revenues grew by 16% to GBP88.9m (2016: GBP76.7m), driven by the impact of two acquisitions; 6PM, providing software and services to the NHS (February 2017) and Halarose supplier of electoral back office software and services to UK local authorities (August 2017).
74% of Group revenues were generated in the UK (2016: 73%) with the two acquisitions completed in 2017 having the majority of their customers based in the UK. Gross profit earned increased 11% to GBP73.7m (2016: GBP66.6m) and the Group saw a decrease in gross margin from 87% to 83% as a result of lower margin election print revenue related to the May local elections and General Election. Earnings before interest, tax, amortisation, depreciation, restructuring, acquisition, impairment, corporate finance and share option costs ("Adjusted EBITDA") decreased by 14% to GBP18.5m (2016: GBP21.5m) with EBITDA margins decreasing to 21% (2016: 28%). Group EBITDA margin was impacted by lower margins in the Digital and Health divisions and a change in mix of election revenue in the PSS division.
Performance by segment
Following the acquisition of 6PM a new segment was created with the addition of Health, which reflects the results of 6PM. Halarose acquired in August 2017 is part of the PSS segment. Grants and Compliance have been combined in the second half of the year following a reorganisation and now come under the Content division.
The PSS division, which accounted for 46% of Group revenues (2016: 53%), delivered revenues of GBP41.2m (2016: GBP41.0m) and included a contribution from Halarose acquired August 2017. Product and services revenue increased by 7% (or organically decreased by 5%) to GBP20.4m (2016: GBP19.0m). Election revenues accounted for GBP4.7m (2016: GBP5.6m) of PSS revenues with the division delivering on the May local elections and the General Election. Election revenue was down on the prior year as 2016 included the EU referendum, May Scottish and local elections and the Scottish Government eCount project. Recurring revenues within the PSS division from maintenance and hosting were GBP16.1m (2016: GBP16.4m). Recurring revenues represented 39% (2016: 40%) of total PSS revenue. Divisional Adjusted EBITDA decreased by 6% to GBP15.4m (2016: GBP16.3m), delivering a 37% EBITDA margin (2016: 40%).
The Digital division accounted for 17% of Group revenues (2016: 14%) with revenue of GBP14.7m (2016: GBP10.9m) and a full year of Rippleffect acquired in August 2016.
The EIM division accounted for 15% of Group revenues (2016: 18%) with revenue of GBP12.9m (2016: GBP14.1m). Recurring revenues within the EIM division from maintenance and SaaS were 60% (2016: 57%). EIM saw a fall in revenue due to an increased emphasis on SaaS and managed service deals, continued pressure on per-seat licence prices and oil and gas spending still tight on non-key investment.
The Content division in the UK and Europe had revenue growth of 15% to GBP12.4m (2016: GBP10.8m).
The Health division contributed nine months trading to the period, since the acquisition of 6PM in February 2017, with revenues of GBP7.6m.
Profit before tax
12 months 12 months
to to
31 October 31 October
2017 2016
(audited) (audited)
GBP000 GBP000
Profit before tax for the period 3,481 12,983
Add back:
Amortisation on acquired intangibles 5,247 3,817
Restructuring costs 704 330
Acquisition costs/(credits) 8 (404)
Impairment 2,681 -
Adjusted profit for the period 12,121 16,726
------------- ------------
Reported profit before tax decreased to GBP3.5m (2016: GBP13.0m) as a result of higher amortisation and finance costs following the acquisition of 6PM plus an impairment charge related to 6PM. The impairment arose from a reassessment of the forecasts prompted by the emergence of inherited issues as described above. Amortisation of intangibles increased to GBP5.2m (2016: GBP3.8m) due to the acquisition of 6PM. Amortisation of development costs was GBP2.3m (2016: GBP1.3m) and amortisation on software licences was GBP0.9m (2016: GBP1.0m). Development costs are amortised over a 1 to 5 year period on a project by project basis and software licences are amortised over 3 years. Acquisition costs of GBP8,000 (2016: GBP0.4m credit) relate to GBP0.2m of 6PM and Halarose acquisition costs, offset by a further GBP0.2m reduction in the earn out payment for Cloud Amber. Restructuring charges of GBP0.7m (2016: GBP0.3m) includes GBP0.3m for the restructuring of the Digital division following the acquisition of Rippleffect.
Adjusted profit before tax and adjusted earnings per share are alternative performance measures, considered by the Board to be a better reflection of true business performance than looking at the Group's results on a statutory basis only. These measures are widely used by research analysts covering the Group.
Adjusted EBITDA decreased 14% to GBP18.5m (2016: GBP21.5m) impacted by lower margin election revenue in PSS, lower revenue in EIM, lower margin in pay per click revenue in Digital and a maiden loss contribution from Health. Cost of sales increased 49% with 37% of the increase due to acquisitions in the period. Several issues have arisen in the Health division since acquisition. Although full financial due diligence was carried out by Grant Thornton on 6pm and identified material errors, the accounting issues which have come to light have been greater than expected.
We have inherited issues with incomplete accounting records, revenue recognition and inconsistent contractual paperwork. These issues have taken up an exceptional amount of finance resources to resolve. The Health division was fully integrated into the Idox accounting function in July 2017 following the acquisition at the end of February. As a result, the issues inherited are not expected to be repeated going forward.
Administrative expenses increased by 31% to GBP68.6m (2016: GBP52.3m) or excluding acquisitions by 4%. Staff costs increased by 19% to GBP42.3m (2016: GBP35.5m) or excluding acquisitions decreased by 1%.
Finance costs have increased to GBP2.0m (2016: GBP1.4m) due to the 6PM bond interest payable (GBP0.8m). The Maltese Stock Exchange bond was issued in 2015 prior to Idox acquiring 6PM at a nominal value of EUR13m, is repayable in 2025 and has a coupon rate of 5.1%.
The Group continues to invest in developing innovative technology solutions and has incurred capitalised development costs of GBP4.8m (2016: GBP2.8m). Research and Development costs expensed in the period were GBP3.8m (2016: GBP4.0m).
Taxation
The effective tax rate ('ETR') for the period was 24.21% (2016: 9.06%).
Significant tax repayments were processed in 2017, not previously provided for, in respect of historic R&D claims covering the Reading Room Group and Idox Health Ltd, resulting in downward pressure on the ETR for the year.
However, certain other factors contributed to increasing the ETR, primarily impairment of the 6PM acquisition and costs associated with this acquisition, both of which are non-deductible expenses for tax purposes. Another factor which increased ETR was the non-recognition of losses incurred in Malta, owing to uncertainty over their future utilisation. These losses will be recognised where their likelihood of utilisation increases, with any future recognition resulting in a decrease to ETR.
Unrelieved trading losses of GBP1.1m, across the US and the UK, remain available to offset against future taxable trading profits. This number excludes substantial carried-forward losses not recognised for deferred tax purposes to date, owing to adoption of a prudent loss recognition position. The gross value of these losses not recognised to date totals GBP12.1m, split across Malta (GBP8.7m), the UK (GBP2.1m) and Germany (GBP1.3m). The Board is hopeful that the Group will benefit from these derecognised tax losses in future, and will be recognised at the point where utilisation becomes more certain.
Earnings per share and dividends
Adjusted earnings per share fell to 2.40p (2016: 4.11p). Adjusted diluted earnings per share fell to 2.34p (2016: 3.96p). Adjusted earnings per share was impacted in the period by increased finance costs following the acquisition of 6PM.
Basic earnings per share fell to 0.66p (2016: 3.30p). Diluted earnings per share fell to 0.64p (2016: 3.18p). Basic earnings per share fell due to the impact of the 6PM acquisition on increased finance costs, increased amortisation on acquired intangibles, increased acquisition costs and impairment.
The Board proposes a final dividend of 0.655p an increase of 0.8% on the previous final dividend, giving a total dividend for the year of 1.04p and 4% growth for the full year. This is in line with our progressive dividend policy for dividend growth. Subject to shareholder approval at the forthcoming Annual General Meeting, the final dividend is expected to be paid on the 20 April 2018 to shareholders on the register at 3 April 2018.
Balance sheet and cashflows
The Group's balance sheet continued to strengthen during the period and at 31 October 2017 net assets were GBP91.3m compared to GBP65.2m at 31 October 2016. The increase in net assets includes GBP35m relating to goodwill on acquisition and other intangibles of 6PM.
Cash generated from operating activities before tax as a percentage of Adjusted EBITDA was 82% (2016: 63%). Cash conversion has historically been impacted by deferred payment deals over 3 to 5 years which have been offered to local authorities. The cash conversion trend continues to improve as payment from customers are more aligned with when services are provided.
The Group ended the period with net debt of GBP32.1m (2016: GBP25.0m), after utilising the facility for the acquisition of Halarose (GBP3.5m) and taking on the 6PM bond of GBP11.4m which existed in 6PM pre-acquisition. The 6PM bond sits outside the Group's signed debt facilities.
The Group's total signed debt facilities at 31 October 2017 stood at GBP36.5m, a combination of a GBP9.5m term loan, GBP4m overdraft and GBP23m revolving credit facility, split GBP22.8m with the Royal Bank of Scotland and GBP13.7m with Silicon Valley Bank. In addition to the signed debt facilities the 6PM bond is a Maltese Stock Exchange bond issued in 2015 pre-acquisition at a nominal value of EUR13m, it is repayable in 2025 and has a coupon rate of 5.1%.
Deferred income, representing invoiced maintenance and SaaS contracts yet to be recognised in revenue stood at GBP19.8m (2016: GBP15.9m). An increase of GBP4.9m is due to acquisitions in the period. Accrued income, representing future cash flows, increased to GBP23.0m (2016: GBP18.8m). The increase in prior year includes GBP1.2m due to acquisitions.
GBP15.1m of accrued income relates to licences and services that have been delivered to local authorities and revenue recognised but the customer is paying for the licence and services over a period of typically 3 to 5 years. This will be future cash inflows for the Group. The balance of accrued income is service revenue where work has been completed but the project has not yet reached an invoicing milestone and will convert to cash in the short term.
Jane Mackie
Chief Financial Officer
28 February 2018
Principal Risks and Uncertainties
Risk identification and management continues to be a key role for the Board. Risk management strategy is led by the Board; thereafter management of risk is judiciously managed through dedicated expert professionals in the business.
Risk management processes and internal control procedures are established within business practices across all levels of the organisation. Risk identification, assessment and mitigation are performed across Idox with a more detailed assessment at operational level, and through Board led assessment of strategic and market risk.
Board: The Board has overall responsibility for Idox's risk management, processes and reporting. Risk management processes and internal control procedures are the ultimate responsibility of the Board.
Audit Committee: The Audit Committee has responsibility for assessing and challenging the robustness of the internal control environment. It directs and reviews local management, internal audit and Group finance reports on internal control and risk management throughout the year, and reports the principal risks to the Board.
Risk Committee: The Risk Committee meets quarterly and discusses the Group's strategy, identifies the principal risks to the strategy and agrees mitigating actions.
Internal Audit: The Group's internal audit function performs regular audits in country offices to assess culture, financial controls in accordance with local regulatory requirements and Group controls.
Local Management: Annual comprehensive risk reviews are performed by local management teams and reported to the Risk Committee.
Risk management and internal controls provide reasonable but not absolute protection against risk. Risk appetite is not static and is regularly assessed by the Board to ensure it continues to be aligned with the Group's goals and strategy.
Risk Profile
New and existing risks were identified and assessed during 2017. Executive management, the Risk Committee and the Board performed further analysis to prioritise these risks, with a focus on those principal risks posing the highest current risk to the achievement of the Group's objectives. All risks facing Idox were consolidated onto a risk heat map.
Risks included on the heat map are monitored more closely by executive management, the Risk Committee and the Board. Whilst these principal key risks represent a significant portion of the Group's overall risk profile, the executive management and the Risk Committee continue to monitor the universe of risks to identify new or emerging risks as well as any changes in risk exposure. The risk profile continued to change throughout the year, in part as a result of the acquisition of the 6PM Holdings plc group of companies and Halarose Holdings Limited. We now have operations in Malta, Macedonia and have more exposure to the health sector and increased exposure in the elections space.
Embedding the Risk Culture
Throughout the Group, risk management is an evolving process. This is recognised by ongoing training and advice by divisional and business unit risk representatives, supported by the central risk and assurance team, best practice sharing, gap analysis and internal benchmarking. Successful training and communication help build a culture and ability to further embed processes and procedures throughout the organisation. A more deeply embedded risk management culture supports long-term value creation for all stakeholders.
The principal risks involved in delivering the Group's strategy are actively managed and monitored against our risk appetite as follows:
Risk Principal risks Management of risks
------------- --------------------------- ------------------------------------------------
Cyber risk Information security Idox operates with a number of complex
breach or cyber-attack systems that maintain confidential
resulting in loss data. The risk is perceived to have
or theft of data, increased due to the higher number
content or intellectual of cyber-attacks in the UK.
property.
Idox has cyber, data protection and
security policies in place and regularly
reviews the effectiveness of these
policies. System controls include
secure infrastructure, content level
protection, access management and
monitoring.
There is an enterprise-wide data security
programme and defined incident management
processes, including those for employees
to report security breaches.
Idox continues to focus on achieving
ISO 22301: 'Business Continuity Management
System'
Idox is accredited to the UK government
based Cyber Essentials standard.
------------- --------------------------- ------------------------------------------------
Economic The performance of A diversified geographical footprint
environment Idox is affected by and sector focus reduces the risk
the economic cycles of exposure due to adverse country
of the markets of or sector-specific conditions.
the countries in which Idox continues to focus on the diversification
it operates. The recent of customers and geographical markets.
US election and 'Brexit' In February 2017 Idox acquired 6PM
referendum on the Holdings plc. This group of companies
exit of the UK from was headquartered in Malta with operations
the Treaty of the in the UK and Macedonia. This expansion
European Union have of the Group's customer base and geographical
increased the uncertainty reach increases risk.
in the economic, social Idox has budgeted for foreign exchange
and environmental fluctuations; however, this may not
markets in which we mitigate the risk entirely. The Executive
operate. team deliver against a framework for
future investment for both organic
and acquisitive growth. The investment
going forward will be focused on:
public sector initiatives in international
expansion; increasing market share
in existing public sector markets;
entering new public sector markets;
and delivering increased account sales
in product & sales initiatives.
------------- --------------------------- ------------------------------------------------
Technological Idox risks being outclassed Idox strives to deliver quality
development by competitor products products, which provide strong
and digital that have increased capabilities competition in the market, while
innovation if the Group fails to continuing to invest in quality
deliver continued product assurance and research and development
development. functions.
Idox has invested significantly
in increasing its capability to
become a significant player in
the delivery of digital.
------------------------- ---------------------------------- -------------------------------------------
Retention Due to recent acquisitions, Idox continues to deliver successful
and succession Idox may inherit employees integrations of acquired businesses.
who have levels of training Human Resources leads on assessing
and remuneration that remuneration packages and training
are inconsistent with requirements. Where required, mitigating
the wider Group, potentially actions are taken to develop or
leading to retention enhance benefits packages to Group
issues and resultant employees.
loss of skills and knowledge.
------------------------- ---------------------------------- -------------------------------------------
Acquisitions Acquisitions/restructuring Idox has set up a robust M&A team,
may not achieve the anticipated which works together with our integration
returns impacting on function, to carry out due diligence
projected margin rates. and mitigate risks where possible.
For more complex acquisitions,
the team work in conjunction with
external advisors to reduce exposure.
The Group has a robust and disciplined
approach to identifying and testing
potential companies for acquisition.
Following the recent complex acquisition
the group will enhance the approach
to identifying and testing acquisitions
to ensure the likelihood of issues
encountered (as discussed in the
Chief Executive's review) this
year are not repeated.". Targets
are subject to due diligence processes,
and analysed according to Board
level agreed investment decision
criteria to identify suitable,
earnings enhancing acquisitions.
They are assessed by the Executive
team for strategic fit. The due
diligence process is led by experienced
M&A Integration Managers and supported
by relevant experts in domain knowledge
and heads of department. Idox's
focus for 2018 is to fully integrate
recent acquisitions and improve
discipline to ensure adherence
to policies across the Group.
------------------------- ---------------------------------- -------------------------------------------
Business There is a risk that To successfully manage this risk,
continuity any business may face Idox has developed effective business
the failure of business continuity and incident management
continuity systems, disruption plans. The disaster recovery plan
to normal business operations provides for re-build in and already
and closure of offices contracted secondary location.
for a significant period Idox's information management team
of time. This would have has provided for the replication
a significant impact of key systems data at existing
on our operations and secondary location to reduce key
trading capability. system recovery time. As part of
our commitment to risk management,
Idox continues to carry out a wider
business review of disaster recovery
plans to ensure they are fit for
purpose.
Regular business continuity plans
are updated and delivered to the
Board on at least an annual basis.
In the current year, Idox has focused
on achieving ISO 22301: 'Business
Continuity Management System'
------------------------- ---------------------------------- -------------------------------------------
Political The Group has a large This risk is mitigated due to the
customer base in local contractual nature of the recurring
government. A change revenue in the Group.
in spending priorities
by the current or a future The Group has increased diversification
Government could materially of its customer base through acquisitions
impact the Group to mitigate against political risks.
------------------------- ---------------------------------- -------------------------------------------
Global macro-environment The Group operates across In order to mitigate these risks,
a number of countries the Group monitors and forecasts
and its operations are for key changes in the territories
increasingly subject in which it operates.
to global competition
and political risks. Idox continues to diversify its
The Group is also affected business and operations in various
by economic environments territories. Idox risk assesses
in other territories, changing geo-political environments
which include currency and this allows for timely risk
volatility, inflation mitigation as and when volatility
and recession. The customer occurs. The Group gathers information
base in local government and seeks expert advice where necessary.
means that political
changes can be disruptive
and can interfere with
activities and operations
in a particular country
------------------------- ---------------------------------- -------------------------------------------
Signed on behalf of the Board by:
Richard Kellett-Clarke
Chief Executive Officer
28 February 2018
Directors Report
The Directors are pleased to submit their report and audited financial statements for the year ended 31 October 2017.
Results and Dividends
The Group's audited financial statements for the year ended 31 October 2017 are set out on pages 44 to 84. The Group's profit for the year after tax amounted to GBP2.6m (2016: GBP11.8m). The Directors paid a dividend of 0.650 pence per share in the first half of the 2017 financial year, in respect of the year ended 31 October 2017. The Directors will propose, at the forthcoming AGM, a final dividend of 0.655 pence per share in respect of the year ended 31 October 2017.
Details of future developments and research and development activities are outlined in the Strategic Report.
Post balance sheet events
On 6 February 2018, the Group acquired the entire share capital of Atlas Adviesgroep Twente B.V. ("Atlas") for a total consideration of EUR270,000 (GBP237,000). Atlas is a small grants consultancy business based in the Netherlands, working predominantly with local and regional government bodies, and will complement the Group's existing grants business in the Netherlands.
Directors and their Interests
The Directors who served during the year and their beneficial interests (including those of their immediate families) in the Company's 1p ordinary share capital were as follows:
Number of shares
31 October 1 November
2017 2016
L Vaughan* 232,250 200,000
R Kellett-Clarke** 14,161,668 12,573,279
J Mackie 494,781 58,421
A Riley 1,416,272 225,126
P B Lilley*** 533,000 533,000
J Millard - -
B Moorhouse - -
Prof W Hall (resigned 31 - -
December 2016)
* 232,250 (2016: 200,000) of these shares are held through a Self-Invested Pension Plan.
** 2,761,667 (2016: 2,761,667) of these shares are held through Self-Invested Pension Plans and 11,400,001 (2016: 9,762,900) shares are held through certain members of his family and a family trust.
*** 111,300 (2016: 111,300) of these shares are held through a Self-Invested Pension Plan and 59,250 (2016: 59,250) shares are held through certain members of his family.
In addition to the shareholdings listed above, certain Directors have been granted options over ordinary shares. Full details of these options are given in the Report on Remuneration on pages 23 to 24.
Details of the Directors' service contracts can be found in the Report on Remuneration on pages 23 to 24.
Insurance for Directors and Officers
The Company has purchased and maintains appropriate insurance cover against legal action brought against Directors and Officers.
Substantial Shareholdings
As at 31 October 2017, the Company was aware of the following interests in 3% or more of its issued share capital:
Shareholder Number of shares % Holding
Liontrust Asset Management 56,482,819 13.68% Investec Wealth & Investment 38,233,418 9.26%
Kestrel Partners 35,344,301 8.56%
Hargreave Hale Investment Managers 30,490,187 7.38% Herald investment Management 29,909,483 7.24% Hargreave Hale Stockbrokers 21,008,808 5.09%
Charles Stanley 18,801,074 4.55%
Highclere International Investors 17,715,623 4.29%
Living Bridge EP LLP 17,543,409 4.25%
Richard Kellett-Clarke 14,161,668 3.43%
Transaction in own shares
During the year, the Group did not purchase any of its own ordinary shares of 1p to be held as treasury shares in order to satisfy future employee share option exercises.
During the year three share option exercises were satisfied using treasury shares. These exercises combined used a total of 64,000 treasury shares.
The maximum number of shares held in treasury at any time during the year was 3,055,219, which had a cost value of GBP1,270,634. The current number of shares held in treasury is 1,491,219.
Health, Safety and Environmental Policies
The Group recognises and accepts its responsibilities for health, safety and the environment (H,S&E) and has a dedicated team, which provides advice and support in this area. The team members regularly attend external H, S&E courses and internal reviews are performed on a regular basis to ensure compliance with best practice and all relevant legislation. In the current year, Idox has focused on achieving ISO 45001: 'Health and Safety Management' Standard.
Disabled Employees
Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes and abilities of the applicant concerned.
In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled employees should, as far as possible, be identical with that of other employees.
Employee Consultation
The Group consults employees through the National Company Council (NCC). The NCC sits regularly during the year and is made up of representatives voted on the Council by employees. An employee consultation policy is also in place. Employees are encouraged to present their views and suggestions in respect of the Group's performance and policies. In addition, the Group has an intranet, which facilitates faster and more effective communication.
An Employee Share Investment Trust is in place to provide employees with a tax efficient way of investing in the Company. The Company purchases matching shares, which become the property of the employee after a three year vesting period.
Financial Risk Management Objectives and Policies
The Group uses various financial instruments which include cash, equity investments, bank loans and items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations.
The main risks arising from the Group's financial instruments are credit risk, liquidity risk, exchange rate risk and interest rate risk. The Directors review these risks on an ongoing basis. This policy has remained unchanged from previous years. Further information on financial risk management is disclosed in note 22 of the Group accounts.
Credit Risk
The Group's principal financial assets are cash and trade receivables. The credit risk associated with cash is limited as the counterparties have high credit ratings assigned by international credit-rating agencies. The principal credit risk arises therefore from its trade receivables.
In order to manage credit risk, the management review the debt ageing on an ongoing basis, together with the collection history and third-party credit references where appropriate.
Liquidity Risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.
Exchange Rate Risk
The Group monitors its exposure to exchange rate risk on an ongoing basis. The Group has minimal exposure to foreign exchange risk as a result of natural hedges arising between sales and cost transactions.
Interest Rate Risk
The Group's bank borrowings bear interest at rates linked to LIBOR. On a quarterly basis, the Board reviews the LIBOR rate and discuss whether it is considered necessary to set up hedges to protect against interest rate movements.
Going Concern
The Directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate resources to continue in business for the foreseeable future. Whilst the Consolidated Balance Sheet shows net current liabilities, GBP19.8m of current liabilities relates to deferred income which does not convert to cash payable. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements. In making this assessment, the Directors have considered the Group's budget, cash flow forecasts, available banking facility and levels of recurring revenue.
The Board highlighted to the lenders that due to a limitation of scope in relation to the 6PM sub-group the audit would result in a qualified audit opinion. It was explained to the lenders that due to poor record keeping in the early months of the period within 6PM there is a limitation of scope on 6PM revenue and deferred revenue and the books and records of the three immaterial subsidiaries, particularly relating to the period up to July 2017 when 6PM was integrated into Idox finance and the record keeping has been improved. Following discussions with the Board the bank was satisfied that, whilst this is technically a default, they have given an advance waiver to cover the period of signing the statutory accounts.
Auditor
A resolution to reappoint an Auditor and to authorise the Directors to agree their remuneration will be placed before the forthcoming Annual General Meeting of the Company.
By order of the Board
Jane Mackie
Chief Financial Officer
28 February 2018
Independent Auditor's Report to the Members of Idox plc
Qualified opinion
Our opinion on the group financial statements is modified
We have audited the group financial statements of Idox Plc for the year ended 31 October 2017, which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, except for the possible effects of the matters described in the Basis for qualified opinion section of our report, the financial statements:
-- give a true and fair view of the state of the group's affairs as at 31 October 2017 and of its profit for the year then ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for qualified opinion
With respect to revenue and deferred income within the sub-group headed by 6PM Holdings plc, having balances of GBP7.6 million and GBP4.3 million respectively, the audit evidence available to us was limited because 6PM Holdings plc's group, which was acquired in February 2017, had a history of poor record keeping until it was fully integrated into the Idox plc Group in July 2017 and the record keeping issues addressed. Owing to the nature of the company's records, we were unable to obtain sufficient appropriate audit evidence regarding these elements of revenue and deferred income by using other audit procedures. In addition, with respect to consolidated revenues of GBP0.4 million and consolidated net liabilities of GBP0.2 million in three of 6PM Holdings plc's subsidiaries, the audit evidence available to us was also limited because the accounting records of these three subsidiaries was poor. Owing to the nature of the company's records, we were unable to obtain sufficient appropriate audit evidence regarding these matters by using other audit procedures. As a result of the poor record keeping and poor accounting records, we were unable to determine whether any adjustments might have been found necessary in respect of these two matters.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the 'Auditor's responsibilities for the audit of the group financial statements' section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Who we are reporting to
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
-- the directors' use of the going concern basis of accounting in the preparation of the group financial statements is not appropriate; or
-- the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
Overview of our audit approach
-- Overall materiality: GBP646,000, which represents approximately 3.5% of the group's earnings before interest, tax, depreciation and amortisation (EBITDA)
-- Key audit matters were identified as revenue recognition, carrying value of goodwill, business combinations - acquisitions, valuation of capitalised development expenditure, deferred income completeness, trade receivable existence and accrued income existence
We performed full scope audit procedures on the financial statements of Idox plc and on the financial information of Idox Software Limited, McLaren Software Limited, McLaren Software Inc and 6pPM Holdings plc. This covered 85% of revenue and 91% of EBITDA for the year.
Key audit matters
The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement impact and the extent of management judgement.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the group financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matters How the matter was addressed
in the audit
------------------------------------- ------------------------------------------------------------------
Revenue recognition
Revenue recognised during Our audit work included,
the year ended 31 October but was not restricted to:
2017 is GBP88.9 million (31 * Assessing the revenue recognition policies applied by
October 2016: GBP76.7 million). the group;
Revenue is derived from a
number of revenue streams,
and key streams include public * Performing detailed sample testing of the population
sector software, engineering of invoices for the first 11 months back to
information management, grants contractual documentation, and ensuring that the
and digital. Each stream component income types within were checked to ensure
has its own revenue recognition that the correct specific recognition policy had been
policies based on the nature applied for each unbundled element where
of the revenue and underlying appropriate.;
contractual arrangements.
Management judgement is required
around the degree to which * Performing enhanced detailed sample testing on
revenue has been earned as October 2017 revenues which have been identified as
at the year-end date. having a greater level of risk due to the
significance of revenue recognised at this stage in
Large contracts are typically the year and the impact against key City expected
bundled, and often include metrics. We traced back to contractual documentation,
hardware, software and maintenance and ensuring that the component income types within
revenues. were checked to ensure that the correct specific
recognition policy had been applied for each
Revenue is a key number for unbundled element where appropriate;
users of the annual accounts,
and is a key focus for management
as they continue to grow * Assessing the split of contracts to challenge and
the business through a combination gain sufficient comfort around the level of software
of organic growth and strategic being recognised immediately under bundled contracts;
acquisitions. and
As part of year-end accounting
processes, management identified * Agreeing a sample of contracts to direct customer
a number of revenue items confirmation.
that did not meet the criteria
for recognition in the current
year, and were thus removed
from the final revenue figure. Following revenue recognition
The value of the adjustment issues identified by management,
was GBP2.7 million. An additional we performed enhanced testing
GBP1.0 million adjustment around the first 11 months
was noted in relation to of the year to bring in line
the accounting for licence with the level of work performed
revenue in 6PM Holdings PLC. on October revenue as set
Due to these issues noted, out above.
we revised our risk profile
and approach to revenue testing. The group's accounting policy
on revenue recognition is
In light of the multiple shown in note 1 and related
revenue streams, complexity disclosures are included
of accounting and crucial in note 2.
nature of this number to
stakeholders, we have identified
revenue recognition as a Key observations
significant risk, which was We gained sufficient audit
one of the most significant evidence to support the majority
assessed risks of material of revenue through our enhanced
misstatement. procedures.
As noted above, we encountered
a limitation of audit scope
in trying to gain sufficient
appropriate audit evidence
in respect of the revenue
and deferred income balances
within 6PM Holdings PLC.
------------------------------------- ------------------------------------------------------------------
Carrying value of goodwill
The carrying value of goodwill
is GBP73.2 million at 31 Our audit work included,
October 2017 (31 October but was not restricted to:
2016: GBP52.0 million), with * Challenge of cash generating units and the lowest
the increase primarily driven level that impairment reviews could be carried out
by the acquisition of 6PM at;
Holdings plc during the year.
An impairment of GBP2.7 million
was recognised against the * Consideration of the cash flow projections for each
6PM acquisition in the year CGU as prepared by management (based on 2018 budget),
Goodwill is reviewed annually critically assessing the inherent judgements and
for impairment under IFRSs assumptions, comparing to current year performance
as adopted by the European and gaining support for key movements year on year;
Union. An impairment review
must be carried out for each
cash-generating unit ('CGU'), * The Compliance and Grants CGUs were merged during the
with a CGU being the smallest year to form Content. We reviewed the fact pattern
group of assets that includes and challenged this assessment on the individual
the asset being tested for units to ensure that the treatment is appropriate and
impairment. The balance is in accordance with International Accounting Standard
assessed by management with (IAS) 36 'Impairment of Assets';
key judgements being made
around discount rate, growth
rate and future cash flows. * Assessing the outcome of management's previous
Given the level of management accounting estimates and considering the impact on
judgement involved, and that management's ability to make accounting estimates for
there are comparatively low the current year; and
levels of headroom in certain
CGUs, we identified the carrying
value of goodwill as a significant * Performing sensitivity analysis on the key
risk, which was one of the assumptions and reviewing the headroom when flexing
most significant assessed key assumptions.
risks of material misstatement.
The group's accounting policy
on carrying value of goodwill
is shown in note 1 and related
disclosures are included
in note 11.
Key observations
Our audit work indicates
that the carrying value of
goodwill is fairly stated.
------------------------------------- ------------------------------------------------------------------
Business combinations - acquisitions
The 6PM Holdings plc group,
which is based in Malta, Our audit work included,
was acquired during the year but was not restricted to:
at a cost of GBP35m. This * Considering the terms of the sale and purchase
was funded by a combination agreement and public offer documentation respectively
of cash and share placing to ensure that the terms of the acquisitions have
to fund the acquisition, been appropriately accounted for within the financial
seeing GBP20.5m (before expenses) statements by management;
raised through the issue
of new share capital.
The entire share capital * Appraising the fair value adjustments relating to the
of Halarose Ltd was acquired acquisition of 6PM Holdings plc;
in August 2017 for a cost
of GBP5m. This comprised
GBP3.5m in cash along with * Following up on previous acquisition accounting and
a share offering of GBP1.5m. audit of any adjustments noted in the period;
Given the subjectivity around
assumptions used as part
of the associated fair value * Analysing management's calculations for goodwill and
exercise, there is a risk other intangible assets identified from acquisitions,
that such assets are incorrectly along with other fair value adjustments, including
measured. We are aware that evaluating the forecasts used to complete these
external valuation specialists calculations. This involved input by our specialist
have been used to perform Valuations Team to ensure the calculations comply
the valuations of each acquisition. with the requirements set out in IFRS 3 'Business
We therefore identified acquisition Combinations'; and
accounting as a significant
risk, which was one of the
most significant assessed * Challenging management's rationale and calculations
risks of material misstatement. behind the fair values of any contingent
consideration, including the assessment of the range
of possible outcomes and the probability of each of
these.
The group's accounting policy
on acquisition accounting
is shown in note 1 and related
disclosures are included
in note 25.
Key observations
We gained sufficient evidence
to be satisfied that both
acquisitions in the year
were correctly accounted
for and intangibles recognised
the methods used were appropriate.
------------------------------------- ------------------------------------------------------------------
Valuation of capitalised
development expenditure
The value of capitalised Our audit work included,
development expenditure at but was not restricted to:
31 October 2017 is GBP9.1 * Obtaining and reviewing management models relating to
million (31 October 2016 projects held on balance sheet;
GBP5.0 million), with the
increase primarily driven
by the acquisition of 6PM * Challenging all key inputs, assumptions and
and a focus on more accurately judgements (including changes to judgements) made in
capturing all such costs. the process of creating management models;
There are specified criteria
that must be met under IAS
38 'Intangible assets' to * Discussing development expenditure with the
record an asset. development team, challenging the carrying value and
assessing the useful life of key projects based on
Management have adjusted historical experience and future projected cash
their approach to development flows;
expenditure, with the amortisation
period moving from a fixed
5-year period across all * Assessing the outcome of management's previous
projects to an assessment accounting estimates, and considering the impact on
of each project over its management's ability to make accounting estimates for
useful life. the current year; and
Management models require
the application of significant * Agreeing a sample of employee costs to source
judgements and assumptions documentation to support their capitalisation.
to be made in deriving the
underlying model.
In light of these complexities, The group's accounting policy
we have identified valuation on capitalised development
of capitalised development expenditure is shown in note
expenditure as a significant 1 and related disclosures
risk, which was one of the are included in note 11.
most significant assessed
risks of material misstatement. Key observations
We gained sufficient audit
evidence relating to the
valuation of capitalised
development expenditure.
------------------------------------- ------------------------------------------------------------------
Deferred income completeness
Deferred income is allocated
on review of invoices raised Our audit work included,
for services not yet provided. but was not restricted to:
The risk is that deferred * As part of our statistical sample of revenue, we
income is not being recognised gathered sufficient evidence to determine the
fully in line with the provision accuracy of deferred income apportioned for those
of services, which is heightened items selected;
due to the management policy
of not reviewing any sales
invoice totalling less than * Stratified our total population to ensure that we get
GBP10,000. sufficient, appropriate evidence in relation to
invoiced sums below GBP10,000, where there is a
The value of deferred income heightened risk and testing a sample of these items;
at 31 October 2017 is GBP19.8m and
million (31 October 2016
GBP18.3 million), with the
movement largely driven by * Substantive analytical procedures were carried out to
the addition of 6PM Holdings identify any significant variances in deferred income
PLC to the group in year. across the group that are not in line with our
expectation.
We therefore identified deferred
income completeness as a
significant risk, which was * As noted above, we were unable to gain sufficient
one of the most significant evidence to prove completeness of deferred income in
assessed risks of material 6PM Holdings plc and recognised a limitation of scope
misstatement. in this area.
The group's accounting policy
on deferred income is shown
in note 1 and related disclosures
are included in note 18.
Key observations
We gained sufficient audit
evidence relating to the
completeness of deferred
income in all entities except
6PM Holdings plc as referred
to in the limitation of scope
above.
------------------------------------- ------------------------------------------------------------------
Trade receivable existence
As a result of revenue recognition
issues noted by management, Our audit work included,
we revisited our risk assessment but was not restricted to:
during our year end audit * Agreeing an extended sample of receivables to post
work. We thus elevated this year end payments and underlying contractual
item to be a significant documentation to confirm they had been received in
audit risk and a key audit accordance with the contract; and
matter.
The value of trade receivables * Consideration of debtor ageing and the status of any
at 31 October 2017 is GBP18.8 ongoing discussions with customers to identify any
million (31 October 2016 potential issues around early invoicing.
GBP18.3 million), broadly
in line with the October
2016 position
The group's accounting policy
Management identified some on trade receivables is shown
instances when invoices were in note 1 and related disclosures
raised earlier than they are included in note 15.
were due, and we therefore
identified the requirement Key observations
to increase our risk profile We gained sufficient audit
in this area We therefore evidence to conclude relating
identified trade receivable to the existence of trade
existence as a significant receivables.
risk, which was one of the
most significant assessed
risks of material misstatement.
------------------------------------ -----------------------------------------------------------------
Accrued income existence
As a result of revenue recognition Our audit work included,
issues noted by management, but was not restricted to:
we revisited our risk assessment * Performing enhanced and extended sample testing of
during our year end audit the population of accrued income balances to
work. We thus elevated this supporting documentation to gain comfort around the
item to be a significant existence of accrued income; and
audit risk and a key audit
matter.
* Created expectations for accrued income for sample
The value of accrued income items and ensured recognition was in line with this.
at 31 October 2017 is GBP23.0
million (31 October 2016
GBP18.8 million), with the
increase primarily driven The group's accounting policy
by revenue growth. on accrued income is shown
in note 1.
Management identified some
instances where the level Key observations
of accrued income recognised We gained sufficient audit
was in excess of what was evidence from our procedures
contractually earned, and relating to the existence
we therefore identified the of accrued income at year
requirement to increase our end
risk profile in this area
We therefore identified accrued
income existence as a significant
risk, which was one of the
most significant assessed
risks of material misstatement.
------------------------------------ -----------------------------------------------------------------
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work.
We determined materiality for the audit of the group financial statements as a whole to be GBP786,000 at the planning stage, which was 3.5% of the group's EBITDA. This benchmark is considered the most appropriate because it is the key performance measure applied by users of the financial statements.
Following the reductions in EBITDA notified to the market, we revised our materiality for the audit of the group financial statements as a whole to GBP646,000 to reflect the adjustments in EBITDA as a result of the adjustments identified by management
Materiality for the current year is lower than the level that we determined for the year ended 31 October 2016 to reflect the reduction in EBITDA performance despite the strategic acquisitions.
We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 75% of financial statement materiality for the audit of the group financial statements at the planning stage. Following the issues identified by management relating to revenue recognition, we revised our performance materiality level for revenue recognition, accrued income existence, trade receivable existence and valuation of capitalised development expenditure testing to 40% to reflect the revised risk profile around these balances.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements for those items for which we used the reduced 40% performance materiality level.
We also determine a lower level of specific materiality for directors' remuneration, related party transactions and auditor's remuneration.
We determined the threshold at which we will communicate misstatements to the audit committee to be GBP32,300. In addition, we communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the group's business, its environment and risk profile and in particular included:
-- evaluation by the group audit team of identified components to assess the significance of that component and to determine the planned audit response based on a measure of materiality. We considered each component's significance as a percentage of the group's total assets, revenues and EBITDA or significance based on qualitative factors, such as concerns over specific components;
-- interim visit, evaluation the group's internal controls environment including its IT systems and controls;
-- components were identified as significant based on a detailed consideration of each component, quantitative financial considerations, risks identified at the component level and other qualitative factors;
-- there were initially no significant changes in scope from the prior year audit beyond the additional procedures required relating to the acquisition of 6PM Holdings plc as noted above. Due to matters identified by management relating to revenue recognition, we reduced our performance materiality during the audit process;
-- analytical procedures were performed over remaining non-significant components;
-- in line with the central Idox plc finance function, all procedures were performed by the group engagement team, and therefore no group instructions or component visits were deemed necessary; and
-- the graphs below set out the total percentage coverage of full-scope audit procedures of revenue, accrued income, capitalised development expenditure and trade receivable existence below. We gained 100% full scope coverage over the carrying value of goodwill and business combinations - acquisitions key audit matters.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the group financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the group financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement of the group financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
-- the information given in the strategic report and the directors' report for the financial year for which the group financial statements are prepared is consistent with the group financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
Matters on which we are required to report by exception
In respect solely of the limitation on our work relating to revenue and deferred income, and poor record keeping, described above:
-- we have not obtained all the information and explanations that we considered necessary for the purpose of our audit.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
-- certain disclosures of directors' remuneration specified by law are not made.
Responsibilities of directors for the financial statements
As explained more fully in the directors' responsibilities statement set out on page 28, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of group financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the group financial statements, the directors are responsible for assessing the
group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the group financial statements
Our objectives are to obtain reasonable assurance about whether the group financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these group financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Other matter
We have reported separately on the parent company financial statements of Idox plc for the year ended 31 October 2017. That report includes details of the parent company key audit matters; how we applied the concept of materiality in planning and performing our audit; and an overview of the scope of our audit.
Simon Bevan
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
28 February 2018
Consolidated Statement of Comprehensive Income for the year ended 31 October 2017
Note 2017 2016
GBP000 GBP000
Revenue 2 88,859 76,739
Cost of sales (15,143) (10,138)
-------- --------
Gross profit 73,716 66,601
Administrative expenses (68,567) (52,316)
Operating profit 5,149 14,285
Analysed as:
Earnings before depreciation, amortisation,
restructuring, acquisition costs, impairment,
corporate finance costs and share option
costs 2 18,539 21,452
Depreciation 3 (1,172) (584)
Amortisation 3 (8,469) (6,052)
Restructuring costs 4 (704) (330)
Acquisition costs 5 (8) 404
Impairment (2,681) -
Corporate finance costs (32) (8)
Share option costs 24 (324) (597)
----------------------------------------------- ---- -------- --------
Finance income 6 363 55
Finance costs 6 (2,031) (1,357)
Profit before taxation 3,481 12,983
Income tax expense 8 (843) (1,177)
Profit for the year 2,638 11,806
Non-controlling interest (10) -
Profit for the period attributable
to the owners of the parent 2,628 11,806
Other comprehensive income for the
year
Items that will be reclassified subsequently
to profit or loss:
Exchange losses on retranslation of
foreign operations 31 295
-------- --------
Other comprehensive income for the
year, net of tax 31 295
-------- --------
Total comprehensive income for the
year attributable to owners of the
parent 2,659 12,101
======== ========
Earnings per share attributable to
owners of the parent during the year
Basic 9 0.66p 3.30p
Diluted 9 0.64p 3.18p
The accompanying accounting policies and notes form an integral part of these financial statements.
Consolidated Balance Sheet at 31 October 2017
Note
2017 2016
GBP000 GBP000
ASSETS
Non-current assets
Property, plant and equipment 10 1,807 1,115
Intangible assets 11 122,754 82,519
Investment 12 18 -
Deferred tax assets 13 1,085 2,114
Other receivables 15 8,738 6,094
------- -------
Total non-current assets 134,402 91,842
------- -------
Current assets
Stock 166 -
Trade and other receivables 15 36,742 33,753
Cash and cash equivalents 16 3,260 3,787
Total current assets 40,168 37,540
------- -------
Total assets 174,570 129,382
------- -------
LIABILITIES
Current liabilities
Trade and other payables 17 11,019 7,643
Deferred consideration 18 1,600 478
Other liabilities 18 27,437 19,736
Provisions 19 161 39
Current tax 711 1,468
Borrowings 21 2,410 2,425
Total current liabilities 43,338 31,789
------- -------
Non-current liabilities
Deferred tax liabilities 13 7,010 4,351
Deferred consideration 18 - 1,600
Bonds in issue 20 11,394 -
Borrowings 21 21,519 26,410
------- -------
Total non-current liabilities 39,923 32,361
------- -------
Total liabilities 83,261 64,150
------- -------
Net assets 91,309 65,232
======= =======
EQUITY
Called up share capital 23 4,145 3,640
Capital redemption reserve 1,112 1,112
Share premium account 34,109 13,480
Treasury reserve (621) (1,244)
Share options reserve 1,730 2,222
Other reserves 7,528 1,294
ESOP trust (349) (274)
Foreign currency retranslation
reserve 249 57
Retained earnings 43,397 44,945
Non-controlling interest 9 -
------- -------
Total equity 91,309 65,232
======= =======
The financial statements were approved by the Board of Directors and authorised for issue on 28 February 2018 and are signed on its behalf by:
Richard Kellett-Clarke
Chief Executive Officer
The accompanying accounting policies and notes form an integral part of these financial statements.
Company name: Idox plc Company number: 03984070
Consolidated Statement of Changes in Equity at 31 October 2017
Called Capital Share Treasury Share Other ESOP Foreign Retained Total
up redemption premium reserve options reserves trust currency earnings Non-controlling
share reserve account reserve retranslation interest*
capital reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
GBP000 GBP000
Balance at 1
November 2015 3,587 1,112 11,741 (1,271) 1,900 1,294 (242) (238) 35,756 - 53,639
Issue of share
capital 53 - 1,739 - - - - - - - 1,792
Share options
charge - - - - 597 - - - - - 597
Exercise of
share options - - - 27 (275) - - - 259 - 11
Deferred tax
movement on
share options - - - - - - - - 272 - 272
ESOP trust - - - - - - (32) - - - (32)
Equity dividends
paid - - - - - - - - (3,148) - (3,148)
Transactions
with owners 53 - 1,739 27 322 - (32) - (2,617) - (508)
-------- ----------- -------- --------- -------- --------- ------- -------------- --------- ---------------- --------
Profit for the
period - - - - - - - - 11,806 - 11,806
Other
comprehensive
income
Exchange gains
on
retranslation
of foreign
operations - - - - - - - 295 - - 295
Total
comprehensive
income
for the period - - - - - - - 295 11,806 - 12,101
-------- ----------- -------- --------- -------- --------- ------- -------------- --------- ---------------- --------
Balance at 31
October 2016 3,640 1,112 13,480 (1,244) 2,222 1,294 (274) 57 44,945 - 65,232
-------- ----------- -------- --------- -------- --------- ------- -------------- --------- ---------------- --------
Issue of share
capital 505 - 20,629 - - 6,234 - - - - 27,368
Share options
charge - - - - 324 - - - - - 324
Exercise of
share options - - - 623 (816) - - - 492 - 299
Deferred tax
movement on
share options - - - - - - - - (451) - (451)
ESOP trust - - - - - - (75) - - - (75)
Equity dividends
paid - - - - - - - - (4,217) - (4,217)
Transactions
with owners 505 - 20,629 623 (492) 6,234 (75) - (4,176) - 23,248
-------- ----------- -------- --------- -------- --------- ------- -------------- --------- ---------------- --------
Profit for the
period - - - - - - - - 2,628 - 2,628
Non-controlling
interest - - - - - - - - - 9 9
Other
comprehensive
income
Exchange gains
on
retranslation
of foreign
operations - - - - - - - 192 - - 192
Total
comprehensive
income
for the period - - - - - - - 192 2,628 9 2,829
-------- ----------- -------- --------- -------- --------- ------- -------------- --------- ---------------- --------
At 31 October
2017 4,145 1,112 34,109 (621) 1,730 7,528 (349) 249 43,397 9 91,309
-------- ----------- -------- --------- -------- --------- ------- -------------- --------- ---------------- --------
The accompanying accounting policies and notes form an integral part of these financial statements.
*relates to a 30% non-controlling interest 6PM Ireland Limited, a subsidiary of 6PM Holdings plc.
Consolidated Cash Flow Statement at 31 October 2017
2017 2016
GBP000 GBP000
Cash flows from operating activities
Profit for the period before taxation 3,481 12,983
Adjustments for:
Depreciation 1,172 584
Amortisation 8,469 6,052
Acquisition credits - release of deferred
consideration (478) (722)
Impairment 2,681 -
Finance income (141) (55)
Finance costs 1,669 873
Debt issue costs amortisation 119 100
Research and development tax credit (360) (301)
Share option costs 324 597
Profit on disposal of fixed assets (13) -
Movement in stock 106 -
Movement in receivables (3,408) (6,292)
Movement in payables 1,544 (271)
-------- --------
Cash generated by operations 15,165 13,548
Tax on profit paid (1,785) (2,456)
Net cash from operating activities 13,380 11,092
Cash flows from investing activities
Acquisition of subsidiaries (18,065) (4,701)
Acquisition credit 550 -
Purchase of property, plant and equipment (1,675) (639)
Proceeds on sale of investment property 397 -
Purchase of intangible assets (5,688) (4,168)
Finance income 141 55
-------- --------
Net cash used in investing activities (24,340) (9,453)
Cash flows from financing activities
Interest paid (1,211) (827)
New loans 3,500 13,000
Loan related costs (73) (96)
Loan repayments (9,063) (11,524)
Equity dividends paid (4,217) (3,148)
Sale of own shares 21,259 570
-------- --------
Net cash flows from financing activities 10,195 (2,025)
Net movement on cash and cash equivalents (765) (386)
Cash and cash equivalents at the beginning
of the period 3,787 4,084
Exchange gains on cash and cash equivalents 238 89
-------- --------
Cash and cash equivalents at the end
of the period 3,260 3,787
======== ========
The accompanying accounting policies and notes form an integral part of these financial statements
Notes to the Accounts for the year ended 31 October 2017
1 ACCOUNTING POLICIES
General information
Idox plc is a leading supplier of software and services for the management of local government and other organisations. The Company is a public limited company which is listed on the AIM Market of the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is 2nd Floor, 1310 Waterside, Arlington Business Park, Theale, Reading, RG7 4SA. The registered number of the Company is 03984070.
The financial statements are prepared in pound sterling.
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial assets and liabilities, being derivatives at fair value through profit or loss.
As set out on page 22 of the Directors' Report, the financial statements have been prepared on a going concern basis.
International Financial Reporting Standards and Interpretations issued but not yet effective
At the date of authorisation of these financial statements, the following new standards, amendments and interpretations to existing standards have been published that are mandatory for forthcoming financial periods, but which the Group has not adopted early. These are not expected to have a material impact on the Group's consolidated financial statements:
-- IFRS 9 'Financial instruments' - effective for periods commencing on or after 1 January 2018
-- IFRIC Interpretation 22 Foreign currency transactions and advance considerations - effective for periods commencing on or after 1 January 2018
The following standards have the potential have a material impact on the Group's consolidated financial statements:
-- IFRS 15 'Revenue from contracts with customers'- effective for periods commencing on or after 1 January 2018. This standard will become effective for the Group on 1 November 2018. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognised at the date of initial application (the cumulative catch-up transition method). IFRS 15 requires the disclosure of revenue from contracts with customers disaggregated into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Group is currently performing a detailed analysis of the impact of IFRS 15 on all aspects of its business. To this date, the review has identified a number of areas in which adjustments may be required to revenue recognition and in the related procedures and processes. The areas which are likely to be affected are in relation to recognition of consultancy revenue and our 'no win - no fee' grant application business. In the year ended 31 October 2017, consultancy revenue was approximately GBP26m and 'no win-no fee' revenue was approximately GBP3m.
-- IFRS 16 'Leases' - effective for periods commencing on or after 1 January 2019. IFRS 16 presents new requirements for the recognition, measurement, presentation and disclosure of leases. The standard provides that lessees will be required to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The standard was issued in January 2016 and applies to annual reporting periods beginning on or after 1 January 2019 but is yet to be endorsed by the EU. The Directors have not yet assessed the impact that this standard will have on the Group's net asset position and are therefore not in a position to make a reliable estimate of the impact this revised standard will have on the Group's accounting policies. The standard is expected to be applicable to the Group for the period beginning 1 November 2019. Please refer to note 26 for the Group's current operating lease commitments, which will be disclosed as a balance sheet liability under IFRS 16 when this becomes effective.
Adoption of new and revised standards
There were no additional standards, amendments and interpretations that had a material impact on the Group's financial statements during the year. The following standards, amendments and interpretations were effective in the year but had no material impact on the Group's financial statements:
-- Amendments to IAS 1: Disclosure Initiative
-- Amendments to IAS 16 and IAS 38: Classification of Acceptable Methods of Depreciation and Amortisation
-- Amendments to IAS 27: Equity Method in Separate Financial Statements
-- Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities
-- Annual Improvements to IFRSs 2012-2014 Cycle
Restatement of comparative figures
In the previous period, the Group was organised into five main operating segments. During the year ended 31 October 2017, the Grants and Compliance divisions were merged into a new Content division. Following the acquisition of 6PM, a new operating segment called Health was established. As at 31 October 2017, the Group is therefore organised into five operating segments. The segmental analysis for the comparative period to 31 October 2016 have been restated to show results for the new five business segments.
Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. The Group has evaluated the estimates and assumptions that have been made in relation to the carrying amounts of assets and liabilities in these financial statements. The estimates and assumptions which have the most significant impact on the financial statements which are recognised in the financial statements are as follows:
(i) Intangible assets
The Group recognises intangible assets acquired as part of business combinations at fair value at the date of acquisition. The determination of these fair values is based upon management's judgement and includes assumptions on the timing and amount of future incremental cash flows generated by the assets and selection of an appropriate cost of capital. Management estimate the expected useful lives of intangible assets and charge amortisation on those assets accordingly. In determining the useful economic life of the intangible
software assets, management have given consideration to the length of time that its own software is typically used within its market. Competitor products are also reviewed, in conjunction with the length of time they had also been in use. These reviews are conducted with assistance from an independent intellectual property consulting firm who have a wealth of experience in valuing intangible assets generated from acquisitions.
Consideration was also given as to the likelihood that a new competitor could enter the market with a new product. This was considered unlikely due to the up-front capital investment which would be required to develop a new product, the requirement for reference sites to demonstrate the product, and the long-life cycles which products have in the market. For details on the estimates made in relation to intangible assets, see note 11.
(ii) Development costs
The Group reviews half yearly whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each bi-annual review. In addition, all internal activities related to the research and development of new software products are continuously monitored by the Directors.
During the year ended 31 October 2017, management conducted a comprehensive review of all capitalised development and have made a change to the standard policy of amortising all assets over a 5 year straight line period. Management have estimated that a range of 1 to 5 years is more appropriate depending on the future revenue projected for each individual asset. This review has led to accelerated amortisation on a small number of assets during the year. All new capitalised development is reviewed on an individual project basis and management will select the most appropriate rate of amortisation for each asset.
See note 11 for further information.
(iii) Impairment of goodwill
The Group is required to test, at least annually, whether goodwill has suffered any impairment. The recoverable amount is determined based upon value-in-use and net realisable value calculations. The value-in-use method requires the estimation of future cash flows and the choice of a suitable discount rate in order to calculate the present value of these cash flows. Pre-tax discount rates have been applied and are based on WACC
calculations. See note 11 for further commentary.
During the year ended 31 October 2017, management combined the Grants and Compliance divisions into one 'Content' division, which has been used as a CGU in the impairment calculations. These divisions were combined following a review by management where it was identified that the operations and strategy of these teams were in alignment. A restructuring of legal entities took place and a new divisional director was appointed to manage this combined operating segment, and financial information is now reported internally on the Content division.
(iv) Revenue recognition
Management assesses both legal paperwork and commercial substance of transactions to determine the appropriate revenue recognition treatment. This review could involve internal chartered accountants, internal legal staff, operational staff and external professional advice where appropriate. Management may exercise judgements over various elements of a contract, for example:
-- whether there are ongoing obligations relating to software licences which would require the revenue to be recognised over time rather than at a point in time
-- whether performance obligations are separable or bundled
-- whether it is appropriate to recognise revenue on certain contracts such as service agreements, prior to an invoice being raised, where work has been completed and there is a high degree of certainty of the contract being completed and the invoice raised and cash received.
There was considerable discussion and review surrounding the correct revenue recognition on certain Health contracts during the period. Management assessed legal paperwork and commercial substance of these transactions in line with accounting standards and the judgement made was that revenue on these contracts should be recognised over time rather than at a point in time as the software and maintenance elements of the contracts could not be separated.
See paragraph headed 'Revenue' below for more detail on how the Group accounts for revenue.
(v) Contingent consideration
The contingent consideration provision is the maximum undiscounted amount which will be paid, which represents fair value. Where an acquisition involves a potential payment of contingent consideration the estimate of any such payment is based on its fair value. To estimate the fair value an assessment is made as to the amount of contingent consideration which is likely to be paid having regard to the criteria on which any sum due will be calculated.
(vi) Deferred tax
The Group has tax losses available to offset future taxable profits. In estimating the amount of deferred tax to be recognised as an asset the Group estimates the future profitability of the relevant business unit.
Basis of consolidation
The Group accounts consolidate the accounts of the Company and its subsidiary undertakings drawn up to 31 October each year. Under IFRS10, control exists when an investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its powers over the investee. As each of the subsidiaries are 100% wholly owned, the Group has full control over each of its investees.
All inter-company transactions are eliminated on consolidation.
For business combinations occurring since 1 November 2009, the requirements of IFRS 3R have been applied. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. For all acquisitions, the Group will perform a fair value review of all property, plant and equipment and intangible assets to align accounting policies with the Group.
Revenue
Revenue represents the amounts receivable in respect of goods and services provided during the year, stated net of value added tax. Where work has been done, but a billing milestone has not been reached, the income has been accrued and included in amounts recoverable within trade and other receivables.
Revenue is measured at the fair value of the right to consideration. The Group derives its revenue streams from software solutions and information solutions.
Software licence revenue is recognised when the licence is despatched to the customer and there are no ongoing obligations associated with the licence once delivered. Where the licence is bespoke, revenue is recognised when the licence is delivered and the customer has accepted the licence as fully functional.
Software consultancy revenue is recognised on a stage of completion basis. Stage of completion is determined by time spent by service delivery consultants or by reference to the project milestones either included in the contract itself or included within a separate detailed project delivery plan.
Revenue relating to digital services, including search engine optimisation, ecommerce and digital advertising, is recognised at the time of service delivery.
Revenue relating to goods delivered as part of software solutions provided is only recognised once the goods have been received by the customer.
Revenue relating to goods delivered for elections is recognised when the goods have been received by the customer. Consultancy revenue for elections is recognised on a stage of completion basis.
The revenues for maintenance and hosted managed service contracts are spread evenly over the life of the agreement, which is typically one year.
Revenue from software-as-a-service ("SaaS") contracts, or revenue where there are ongoing obligations associated with a software licence, is recognised evenly over the life of the agreement.
Revenue derived from information solutions content is recognised over the life of the subscription, which is typically one year. Revenue from projects is recognised over the life of the project in accordance with the stage of completion which is determined by reference to the project delivery plan.
Revenue relating to grant applications is recognised on a 'no win-no fee' basis. Revenue is only recognised when confirmation that the grant application has been successful is received.
Revenue relating to hardware is recognised when the hardware is despatched to the customer.
Contract revenue
The amount of profit attributable to the stage of completion of a long-term contract is recognised only when the outcome of the contract can be foreseen with reasonable certainty. Management make a judgement on the fair value of the work completed to enable revenue on long term contracts to be recognised in the correct periods. Stage of completion is determined based on management's best estimate of effort expended and progress against project plans at the year end. Provision is made for any losses as they are foreseen.
The contracts for software solutions often contain multiple elements such as software, consultancy and maintenance. Management make appropriate judgements and estimates in relation to the fair value of each of these elements in accordance with IAS 18.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the steering committee, which for the year ended 31 October 2017 comprised the Chief Executive Officer, the Chief Financial Officer and the Chief Operating Officer.
Goodwill
Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of the identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.
Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Goodwill is carried at cost less accumulated impairment losses. Unallocated goodwill on acquisitions relates mainly to workforce valuation, synergies and economies of scale obtained on combining acquisitions with existing operations.
Goodwill written off to reserves prior to the date of transition to IFRS remains in reserves. There is no re-instatement of goodwill that was amortised prior to transition to IFRS. Goodwill previously written off to reserves is not written back to profit or loss on subsequent disposal.
Other intangible assets
Intangible assets with a finite useful life are amortised to the consolidated statement of comprehensive income on a straight-line basis over their estimated useful lives, which are reviewed on an annual basis. Amortisation commences when the asset is available for use. The residual values of intangible assets are assumed to be zero.
(i) Research and development
Expenditure on research (or the research phase of an internal project) is recognised in profit or loss in the period in which it is incurred. Development costs incurred are capitalised when all the following conditions are satisfied:
-- completion of the intangible asset is technically feasible so that it will be available for use or sale;
-- the Group intends to complete the intangible asset and use or sell it; -- the Group has the ability to use or sell the intangible asset;
-- the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;
-- there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and
-- the expenditure attributable to the intangible asset during its development can be measured reliably.
Development costs not meeting the criteria for capitalisation are expensed in profit or loss as incurred. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Amortisation commences upon completion of the asset, and is shown separately on the statement of comprehensive income.
Careful judgement by the Directors is applied when deciding whether the recognition requirements for development costs have been met. This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each balance sheet date. In addition, all internal activities related to the research and development of new software products are continuously monitored by the Directors.
Amortisation is calculated using the straight-line method over a period of up to 5 years.
(ii) Customer relationships
Customer relationships represent the purchase price of customer lists and contractual relationships purchased on the acquisition of CAPS Solutions Limited, Plantech Limited, J4B Software and Publishing Limited, Strand Electoral Management Services Limited, Grantfinder Limited, McLaren Software Limited, Lalpac Limited, Interactive Dialogues NV, Opt 2 Vote Limited, Currency Connect Holding BV, FMx Limited, Artesys International SA, CTSpace Group, Digital Spirit GmbH, Cloud Amber Limited, Reading Room Limited, Open Objects Software Limited, Halarose Holdings Limited and 6PM Holdings plc. These relationships are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method over a period of 20, 10 and 5 years.
(iii) Trade names
Trade names represent the named intangible asset recognised on the acquisition of CAPS Solutions Limited, Plantech Limited, J4B Software and Publishing Limited, Strand Electoral Management Services Limited, Grantfinder Limited, McLaren Software Limited, Lalpac Limited, Interactive Dialogues NV, Opt 2 Vote Limited, Currency Connect Holding BV, FMx Limited, Artesys International SA, CTSpace Group, Digital Spirit GmbH, Cloud Amber Limited, Reading Room Limited, Open Objects Software Limited, Rippleffect Studio Limited, 6PM Holdings plc and Halarose Holdings Limited. These trade names are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method over a period of between 5 and 20 years.
(iv) Software
Software represents the UNI-form, ACOLAID, Enterprise Engineer, CAFM Explorer, electoral and licensing software purchased on the acquisition of CAPS Solutions Limited, Plantech Limited, McLaren Software Limited, Strand Electoral Management Services Limited, Lalpac Limited, Interactive Dialogues NV, Opt 2 Vote Limited, Currency Connect Holding BV, FMx Limited, Artesys International SA, CTSpace Group, Digital Spirit GmbH, Cloud Amber Limited, Open Objects Software Limited, Rippleffect Studios Limited, 6PM Holdings plc and Halarose Holdings Limited. The software is carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method over a period of between 3 and 10 years. Software also includes software licences purchased which are amortised using the straight-line method over a period of between 3 to 5 years.
(v) Database
Database represents the grant information database purchased on the acquisition of J4B Software & Publishing Limited and Grantfinder Limited. The database is carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method over a period of 5 years.
(vi) Order backlog
Order backlog includes the managed service contracts and subscription deferred revenue purchased on the acquisition of 11 land and property information solution contracts and Grantfinder Limited. Amortisation on the managed service deferred revenue is calculated based on the weighting and length of each contract purchased. Subscription deferred revenue is calculated using the straight-line method over a period of 5 years.
Order backlog includes two managed services contracts acquired from Miria Systems Inc. Amortisation on the managed service deferred revenue is calculated using the straight-line method over a period of 5 years.
Upon the acquisition of Halarose Holding Limited, the Group acquired deferred revenue which is being amortised using the straight-line method over a period of 3 years.
Impairment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are
expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows.
Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.
Property, plant and equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to the income statement using the following rates and bases so as to write off the cost or valuation of items of property, plant and equipment over their expected useful lives. The rates that are generally applicable are:
Computer hardware 25%, 50% and 100% straight line Fixtures, fittings and equipment 25% straight line Library books and journals 33 1/3% and 100% straight line
Useful economic lives and residual values are reviewed annually.
Investment property
The investment property was acquired upon the purchase of 6PM Holdings plc and was recorded initially at cost and then using the fair value method. The investment property was revalued annually with resulting gains and losses recognised in the income statement, and the property was included in the balance sheet at its fair value.
Employee benefits
Defined contribution pension plans
Contributions paid to private pension plans of certain employees are charged to the income statement in the period in which they become payable. Contributions paid to the Group personal pension plans of employees are charged to the income statement in the period in which they become payable.
Share-based payment transactions
All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is
appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets).
All equity-settled share-based payments are ultimately recognised as an expense in the profit and loss account with a corresponding credit to the share option reserve.
If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options that have vested are not exercised.
Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to reserves. In some circumstances upon exercise of share options, the right to shares are waived and the proceeds are settled in cash.
Reserves
Equity comprises the following:
-- "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.
-- "Capital redemption reserve" represents when the entire deferred ordinary share capital was bought in exchange for one ordinary 1p share.
-- "Other reserves" arose as a result of:
o a Group reconstruction that occurred on 17 November 2000. This represents the issued share capital and share premium account in the Company's subsidiary undertaking, Idox Software Limited, and;
o Share premium arising on consideration shares issued on the acquisition of 6PM Holdings plc and Halarose Holdings Limited.
-- "Share options reserve" represents shares to be issued on potential exercise of those share options that have been accounted for under "IFRS 2 Share Based Payments".
-- "ESOP trust" represents share capital purchased to satisfy the obligation of the employee share scheme. Purchased shares are classified within the ESOP trust reserve and the cost of shares purchased are presented as a deduction from total equity.
-- "Retained earnings" represents retained profits.
-- "Treasury reserve" represents shares repurchased by the Company to be held for redistribution as share options. The cost of treasury shares is debited to the Treasury reserve.
-- "Foreign currency translation reserve" represents exchange gains and losses on retranslation of foreign operations.
-- "Non-controlling interest" represents retained profits attributable to Non-controlling interests.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Current tax is charged to profit or loss except where it relates to tax on items recognised in other comprehensive income or directly in equity, in which case it is charged to equity or other comprehensive income.
Current tax is the tax currently payable based on taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income credits to the Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except where they relate to items that are charged or credited directly to other comprehensive income or equity in which case the related deferred tax is also charged or credited directly to other comprehensive income or equity.
Research and development tax credits
The UK tax regime permits additional tax relief for qualifying expenditure incurred on research and development. The Research and Development Expenditure Credit (RDEC) Scheme has been adopted, which permits a tax credit of 11% of qualifying expenditure for companies classified as large. The Idox Group is considered large for research and development tax credit purposes owing to a headcount of over 500.
The tax credit is treated as a reconciling item within the taxation line of the income statement.
Operating leases
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. All leases held by the Group are operating in nature. Amounts paid under operating leases are charged to the statement of comprehensive income on a straight-line basis over the lease term.
Dividend distributions
Interim dividends in respect of equity shares are recognised in the financial statements in the period in which they are paid.
Final dividends in respect of equity shares are recognised in the financial statements in the period that the dividends are formally approved.
Foreign currency translation
The functional and presentation currency of Idox plc and its United Kingdom subsidiaries is the pound sterling (GBP). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss.
In the consolidated financial statements, the assets and liabilities of non-sterling functional currency subsidiaries, are translated into pound sterling at the rate of exchange ruling at the balance sheet date. The results of non-sterling functional currency subsidiaries are translated into pound sterling using average rates of exchange. Exchange adjustments arising are taken to the foreign currency translation reserve and reported in other comprehensive income.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group has become a party to the contractual provisions of the instrument.
Financial assets
Financial assets are classified according to the substance of the contractual arrangements entered into.
Trade and other receivables
Trade receivables do not carry any interest and are initially stated at their fair value, as reduced by appropriate allowances for estimated irrecoverable amounts. All receivables are considered for impairment. Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the assets carrying value and the present value of estimated future cash flows.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and on deposit with a maturity of 3 months or less from inception and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its financial liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded initially at fair value, net of direct transaction costs. Such instruments are subsequently carried at their amortised cost and finance charges, including premiums payable on settlement or redemption, are recognised in profit or loss over the term of the instrument using an effective rate of interest.
Bond
Bonds in issue are recorded initially at fair value, net of direct transaction costs. The bonds are subsequently carried at their amortised cost and finance charges are recognised in profit or loss over the term of the instrument using an effective rate of interest.
Trade and other payables
Trade and other payables are not interest-bearing, are initially stated at their fair value and subsequently at amortised cost.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
2 SEGMENTAL ANALYSIS
In previous periods, the Group was organised into five main operating segments. Following the acquisition and integration of 6PM Holdings plc, an additional Health segment was created. During the year ended 31 October 2017, the Grants and Compliance segments were merged to form a new Content division. As at 31 October 2017, the Group is therefore organised into five operating segments, which are detailed below.
Financial information is reported to the chief operating decision maker, which comprises the Chief Executive Officer and the Chief Financial Officer, monthly on a business unit basis with revenue and operating profits split by business unit. Each business unit is deemed an operating segment as each offers different products and services.
-- Public Sector Software (PSS) - delivering specialist information management solutions and services to the public sector
-- Engineering Information Management (EIM) - delivering engineering document management and control solutions to asset intensive industry sectors
-- Content (CONT) - delivering funding and compliance solutions to corporate, public and commercial customers
-- Digital (DIG) - delivering digital consultancy services to public, private and third sector customers
-- Health (HLT) - delivering a broad range of innovative solutions to the healthcare market
Halarose Holdings Limited, acquired in August 2017, is included in the PSS segment.
Segment revenue comprises sales to external customers and excludes gains arising on the disposal of assets and finance income. Segment profit reported to the Board represents the profit earned by each segment before the allocation of taxation, Group interest payments and Group acquisition costs. The assets and liabilities of the Group are not reviewed by the chief operating decision maker on a segment basis.
The Group does not place reliance on any specific customer and has no individual customer that generates 10% or more of its total Group revenue.
The segment revenues by geographic location are as follows:
2017 2016
GBP000 GBP000
Revenues from external
customers
United Kingdom 65,896 55,739
USA 6,994 6,361
Europe 15,077 12,271
Australia 312 1,008
Rest of World 580 1,360
------- -------
88,859 76,739
======= =======
Revenues are attributed to individual countries on the basis of the location of the customer.
2017 2016
GBP000 GBP000
Revenues by type
Recurring revenues 38,568 32,861
Non-recurring revenues 50,291 43,878
88,859 76,739
------- -------
Revenue from sale of
goods 19,696 15,020
Revenue from rendering
of services 69,163 61,719
------- -------
88,859 76,739
------- -------
Recurring revenue is income generated from customers on a contractual basis. Repeat and recurring revenue amount to approximately 84% of total revenue, which is revenue generated from sales to existing customers.
The segment results by business unit for the year ended 31 October 2017:
PSS EIM CONT DIG HLT Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 41,171 12,901 12,421 14,726 7,640 88,859
--------- --------- --------- --------- --------- ---------
Profit before interest, tax, depreciation,
amortisation, share option costs,
acquisition costs, impairment and restructuring
costs 15,352 2,146 1,648 (254) (353) 18,539
--------- --------- --------- --------- --------- ---------
Depreciation (672) (190) (18) (80) (212) (1,172)
Amortisation - software licences and R&D (2,198) (492) (159) - (372) (3,221)
Amortisation - acquired intangibles (2,303) (468) (493) (803) (1,181) (5,248)
Restructuring costs (169) (69) (87) (327) (52) (704)
Acquisition costs 144 - - - (152) (8)
Impairment - - - - (2,681) (2,681)
Share option costs (281) (43) - - (324)
--------- --------- --------- --------- --------- ---------
Adjusted segment operating profit 9,873 927 848 (1,464) (5,003) 5,181
--------- --------- --------- --------- --------- ---------
Corporate finance costs (32)
Finance income 363
Finance costs (2,031)
---------
Profit before Tax 3,481
---------
The segment results by business unit for the year ended 31 October 2016:
PSS EIM CONT DIG HLT Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 40,966 14,059 10,804 10,910 - 76,739
--------- --------- --------- --------- --------- ---------
Profit before interest, tax, depreciation,
amortisation, share option costs,
acquisition costs and restructuring costs 16,310 3,300 824 1,018 - 21,452
--------- --------- --------- --------- --------- ---------
Depreciation (430) (101) (20) (33) - (584)
Amortisation - software licences and R&D (1,655) (410) (168) (2) - (2,235)
Amortisation - acquired intangibles (2,187) (636) (492) (502) - (3,817)
Restructuring costs (49) (40) (18) (223) - (330)
Acquisition costs 483 - - (79) - 404
Share option costs (503) - (94) - - (597)
--------- --------- --------- --------- --------- ---------
Adjusted segment operating profit 11,969 2,113 32 179 - 14,293
--------- --------- --------- --------- --------- ---------
Corporate finance costs (8)
Finance income 55
Finance costs (1,357)
---------
Profit before Tax 12,983
---------
3 OPERATING PROFIT FOR THE YEAR
Operating profit for the year has been arrived 2017
at after charging: 2016
GBP000 GBP000
Auditor's remuneration:
Fees payable to the Company Auditor for the audit
of the parent company and consolidated annual accounts 57 56
The audit of the Company's subsidiaries, pursuant
to legislation 342 108
Audit related services 33 31
------ ------
432 195
Corporate Finance fees - 136
Tax services - compliance 25 43
Tax services - advisory 9 -
Operating lease rentals - buildings & equipment 2,616 1,917
Depreciation - owned 1,172 584
Amortisation:
Software licences 915 974
Research & development 2,306 1,261
Acquired intangibles 5,248 3,817
Equity-settled share-based payments 324 597
Research & development costs 3,764 3,959
====== ======
4 DIRECTORS AND EMPLOYEES
Staff costs during the year
were as follows: 2017 2016
GBP000 GBP000
Wages and salaries 36,559 31,226
Social security costs 4,416 3,271
Pension costs 1,328 1,025
42,303 35,522
====== ======
In addition, during the year share based payment charges of GBP324,000 (2016: GBP597,000) were incurred.
During the year, the Group incurred restructuring costs of GBP704,000 (2016: GBP330,000). Restructuring costs represent redundancy payments to former staff.
The average number of employees of the Group during the year was 842 (2016: 676) and was made up as follows:
2017 2016
No. No.
Office and administration (including
Directors of the Company and its
subsidiary undertakings) 50 29
Sales 61 33
Development 134 101
Operations 597 513
842 676
====== ======
Remuneration in respect of Directors
was as follows: 2017 2016
GBP000 GBP000
Emoluments 1,064 1,265
Pension contributions 21 22
Share option exercise gain 3,201 -
4,286 1,465
====== ======
In addition to the remuneration stated above, the Group incurred social security costs in respect of Directors of GBP562,000 (2016: GBP162,000).
The amounts set out above include remuneration in respect of the highest paid Director as follows:
2017 2016
GBP000 GBP000
Aggregate emoluments 376 484
Pension contributions 6 -
382 484
====== ======
During the year the highest paid director exercised share options resulting in a taxable gain of GBP1,128,000 (2016: GBPnil).
During the year, the Group incurred social security costs in respect of the highest paid director of GBP184,000 (2016: GBP66,000).
Details of the remuneration for each Director are included in the Report on Remuneration, which can be found on pages 23 to 24 but does not form part of the audited accounts.
5 ACQUISITION costs
Following the implementation of IFRS 3, all acquisition related costs are expensed in the period incurred rather than added to the cost of investment. Acquisition costs relating to individual acquisitions are disclosed in note 25.
Acquisition costs 2017 2016
GBP000 GBP000
Acquisition costs (236) (318)
Release of contingent consideration 228 722
------ ------
(8) 404
------ ------
During the year, the contingent consideration on Cloud Amber Limited was reduced from GBP478,000 to GBP250,000. The reduction was a result of missing the revenue target as set out in the Share Purchase Agreement. The adjusted contingent consideration has been paid. The adjustment of GBP228,000 is included in 'Acquisition costs' in the Consolidated Statement of Comprehensive Income.
6 FINANCE INCOME AND COSTS
2017 2016
GBP000 GBP000
Interest receivable 6 4
Insurance income - 8
Dividends receivable 24 19
Foreign exchange differences 222 -
Other income 111 24
------- -------
Finance income 363 55
======= =======
Bank loans interest payable (757) (790)
Bond interest payable (836) -
Bank charges and loan facility fees (335) (298)
Loss on discounting of amounts recoverable from
customers (103) (191)
Foreign exchange differences - (78)
------- -------
Finance costs (2,031) (1,357)
======= =======
7 dividends
2017 2016
GBP000 GBP000
Final dividend paid in respect of the year
ended 31 October 2016 and 31 October 2015 2,627 1,885
------ -------
Pence per ordinary share 0.650p 0.525p
------ -------
Interim dividend paid in respect of the
year ended 31 October 2017 and 31 October
2016 1,590 1,263
------ -------
Pence per ordinary share 0.385p 0.350p
------ -------
The Directors have proposed the payment of a final dividend of.0.655p per share, which would amount to GBP2,705,000 (2016: 0.650p).
8 INCOME TAX
The tax charge is made up as follows:
2017 2016
GBP000 GBP000
Current tax
UK corporation tax on profits for the period 1,567 2,634
Foreign tax on overseas companies 302 508
Over provision in respect of prior periods (623) (754)
------ -------
Total current tax 1,246 2,388
------ -------
Deferred tax
Origination and reversal of temporary differences (426) (961)
Adjustment for rate change 3 (252)
Adjustments in respect of prior periods 20 2
------ -------
Total deferred tax (403) (1,211)
------ -------
Total tax charge 843 1,177
====== =======
The differences between the total tax charge above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax, together with the impact on the effective tax rate, are as follows:
2017 % ETR 2016 % ETR
GBP000 movement GBP000 movement
Profit before taxation on continuing
operations 3,481 12,983
Profit on ordinary activities multiplied
by the standard
rate of corporation tax in the UK
of 19% (2016: 20%) 661 19.00 2,597 20.00
Effects of:
Share option deduction (100) (2.87) (216) (1.66)
Tax losses utilised in year (11) (0.33) (113) (0.87)
International losses not recognised 359 10.31 172 1.32
Accelerated capital allowances (155) (4.45) - -
Other timing differences (98) (2.82) 5 0.04
Expenses not deductible for tax
purposes 724 20.80 118 0.91
Prior year over-provision (656) (18.85) (751) (5.78)
Non-taxable income (52) (1.49) (152) (1.17)
Adjustment for tax rate differences 200 5.75 (374) (2.88)
R&D enhanced relief (30) (0.87) (139) (1.07)
Foreign tax suffered 1 0.03 30 0.22
843 24.21 1,177 9.06
====== ======== ====== ========
The effective tax rate ('ETR') for the period was 24.21% (2016: 9.06%). Significant tax repayments were processed in 2017, not previously provided for, in respect of historic R&D claims covering the Reading Room Group and Idox Health Ltd.
These downward pressures on ETR were mitigated by impairment, acquisition costs and the non-recognition of overseas losses.
The higher effective tax rate in 2017, compared to 2016, is due mainly to impairment of the 6PM acquisition alongside the non-recognition of losses incurred in Malta, owing to uncertainty over their future utilisation. These losses will be recognised where their likelihood of utilisation increases, with any future recognition resulting in a decrease to ETR.
Movement on trading losses during 2017 are as follows:
UK unrelieved Foreign Total unrelieved
trading unrelieved trading
losses trading losses
losses Tax effect
Recognised trading losses GBP000 GBP000 GBP000 GBP000
As at 1 November 2016 - 2,398 2,398 432
Impact of deferred tax recognition
at local rate - - - 384
Recognised during the year 327 - 327 59
Utilised during the year - (1,579) (1,579) (537)
327 819 1,146 338
============= =========== ================ ==========
Unrecognised trading losses
Losses not recognised (2,137) (9,983) (12,120) (3,268)
(2,137) (9,983) (12,120) (3,268)
============= =========== ================ ==========
The UK trading losses recognised during the year were brought in on acquisition of the 6PM Group. The foreign losses utilised during the year were primarily in the US, with a small element in the Netherlands. The closing unrecognised losses of GBP12,120,000 relate to Malta, the UK and Germany. The decision was made to derecognise these assets until there is more certainty over their future utilisation. Across the year the total deferred tax asset in respect of unrelieved trading losses has decreased from GBP432,000 to GBP337,000.
9 EARninGS per share
The earnings per ordinary share is calculated by reference to the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during each period, as follows:
2017 2016
GBP000 GBP000
Profit for the year 2,628 11,806
----------- -----------
Basic earnings per share
Weighted average number of shares in issue 397,125,960 357,989,177
----------- -----------
Basic earnings per share 0.66p 3.30p
=========== ===========
Weighted average number of shares in issue 397,125,960 357,989,177
Add back:
Treasury shares 2,366,219 3,023,469
ESOP shares 985,589 875,044
----------- -----------
Weighted average allotted, called up and
fully paid share capital 400,477,768 361,887,690
----------- -----------
Diluted earnings per share
Weighted average number of shares in issue
used in basic earnings per share calculation 397,125,960 357,989,177
Dilutive share options 10,678,522 13,579,022
----------- -----------
Weighted average number of shares in issue
used in dilutive earnings per share calculation 407,804,482 371,568,199
Diluted earnings per share 0.64p 3.18p
=========== ===========
2017 2016
Adjusted earnings per share GBP000 GBP000
Profit for the year 2,628 11,806
Add back:
Amortisation on acquired intangibles 5,248 3,817
Impairment 2,681 -
Acquisition costs 8 (404)
Restructuring costs 704 330
Tax effect (1,727) (829)
------------ --------------
Adjusted profit for year 9,542 14,720
------------ --------------
Weighted average number of shares
in issue - basic 397,125,960 357,989,177
Weighted average number of shares
in issue - diluted 407,804,482 371,568,199
Adjusted earnings per share 2.40p 4.11p
Adjusted diluted earnings per
share 2.34p 3.96p
10 PROPERTY, PLANT AND EQUIPMENT
Fixtures,
Computer fittings Library books Investment
hardware and equipment and journals Property Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 November 2015 1,009 514 184 - 1,707
Additions 554 64 61 - 679
Additions on acquisition 65 10 - - 75
Internal reallocation
to intangible assets (12) - - - (12)
Disposals (359) (105) - - (464)
At 31 October 2016 1,257 483 245 - 1,985
FX on opening balances - 9 - - 9
Additions 1,542 38 3 - 1,583
Additions on acquisition 99 212 - 384 695
Disposals (806) (102) (233) (384) (1,525)
Internal reallocation
of asset category 113 (137) - - (24)
At 31 October 2017 2,205 503 15 - 2,723
========= ============== ============= ========== =======
Depreciation
At 1 November 2015 393 104 133 - 630
Provided in the year 355 139 90 - 584
Eliminated on disposal (359) (75) - - (434)
Fair value adjustment 63 27 - - 90
At 31 October 2016 452 195 223 - 870
Provided in the year 889 264 19 - 1,172
Eliminated on disposal (731) (138) (233) - (1,102)
Internal reallocation
of asset category 74 (98) - - (24)
At 31 October 2017 684 223 9 - 916
========= ============== ============= ========== =======
Net book amount at 31
October 2017 1,521 280 6 - 1,807
========= ============== ============= ========== =======
Net book amount at 31
October 2016 805 288 22 - 1,115
========= ============== ============= ========== =======
The Group has pledged the above assets to secure banking facilities granted to the Group.
11 INTANGIBLE ASSETS
Customer Development
relation- Trade costs Order
Goodwill ships names Software Database backlog Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 November 2015 49,091 21,760 9,613 11,908 7,328 569 4,321 104,590
FX on opening balance - - - 29 109 - 20 158
Additions - - - 1,393 2,799 - - 4,192
Additions on acquisition 2,925 245 1,924 3,970 - - - 9,064
Internal reallocation - - - 12 - - - 12
Fair value adjustment 630 - - (238) - - - 392
-------- ---------- ------- -------- ------------- ---------- --------- --------
At 31 October 2016 52,646 22,005 11,537 17,074 10,236 569 4,341 118,408
Revaluation of opening
balance - - - 95 - (4) 91
Additions - - - 921 4,767 - - 5,688
Additions on acquisition 24,516 12,312 2,714 5,362 1,545 - 170 46,619
Disposals - (3,510) (1,383) (7,080) (3,972) (569) (4,200) (20,714)
Fair value adjustment 101 - (275) (275) - - - (449)
At 31 October 2017 77,263 30,807 12,593 16,002 12,671 - 307 149,643
======== ========== ======= ======== ============= ========== ========= ========
Amortisation
At 1 November 2015 647 9,336 4,007 7,085 3,968 569 4,166 29,778
FX on opening balance - - - 21 34 - 4 59
Amortisation for the
year - 1,903 740 2,082 1,261 - 66 6,052
At 31 October 2016 647 11,239 4,747 9,188 5,263 569 4,236 35,889
Revaluation of opening
balance - - - - 13 - (3) 10
Amortisation for the
year - 2,085 928 3,104 2,305 - 46 8,468
Impairment 3,231 - - - - - - 3,231
Disposals - (3,510) (1,383) (7,075) (3,972) (569) (4,200) (20,709)
-------- ---------- ------- -------- ------------- ---------- --------- --------
At 31 October 2017 3,878 9,814 4,292 5,217 3,609 - 79 26,889
======== ========== ======= ======== ============= ========== ========= ========
Carrying amount at
31 October 2017 73,385 20,993 8,301 10,785 9,062 - 228 122,754
======== ========== ======= ======== ============= ========== ========= ========
Carrying amount at
31 October 2016 51,999 10,766 6,790 7,886 4,973 - 105 82,519
======== ========== ======= ======== ============= ========== ========= ========
During the year, goodwill and intangibles were reviewed for impairment in accordance with IAS 36, 'Impairment of Assets'. An impairment charge of GBP2,681,000 (was processed in the period in relation to the Health division. An impairment charge of GBP550,000 was processed in the period in relation to a cash refund relating to the historical acquisition price of Rippleffect Limited. There were no impairment charges identified in the prior year.
Fair value adjustments are in relation to Rippleffect Limited. Further information on these fair value adjustments is provided in note 25.
The Group has pledged the above assets to secure banking facilities granted to the Group.
11 INTANGIBLE ASSETS (CONTINUED)
The remaining useful lives and carrying value of the above intangible assets is as follows:
2017 2016 2017 2016
Remaining Remaining
amortisation amortisation Carrying Carrying
period period value value
(years) (years) GBP000 GBP000
CAPS intangibles
Customer relationships 9.5 10.5 2,786 3,079
Trade names 9.5 10.5 1,186 1,310
Software - 0.5 - 150
Plantech intangibles
Customer relationships 10 11 578 636
Trade names 10 11 261 286
Software - 1 - 84
J4B intangibles
Customer relationships
(project) 1.5 2.5 20 33
Trade names 1.5 2.5 31 51
Grantfinder intangibles
Trade name 2.5 3.5 58 82
Strand intangibles
Customer relationships 2.8 3.8 638 870
LAMP contracts intangibles
Backlog order book - 1 - 3
McLaren intangibles
Customer relationships 3.1 4.1 317 418
Lalpac intangibles
Customer relationships 3.5 4.5 576 741
Trade names 3.5 4.5 57 74
Software 3.5 4.5 115 148
Interactive Dialogues
intangibles
Customer relationships 4 5 141 176
Trade names 4 5 82 103
Software 4 5 165 206
CT Space intangibles
Trade names 4 5 495 619
Software 4 5 593 743
Opt2Vote intangibles
Customer relationships - 0.4 - 64
Trade names 4.4 5.4 233 286
Software 4.4 5.4 311 381
11 INTANGIBLE ASSETS (CONTINUED)
2017 2016 2017 2016
Remaining Remaining
amortisation amortisation Carrying Carrying
period period value value
(years) (years) GBP000 GBP000
Currency Connect intangibles
Customer relationships 4.4 5.4 871 1,068
Trade names 4.4 5.4 115 141
Software 4.4 5.4 124 152
FMx intangibles
Customer relationships - 0.9 - 124
Trade names 4.9 5.9 109 132
Software 4.9 5.9 164 197
Artesys intangibles
Trade names 5.4 6.4 163 193
Software 5.4 6.4 194 229
Digital Spirit intangibles
Customer relationships 7 8 325 371
Trade names 7 8 143 164
Software 7 8 143 164
Cloud Amber intangibles
Customer relationships 7.7 8.7 787 889
Trade names 7.7 8.7 256 290
Software 7.7 8.7 384 434
Miria contracts intangibles
Backlog order book 2.7 3.7 73 102
Reading Room intangibles
Customer relationships 8 9 1,838 2,068
Trade names 8 9 1,047 1,178
Open Objects intangibles
Customer relationships 3.7 4.7 180 229
Trade names 12.7 13.7 748 807
Software 5.7 6.7 2,083 2,450
Rippleffect intangibles
Trade names 10.7 11.8 731 1,074
Software 1.7 2.8 630 1,279
6PM intangibles
Customer relationships 19.3 - 9,288 -
Trade names 13.3 - 2,284 -
Software 3.3 - 4.3 - 3,933 -
Halarose intangibles
Customer relationships 19.8 - 2,648 -
Trade names 11.8 - 302 -
Order backlog 2.8 - 155 -
Software 3.8 - 4.8 - 657 -
Development costs 1 - 5 5 9,062 4,973
Software costs 3 3 1,289 1,269
11 INTANGIBLE ASSETS (CONTINUED)
Impairment test for goodwill
For this review, goodwill was allocated to individual Cash Generating Units (CGU) on the basis of the Group's operations as disclosed in the segmental analysis. As the Board reviews results on a segmental level, the Group monitors goodwill on the same basis.
The carrying value of goodwill by each CGU is as follows:
2017 2016
Cash Generating Units (CGU) GBP000 GBP000
Public Sector Software 32,016 30,191
Engineering Information Management 11,773 11,774
Content 7,154 7,154
Digital 2,431 2,880
Health 20,011 -
------ ------
73,385 51,999
====== ======
The recoverable amount of all CGUs has been determined using value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering the next five financial years. The key assumptions used in the financial budgets relate to revenue and EBITDA growth targets. Cash flows beyond this period are extrapolated using the estimated growth rates stated below. Growth rates are reviewed in line with historic actuals to ensure reasonableness and are based on an increase in market share.
For value-in-use calculations, the growth rates and margins used to estimate future performance are based on financial year 2018 budgets (as approved by the Board) which is management's best estimate of short term performance based on an assessment of market opportunities and macro-economic conditions. In the year to 31 October 2017, the Weighted Average Cost of Capital for each CGU has been used as an appropriate discount rate to apply to cash flows. The same basis was used in the year to 31 October 2016.
The assumptions used for the value- in-use calculations are as follows and are considered appropriate for each of the risk profiles of the respective CGUs:
Cash Generating Unit (CGU) Discount Growth rate Discount Growth rate
rate Current year rate Prior year
Current year Prior year
Public Sector Software 11.19% 2% 11.41% 2%
Engineering Information
Management 10.55% 2% 12.89% 2%
Content 12.04% 2% 10.94% 2%
Digital 11.05% 2% 10.94% 2%
Health 10.55% 2%
Individual Weighted Average Cost of Capital were calculated for each CGU and adjusted for the market's assessment of the risks attaching to each CGU's cash flows. The Weighted Average Cost of Capital is recalculated at each period end.
Management considered the level of intangible assets within the Health division in comparison to the future budgets and have processed an impairment charge of GBP2,681,000 within the year (2016: GBPnil).
Sensitivities have been run on cash flow forecasts for all CGUs. Management are satisfied that the key assumptions of revenue and EBITDA growth rates are achievable and that reasonable possible changes to those key assumptions would not lead to the carrying amount of the relevant CGU exceeding the recoverable amount for PSS, EIM and Content divisions. The carrying amount of the Digital CGU is close to recoverable amount and depending on future results and projections an impairment could be required in the future. Management have calculated that a reduction in the budgeted gross margin by 1% would lead to a required impairment charge of GBP300,000. The Heath division was impaired during year ended 31 October 2017 based on future budget projections. If the future budget is not met then the carrying amount of this CGU would exceed the recoverable amount and further impairment could be required.
Sensitivities have also been run on the discount rate applied and management are satisfied that a reasonable increase in the discount rate would not lead to the carrying amount of the relevant CGU exceeding the recoverable amount.
12 INVESTMENT
The investment relates to a 22.5% shareholding Javaili LLC a company incorporated in USA. This investment was acquired as part of the acquisition of the 6PM Group in February 2017.
13 deferred INCOME tax
Deferred tax assets and liabilities are summarised
as follows: 2017 2016
GBP000 GBP000
Deferred tax assets 1,085 2,114
------- -------
Deferred tax liabilities (non-current) (7,010) (4,351)
------- -------
(5,925) (2,237)
------- -------
The movement in the year in the net deferred tax provision was as follows:
2017 2016
GBP000 GBP000
At 1 November (2,237) (2,708)
Credit to income for the year 426 961
Adjustment for changes in rate (3) 252
Prior year adjustment (20) (2)
Other movements 56 93
Charged to goodwill for the year (3,697) (1,105)
Transferred to equity (450) 272
At 31 October (5,925) (2,237)
======= =======
The movement in deferred income tax assets and liabilities during the year is as follows:
Share-based Other temporary Tax losses Accelerated Total deferred Total deferred
payments differences carried forward tax depreciation tax asset tax liability
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 November
2015 747 31 456 415 1,649 (4,357)
Charge to income 218 56 21 64 359 750
Charge to equity 272 - - - 272 -
Changes in rate (75) (3) (46) (42) (166) 361
Deferred tax
recognised
on acquisition - - - - - (1,105)
----------- --------------- ---------------- ----------------- -------------- ----------------
At 31 October
2016 1,162 84 431 437 2,114 (4,351)
----------- --------------- ---------------- ----------------- -------------- ----------------
At 1 November
2016 1,162 84 431 437 2,114 (4,351)
Charge to income (516) (51) (152) 76 (643) 1,038
Charge to equity (451) - - - (451) -
Changes in rate - - (5) - (5) -
Deferred tax
recognised
on acquisition - 8 62 - 70 (3,697)
----------- --------------- ---------------- ----------------- -------------- ----------------
At 31 October
2017 195 41 336 513 1,085 (7,010)
=========== =============== ================ ================= ============== ================
The deferred tax liability relates to deferred tax on intangible assets acquired on acquisition of subsidiaries.
14 FINANCIAL ASSETS AND LIABILITIES
Categories of financial assets and liabilities
The disclosures detailed below are as required by IFRS 7 'Financial Instruments: Disclosures'. The carrying amounts presented on the consolidated balance sheet relate to the following categories of assets and liabilities:
Financial assets 2017 2016
Note GBP000 GBP000
Financial assets measured at amortised
cost:
Current:
Trade and other receivables 15 19,841 18,929
Cash and cash equivalents 16 3,260 3,787
------ ------
23,101 22,716
====== ======
Loans and receivables:
Non-current:
Amounts recoverable on contracts 15 8,738 6,094
------ ------
8,738 6,094
====== ======
Current:
Amounts recoverable on contracts 15 14,305 12,677
------ ------
14,305 12,677
====== ======
Financial liabilities 2017 2016
Note GBP000 GBP000
Financial liabilities measured at
amortised cost:
Non-current:
Bonds in issue 20 11,394 -
Bank borrowings 21 21,519 26,410
32,913 26,410
====== ======
Current:
Bank borrowings 21 2,410 2,425
Trade and other payables 17 11,019 7,643
Other liabilities 18 2,681 1,387
16,110 11,455
====== ======
Financial liabilities measured at
fair value through profit or loss:
Non-current:
Other liabilities* - 1,600
------ ------
- 1,600
====== ======
Current:
Other liabilities* 1,600 478
------ ------
1,600 478
====== ======
*Hierarchy 3 being inputs for the asset or liability which are not based on observable market data. The current year liability relates to deferred consideration on the acquisition of Open Objects Limited. The prior year liability relates to a deferred consideration on the acquisition of Open Objects Limited and Cloud Amber Limited.
The Group's financial liabilities per the fair value hierarchy classifications under IFRS 13 'Financial Instruments: Disclosures' are described below:
Fair Total
value gains
at 31 recognised
Category October in profit
of financial 2017 Level Description of Inputs used for or loss
liability GBP000 in hierarchy valuation technique financial model GBP000
---------------------- --------- -------------- ------------------------- ------------------------ ------------
Management estimate
Based on future on probability
revenue and probability and timescale
that vendor will of vendors meeting
Contingent meet obligations revenue targets
consideration under sale and specified in sale
due on acquisitions 1,600 3 purchase agreement and purchase agreement 228
There have been no changes to valuation techniques or any amounts recognised through 'Other Comprehensive Income'. The adjustment of GBP228,000 is included in 'Acquisition credits' in the Consolidated Statement of Comprehensive Income.
15 TRADE AND OTHER RECEIVABLES
2017 2016
GBP000 GBP000
Trade receivables, gross 19,337 18,784
Allowance for credit losses (497) (437)
------ ------
Trade receivables, net 18,840 18,347
Amounts recoverable on contracts 14,305 12,677
Other receivables 1,001 582
------ ------
Financial assets 34,146 31,606
------ ------
Prepayments 2,596 2,147
------ ------
Non-financial assets 2,596 2,147
------ ------
Trade and other receivables due within one
year 36,742 33,753
------ ------
2017 2016
GBP000 GBP000
Amounts recoverable on contracts 8,738 6,094
------ ------
Trade and other receivables due after one
year 8,738 6,094
------ ------
The carrying amount of trade and other receivables approximates to their fair value, which has been calculated based on expectations of debt recovery from historic performances feeding into impairment provision calculations.
Trade receivables are reviewed regularly for impairment and judgement made as to any likely impairment based on historic trends and the latest communication with customers.
Amounts recoverable on contracts represent work completed and delivered to the customer but due to the contractual payment terms have not yet been invoiced. GBP15.1m of the balance is in relation to deferred payment deals on local authority contracts, which typically have three to five year payment terms. Amounts recoverable due after one year have been discounted to amortised cost.
All of the closing Group trade receivables are in UK sterling with the exception of:
2017 2016
Euros EUR4,768,000 EUR5,694,000
Australian Dollars AUD35,000 AUD10,000
Emirati Dirham - AED34,000
US Dollars $3,091,000 $2,726,000
Canadian Dollars - $19,000
Swiss Franc SWF12,000 -
Norwegian Krone NOK386,000 -
New Zealand Dollars NZD16,000 -
Polish Zloty PLZ1,000 -
Credit quality of financial assets
The maximum exposure for the Group to credit risk for trade receivables at the reporting date by type of customer was:
2017 2016
GBP000 GBP000
Local authorities and other public bodies 9,800 7,814
Private companies 9,537 10,970
------ ------
19,337 18,784
====== ======
The ageing of trade receivables at the reporting date for the Group was:
Gross Impairment Gross Impairment
2017 2017 2016 2016
GBP000 GBP000 GBP000 GBP000
Not past due 11,509 - 11,375 -
Past due 0 to 30 days 2,425 - 2,485 -
Past due 31 to 60 days 1,155 - 424 -
More than 61 days 4,248 497 4,500 437
------ ---------- ------ ----------
19,337 497 18,784 437
====== ========== ====== ==========
Movements in the provision for impairment of receivables for the Group were as follows:
2017 2016
GBP000 GBP000
At 1 November 437 421
Charge for the year 693 1,004
Relating to acquisitions - 104
Utilised (633) (1,092)
At 31 October 497 437
====== =======
The provision allowance in respect of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible. At that point, the amounts are considered irrecoverable and are written off against the trade receivable directly. Where trade receivables are past due, an assessment is made of individual customers and the outstanding balance.
16 cash and cash equivalents
2017 2016
GBP000 GBP000
Cash at bank and in hand 3,260 3,787
------ ------
Cash and cash equivalents per cash flow statements 3,260 3,787
====== ======
The credit quality of the holders of the cash at bank is A and AA rated.
17 TRADE AND OTHER PAYABLES
2017 2016
GBP000 GBP000
Trade payables 6,102 3,922
Accruals 4,917 3,721
------ ------
11,019 7,643
====== ======
The carrying values of trade and other payables are considered to be reasonable approximations of fair value. Accruals represent liabilities which have been recognised at the balance sheet date. The majority of these will be paid during the next six months.
18 OTHER LIABILITIES
2017 2016
GBP000 GBP000
Current:
Social security and other taxes 4,913 2,453
Other payables - deferred consideration 1,600 478
Other payables 2,681 1,387
Deferred income 19,843 15,896
------ ------
29,037 20,214
====== ======
GBP000 GBP000
Non-current:
Other payables - deferred consideration - 1,600
====== ======
Deferred income represents software revenue, where billing milestones have been reached but the appropriate proportion of work has not been completed, and maintenance, managed service and subscription revenues that are spread over the period, typically one year, for which the service is supplied.
19 PROVISIONS
2017 2016
GBP000 GBP000
At 1 November 39 29
Provision made during the year 161 10
Provision utilised during the year (39) -
At 31 October 161 39
====== ======
The opening and closing provisions relate to estimated dilapidation costs expected to arise on exit of leased properties. The full provision of GBP161,000 is expected to be payable during the year ended 31 October 2018.
20 bonds IN ISSUE
Bonds in issue are measured at amortised cost.
2017 2016
GBP000 GBP000
130,000 bonds at EUR100 each 11,394 -
11,394 -
====== ======
The bonds were acquired following the acquisition of 6PM Holdings plc. The bonds were issued in 2015 at a nominal value of EUR100 each bearing interest at 5.1% per annum. They are redeemable at par value in 2025. Interest on the bonds is paid annual in arrears in July each year.
The bonds are listed on the Official Companies List of the Malta Stock Exchange
21 borrowings
All borrowings are held at amortised cost and after set-off for unamortised loan facility fees:
2017 2016
GBP000 GBP000
Current:
Bank borrowings 2,410 2,425
Non-current:
Bank borrowings 21,519 26,410
Total borrowings 23,929 28,835
====== ======
The Group has two loan facilities in place through a two-bank facility with Royal Bank of Scotland and Silicon Valley Bank. The facilities consist of a term loan of GBP9.5m and a revolving credit facility of GBP23m. The facility is available until February 2019.
At the balance sheet date, the term loan had an outstanding balance of GBP9.5m (2016: GBP12m) and during the period the loan was held, the average interest rate was 2.81% (2016: 3.06%).
At the balance sheet date, the revolving credit facility had an outstanding balance of GBP14.5m (2016: GBP17m) and during the period the loan was held, the average interest rate was 2.58% (2016: 2.75%).
There are unamortised loan fees of GBP90,000 (2016: GBP190,000) at the balance sheet date.
An accounting adjustment of GBP19,000 has been processed during the period to take into account the effective rate of interest on the bank facilities.
As security for the above loans, Royal Bank of Scotland and Silicon Valley Bank hold a fixed and floating charge over the assets of Idox plc and certain subsidiaries, a guarantee supported by Idox plc and certain subsidiaries and a share pledge in respect of the entire issued share capital of each subsidiary company.
The acquisition of 6PM Holdings plc led to a breach in our Guarantor coverage covenant at the year end as the operations of a number of 6PM individual legal entities amount to more than 5% of group turnover, EBITDA and gross assets. As a result, we have an obligation to add the relevant legal entities as Guarantors to the facility. This process is in progress and the banks have provided a covenant waiver, which was in place at 31 October 2017, wwerjmkhnkmrhile the legal formalities are completed.
The Board highlighted to the lenders that due to a limitation of scope in relation to the 6PM sub-group the audit would result in a qualified audit opinion. It was explained to the lenders that due to poor record keeping in the early months of the period within 6PM there is a limitation of scope on 6PM revenue and deferred revenue and the books and records of the three immaterial subsidiaries, particularly relating to the period up to July 2017 when 6PM was integrated into Idox finance and the record keeping has been improved. Following discussions with the Board the bank was satisfied that, whilst this is technically a breach, they have given an advance waiver to cover the period of signing the statutory accounts.
During the period, the Group repaid two term loans from Oseo, France. At 31 October 2016, the total outstanding amount was GBP25,000 and the average interest rate paid during that period the facility was held was 8.10%.
The Directors estimate that the fair value of the Group's borrowing is not significantly different to the carrying value.
22 RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group's principal financial instruments comprise cash and cash equivalents, short term deposits, bonds and bank borrowings. The main purpose of these financial instruments is to finance the Group's operations. The Group has other financial instruments, which mainly comprise trade receivables and trade payables that arise directly from its operations.
Risk management is carried out by the finance department under policies approved by the Board. The Group's finance department identifies, evaluates and manages financial risks. The Board provides guidance on overall risk management including foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity. The Board have evaluated the risks and are satisfied that the risk management objectives are met.
The impact of the risks required to be discussed under IFRS 7 are detailed below:
Market risk
(i) Foreign exchange risk
Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the functional currency of the operations. The Group has minimal exposure to foreign exchange risk as a result of natural hedges arising between sales and cost transactions.
(ii) Cash flow and fair value interest rate risk
The Group is exposed to interest rate risk in respect of cash balances held with banks and other highly rated counterparties.
The Group's main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During 2017 and 2016, all the Group's borrowings at variable rates were denominated in UK Sterling. The average interest rate during the year ended 31 October 2017 was 2.81% for the term loan and 2.58% for the revolving credit facility. Interest payable in the year was GBP709,000. If the average interest rate during the year had been 1% different, this would have had an impact of GBP266,000 on the interest payable during the period.
Credit risk
The Group's maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting date, as summarised below:
2017 2016
Classes of financial assets - carrying amounts GBP000 GBP000
Cash and cash equivalents 3,260 3,787
Trade receivables 18,840 18,347
Amounts recoverable on contracts 23,043 18,771
Other receivables 1,001 582
------ ------
Financial assets at fair value 46,144 41,487
------ ------
Credit risk is managed on a Group basis. Credit risks arise from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions.
The Group's credit risk is primarily attributable to its trade receivables. It is the policy of the Group to present the amounts in the balance sheet net of allowances for doubtful receivables, estimated by the Group's management based on prior experience and the current economic environment. The Group reviews the reliability of its customers on a regular basis and these reviews take into account the nature of the Group's trading history with the customer.
The credit risk on liquid funds is limited because the majority of funds are held with two banks with high credit-ratings assigned by international credit-rating agencies. Management does not expect any losses from non-performance of these counterparties.
None of the Group's financial assets are secured by collateral or other credit enhancements.
Liquidity risk
The Group closely monitors its access to bank and other credit facilities in comparison to its outstanding commitments on a regular basis, to ensure that it has sufficient funds to meet obligations of the Group as they fall due.
The Board receives regular debt management forecasts, which estimate the cash inflows and outflows over the next twelve months, so that management can ensure that sufficient financing is in place as it is required. Surplus cash
within the Group is put on deposit in accordance with limits and counterparties agreed by the Board, the objective being to maximise return on funds whilst ensuring that the short-term cash flow requirements of the Group are met.
Detailed analysis of the debt facilities taken out and available to the Group are disclosed in note 21.
As at 31 October 2017, the Group's financial liabilities have contractual maturities (including interest payments where applicable) as summarised below:
Current Non-current
Within 1 1 - 3 1 - 5 Later than
month months 3 - 12 months years 5 years
GBP000 GBP000 GBP000 GBP000 GBP000
Bonds in issue - - 437 2,341 13,222
Bank borrowings 32 1,389 1,622 21,773 -
Trade and other payables 7,086 3,464 64 181 224
This compares to the maturity of the Group's financial liabilities in the previous reporting period as follows:
Current Non-current
Within 1 1 - 3 1 - 5 Later than
month months 3 - 12 months years 5 years
GBP000 GBP000 GBP000 GBP000 GBP000
Bank borrowings 44 1,423 1,701 27,190 -
Trade and other payables 5,718 1,664 261 - -
The above amounts reflect the contractual undiscounted cash flows, which may differ from the carrying values of the liabilities at the reporting date.
Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts.
Capital for the reporting periods under review
is summarised as follows: 2017 2016
GBP000 GBP000
Total equity 91,148 65,232
Less unrestricted cash and cash equivalents
(note 16) (3,260) (3,787)
------- -------
87,888 61,445
------- -------
Total equity 91,148 65,232
Bonds in issue (note 20) 11,394 -
Borrowings (note 21) 23,929 28,835
------- -------
126,471 94,067
------- -------
Capital-to-overall financing ratio 0.69 0.65
======= =======
23 SHARE CAPITAL
2017 2016
GBP000 GBP000
Authorised:
650,000,000 ordinary shares of 1p each
(2016: 650,000,000) 6,500 6,500
Allotted, called up and fully paid:
As at 1 November 3,640 3,587
Issued and allotted during the year 505 53
414,464,265 ordinary shares of 1p each
(2016: 364,012,063) 4,145 3,640
====== ======
Movement in issued share capital in the year
During the year to 31 October 2017, six employees exercised share options across seventeen separate exercises. To satisfy the exercise of sixteen of these transactions, the Company issued and allotted 6,663,971 new ordinary shares of 1p each. The one remaining exercise was settled with treasury shares totalling 1,500,000 ordinary shares of 1p each.
During the year, the Company issued new 1p ordinary shares totalling 34,166,667 as part of a placing in respect of the acquisition of 6PM Holdings plc, then subsequently 7,182,540 as part of the consideration for the 6PM Holdings plc and 2,439,024 as part of the consideration for Halarose Holdings Limited.
The Company has one class of ordinary share which carries no right to fixed income.
At 31 October 2017, there were 2,479,532 (2016: 2,259,329) shares in issue under ESOP. During the year, the average issue share price was 67p (2016: 57p).
At 31 October 2017, there were 1,491,219 (2016: 2,991,219) shares held in treasury.
24 SHARE OPTIONS
The Company has an unapproved share option scheme for all employees (including Directors). All share options are exercisable at a price equal to the average market price of the Company's shares on the date of grant. The vesting period is quarterly from the date of grant. Per the contractual agreements, the options are settled in equity once exercised.
An Employee Share Investment Trust is in place to allow employees a tax efficient way of investing in the Company. The Company purchases matching shares which become the property of the employee after a three year vesting period.
At start At end of Exercise Exercise Exercise
of year Granted Exercised Lapsed year price date from date to
666,000 - 666,000 - - 7.50p May 2007 May 2017
341,000 - 341,000 - - 8.125p Jun 2007 Jun 2017
3,311,727 - 1,701,971 - 1,609,756 10.25p Mar 2010 Mar 2020
5,750,000 - 3,500,000 - 2,250,000 20.00p Mar 2011 Mar 2021
965,000 - 575,000 - 390,000 18.00p Mar 2011 Mar 2021
430,000 - 250,000 - 180,000 35.00p Apr 2012 Apr 2022
300,000 - 300,000 - - 44.00p Sep 2012 Sep 2022
200,000 - - - 200,000 35.75p Jul 2013 Jul 2023
500,000 - 500,000 - - 39.12p Mar 2014 Mar 2024
446,668 - - - 446,668 39.00p Jul 2014 Jun 2024
1,130,000 - 330,000 - 800,000 38.38p Feb 2016 Feb 2025
2,395,000 - - - 2,395,000 50.00p Apr 2017 Apr 2026
700,000 - - - 700,000 50.00p Apr 2016 Apr 2026
17,135,395 - 8,163,971 - 8,971,424
=========== ========= ========== ====== ==========
Details of all share options over 1p Ordinary shares, falling within the measurement and recognition criteria of IFRS 2 "Share-based Payment" and forming part of the unapproved share scheme, including their contractual life and exercise prices are as follows:
The following table sets out the number of share options and associated weighted average exercise price (WAEP) outstanding during the year:
2017 2016
WAEP WAEP
No. Pence No. Pence
Outstanding at the beginning
of the year 17,135,395 25.95 17,728,081 20.23
Granted during the year - - 3,095,000 50.00
Exercised during the year (8,163,971) 19.57 (3,437,686) 17.43
Lapsed during the year - - (250,000) 35.75
Outstanding at the end of
the year 8,971,424 31.75 17,135,395 25.95
----------- ----- ----------- -----
Exercisable at the end of
the year 8,796,424 31.39 15,313,635 23.15
----------- ----- ----------- -----
24 SHARE OPTIONS (CONTINUED)
The share options outstanding at the end of the year have a weighted average remaining contractual life of 6 years. The share options exercised during the year had a weighted average exercise price of 19.57p and a weighted average market price of 63.05p.
No share options were granted during the year ended 31 October 2017.
The Group recognised a total charge of GBP146,000 (2016: GBP419,000) for equity-settled share-based payment transactions related to the unapproved share option scheme during the year. The charge of GBP146,000 (2016: GBP419,000) related to share options granted and GBPnil (2016: GBPnil) related to share options exercised.
Long-Term Incentive Plan (LTIP)
During the year, no further options were granted under the Long-Term Incentive Plan.
The Group recognised a total charge of GBP178,000 (2016: GBP178,000) for equity-settled share-based payment transactions related to the LTIP during the year. The total cost was in relation to share options granted and GBPnil (2016: GBPnil) related to share options exercised.
The number of options in the LTIP scheme is as follows:
2017 2016
No. No.
Outstanding at the beginning of the year 3,600,000 3,600,000
Granted - -
Forfeited - -
Vested - -
Outstanding at the end of the year 3,600,000 3,600,000
--------- ---------
Exercisable at the end of the year - -
========= =========
Richard Kellett-Clarke stepped down as CEO on 9 November 2016. The Nomination & Remuneration Committee of the Idox Board agreed that on the anniversary of that date, namely 9 November 2017, Richard's outstanding LTIP award of 1,900,000 shares will become unconditional and therefore vest on that date.
As part of the conditions of the LTIP under a Lock In deed, Richard is restricted from selling any or all of them, unless required to settle tax liability, for a further two years from that date.
Andrew Riley's LTIP entitlement, consisting of 1,700,000 shares at an exercise price of 1p, was forfeited following the end of the year on account of the failure to meet all specified criteria for vestment.
25 ACQUISITIONS
6PM Holdings plc
On 3 February 2017, the Group acquired the entire share capital of 6PM Holdings plc for a total consideration of GBP18.46m, being GBP13.63m in cash and GBP4.83m in shares. 6PM Group delivers healthcare solutions, principally to the NHS within the UK, using a combination of proprietary software, infrastructure, and professional services that enables healthcare organisations to enhance and optimise efficiency. The products consist of primarily Hospital Management Solutions, Clinical Systems and Mobile Health Solutions. The acquisition supports the Group's strategy of expanding its health and social care presence.
Goodwill arising on the acquisition of 6PM has been capitalised and consists largely of the workforce value, synergies and economies of scale expected from combining the operations of 6PM with Idox. None of the goodwill recognised is expected to be deductible for income tax purposes. The purchase of 6PM has been accounted for using the acquisition method of accounting.
As the 6PM Group audit for the period ending 31 December 2016 has now concluded, the book value of the assets and liabilities of the 6PM Group has been updated from those previously reported in the Idox Group Interim Results.
Provisional
fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
Intangible assets - goodwill - - -
Intangible assets - other 2,215 16,054 18,269
Property, plant and equipment 1,420 (1,115) 305
Investment property 721 (337) 384
Investment 20 - 20
Stock 341 (69) 272
Trade receivables 1,330 (92) 1,238
Other receivables 1,249 (1,115) 134
Deferred tax asset 71 - 71
Cash at bank (1,907) - (1,907)
------------- ------------- -------------
TOTAL ASSETS 5,460 13,326 18,786
Bank loans (538) - (538)
Bond (10,980) - (10,980)
Trade payables (821) - (821)
Other liabilities (1,996) (543) (2,539)
Deferred income (4,111) 14 (4,097)
Corporation tax (39) - (39)
Social security and other taxes (989) (7) (996)
Deferred tax liability - (3,004) (3,004)
TOTAL LIABILITIES (19,474) (3,540) (23,014)
------------- -------------
NET LIABILITIES (4,228)
Purchased goodwill capitalised 22,693
-------------
Total consideration 18,465
-------------
Satisfied by:
Cash to vendor 13,635
Issue of share capital 4,830
Total consideration 18,465
-------
Due to the timing of the acquisition, the fair values stated above are provisional based on management's best estimate. The fair value adjustment for the intangible assets includes GBP16.7m in relation to customer relationships, trade names and software. A related deferred tax liability has also been recorded as a fair value adjustment. Adjustments were also processed to align company policies with Idox Group policies. These included GBP633,000 in
25 ACQUISITIONS (CONTINUED)
respect of intangible assets, GBP1,115,000 in relation to property, plant and equipment, GBP337,000 in relation to the investment property, GBP69,000 in relation to stock, GBP661,000 in relation to trade & other receivables, GBP546,000 in relation to accrued income and GBP550,000 in relation to accruals and deferred income.
The fair value of trade receivables is equal to the gross contractual amounts receivable. An initial review of trade receivables has not indicated any recoverability issues.
The revenue included in the consolidated statement of comprehensive income since 3 February 2017, contributed by 6PM was GBP7,640,000. 6PM also made a loss after tax of GBP1,441,000 for the same period. If the 6PM Group had been included from 1 November 2016, it would have contributed GBP9,103,000 to Group revenue and a loss after tax of GBP2,517,000.
Acquisition costs of GBP152,000 have been written off in the consolidated statement of comprehensive income.
Halarose Holdings Limited
On 16 August 2017, the Group acquired the entire share capital of Halarose Holdings Ltd ("Halarose") for a total initial consideration of GBP5.0m, being GBP3.5m in cash and GBP1.5m in shares. As Halarose was acquired on a debt-free and cash-free basis, the total consideration on acquisition rose to GBP8.1m due to the net assets acquired on completion. Halarose, originally established in 1978 and based in Oxfordshire, develops, markets, sells and supports a range of electoral back office software and services to UK local authorities. It enables its customers to be more efficient both in the production and management of the electoral register and in the running of elections and referenda. The acquisition is in line with Idox's strategic focus on, and investment in, the public sector and will be fully integrated into Idox's existing elections business unit, Idox Elections.
Goodwill arising on the acquisition of Halarose has been capitalised and consists largely of the workforce value, synergies and economies of scale expected from combining the operations of Halarose with Idox. None of the goodwill recognised is expected to be deductible for income tax purposes. The purchase of Halarose has been accounted for using the acquisition method of accounting.
Provisional
fair value
Book value adjustments Fair value
GBP000 GBP000 GBP000
Intangible assets 2,405 1,447 3,852
Property, plant and equipment 17 - 17
Trade receivables 537 - 537
Accrued Income 209 - 209
Other receivables 125 - 125
Cash at bank 3,634 - 3,634
------------- ------------- -------------
TOTAL ASSETS 6,927 1,447 8,374
Trade payables (21) - (21)
Other liabilities (224) - (224)
Deferred Income (930) - (930)
Social security and other taxes (185) - (185)
Deferred tax liability - (693) (693)
TOTAL LIABILITIES (1,360) (693) (2,053)
------------- -------------
NET ASSETS 6,321
Purchased goodwill capitalised 1,824
-------------
Total consideration 8,145
-------------
Satisfied by:
Cash to vendor 6,645
Issue of share capital 1,500
------
Total consideration 8,145
------
25 ACQUISITIONS (CONTINUED)
Due to the timing of the acquisition, the fair values stated above are provisional based on management's best estimate. The fair value adjustment for the intangible assets includes GBP3,852,000 in relation to customer relationships, software and brand & reputation. A related deferred tax liability has also been recorded as a fair value adjustment.
The fair value of trade receivables is equal to the gross contractual amounts receivable. An initial review of trade receivables has not indicated any recoverability issues.
The revenue included in the consolidated statement of comprehensive income since 16 August 2017, contributed by Halarose was GBP814,000. Halarose also made a profit after tax of GBP242,000 for the same period. If Halarose had been included from 1 November 2016, it would have contributed GBP3,474,000 to Group revenue and a profit after tax of GBP1,310,000.
There is no earn out period for Halarose.
Acquisition costs of GBP84,000 have been written off in the consolidated statement of comprehensive income.
Had the above acquisitions occurred at the beginning of the financial year, the revenue of the Group would be GBP93.0m and the profit after tax of the Group would be GBP2.5m.
Cloud Amber Limited
During the period the contingent consideration was adjusted from GBP478,000 to GBP250,000. The reduction was a result of missing the revenue target as set out in the Share Purchase Agreement. At the reporting date, the adjusted contingent consideration had been paid. The adjustment of GBP228,000 is included in 'Acquisition costs' in the Consolidated Statement of Comprehensive Income.
Rippleffect Studio Limited
During the period there have been further fair value adjustments in respect of the acquisition of Rippleffect Studio Limited on 22nd August 2016. The adjustments totalled GBP449,000. A number of adjustments were processed to align company policies with Idox Group policies. These included an adjustment of GBP18,000 in respect of accrued income and GBP467,000 in respect of deferred income.
In October 2017, due to the aforementioned fair value adjustments required to align revenue recognition with Group policy, there was a post completion adjustment which resulted in a settlement of GBP550,000 in favour of Idox plc. This inflow reduced the value of the investment in Rippleffect Studio Limited by GBP550,000 and, consequently, the value of the intangible assets allocated on acquisition by the same amount.
Acquisition cash flows
Acquisition cash flows in the year are as follows:
Net cash
outflow
Subsidiaries acquired during the year: GBP000
6PM Holdings plc 15,542
Halarose Limited 2,523
Rippleffect Studios Limited (550)
17,515
========
No additional fair value adjustments have been made in the year in respect of prior year acquisitions.
26 OPERATING LEASE COMMITMENTS
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
2017 2016
Amounts due: GBP000 GBP000
Within one year 2,640 2,160
Between one and five years 6,138 3,979
After five years 3,643 1,752
------ ------
12,421 7,891
====== ======
Operating lease payments represent rentals payable by the Group for office premises, motor vehicle leasing charges and equipment.
27 CAPITAL COMMITMENTS
The Group had no capital commitments at 31 October 2017 or 31 October 2016.
28 CONTINGENT LIABILITIES
There were no material Group contingent liabilities at 31 October 2017 or 31 October 2016.
29 RELATED PARTY TRANSACTIONS
Compensation paid to key management (which comprises the executive management team and the Board) of the Group:
2017 2016
GBP000 GBP000
Salaries and other short-term employee benefits
including NIC 2,705 1,669
Post-employment benefits 55 30
Share-based payments 178 178
------ ------
2,938 1,877
------ ------
During the year ended 31 October 2017, three directors and one member of the executive management team exercised share options resulting in a taxable gain of GBP3,318,000. No directors or executive management team members exercised share options in the year ended 31 October 2016.
Barbara Moorhouse, non-executive director of Idox plc, also acts as a non-executive director of Balfour Beatty plc. During the year ended 31 October 2017, Idox Software Limited generated revenue of GBP19,000 to subsidiaries of Balfour Beatty plc and at the year end there was an outstanding trade receivables balance of GBP25,000. McLaren Software Limited generated revenue of GBP18,000 to a subsidiary of Balfour Beatty plc and at the year end there was an outstanding trade receivables balance of GBP21,000.
30 POST BALANCE SHEET EVENTS
On 6 February 2018, the Group acquired the entire share capital of Atlas Adviesgroep Twente B.V. ("Atlas") for a total consideration of EUR270,000 (GBP237,000). Atlas is a small grants consultancy business based in the Netherlands, working predominantly with local and regional government bodies, and will complement the Group's existing grants business in the Netherlands.
Independent auditor's report to the members of Idox plc
Opinion
Our opinion on the parent company financial statements is unmodified
We have audited the parent company financial statements of Idox plc for the year ended 31 October 2017, which comprise the parent company Balance Sheet, the parent company Statement of Changes in Equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 'Reduced Disclosure Framework' (United Kingdom Generally Accepted Accounting Practice).
In our opinion, the parent company financial statements:
-- give a true and fair view of the state of the parent company's affairs as at 31 October 2017;
-- have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those standards are further described in the 'Auditor's responsibilities for the audit of the parent company financial statements' section of our report. We are independent of the parent company in accordance with the ethical requirements that are relevant to our audit of the parent company financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Who we are reporting to
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
-- the directors' use of the going concern basis of accounting in the preparation of the parent company financial statements is not appropriate; or
-- the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the parent company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
Overview of our audit approach
-- Overall materiality: GBP1,638,000, which represents 1.5% of the company's total assets -- Key audit matters were identified as carrying value of investments
Our audit was scoped by obtaining an understanding of the company and its environment, including its internal controls, and assessing the risks of material misstatement
Key audit matters
-- The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement impact and the extent of management judgement.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the parent company financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the parent company financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter How the matter was addressed
in the audit
---------------------------------- ------------------------------------------------------------------
Carrying value of investments
The carrying value of Our audit work included, but
investments is GBP114 was not restricted to:
million (2016: GBP93 million) * Checking the details of the acquisitions in year to
with the significant uplift sale and purchase agreements;
being driven by the acquisitions
of 6PM Holdings PLC and
Halarose Limited during * Comparing the carrying value of investments to the
the year. During the year net assets of each subsidiary to identify any
end audit process, it indicators of impairment; and
was identified that GBP1.5
million of historic adjustments
were made to offset share * Assessing the value of the investment against the net
option reserve impact present value of future cash flows to obtain evidence
of share option exercises about any investments with indicative impairment
against fixed asset investment triggers.
cost rather than a transfer
to the retained earnings
reserve. An adjustment
has been processed in The parent company's accounting
current year to correct policy on the carrying value
this treatment, and the of investments is shown in
net impact is to increase note 2 to the financial statements
investments and retained and related disclosures are
earnings by GBP1.5 million. included in note 6.
Investments are the largest Key observations
asset on the balance sheet, We have completed our testing and there is a risk that on the carrying value of investments, the carrying amount of and noted no indicators of individual investments impairment or impairment triggers. is in excess of the net We have obtained sufficient assets of the subsidiary audit evidence to conclude or the net present value that the carrying value of of future cash flows. investments is materially correct. We therefore identified the carrying value of investments as a significant risk, which was one of the most significant assessed risks of material misstatement. ---------------------------------- ------------------------------------------------------------------
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our work and in evaluating the results of that work.
We determined materiality for the audit of the parent company financial statements as a whole to be GBP1,638,000, which is 1.5% of the company's total assets. This benchmark is considered the most appropriate because the company is a holding company with no trading revenue. Given the primary purpose of this company is to hold the investments in the group's subsidiaries, we determined total assets to be the most appropriate benchmark.
Materiality for the current year is higher than the level that we determined for the year ended 31 October 2016 to reflect the significant acquisitions of 6pm Holdings plc and Halarose Limited during the year.
We use a different level of materiality, performance materiality, to drive the extent of our testing. This was determined to be GBP517,000.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements.
We also determine a lower level of specific materiality for directors' remuneration, related party transactions and auditor's remuneration.
We determined the threshold at which we will communicate misstatements to the audit committee to be GBP81,900. In addition, we communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the company's business, its environment and risk profile and in particular included:
-- obtaining an understanding of the company and its environment, including its internal controls, and assessing the risks of material misstatement;
-- focusing our work on the carrying value of investments as the largest balance and most significant judgement in the financial statements; and
-- there were no material changes in the overview of the scope of the current year audit from the scope of that of the prior year.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the parent company financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the parent company financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement of the parent company financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
-- the information given in the strategic report and the directors' report for the financial year for which the parent company financial statements are prepared is consistent with the parent company financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Matter on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
-- adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
-- the parent company financial statements are not in agreement with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or -- we have not received all the information and explanations we require for our audit.
Responsibilities of directors for the financial statements
As explained more fully in the statement of directors' responsibilities set out on page 26, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of parent company financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the parent company financial statements, the directors are responsible for assessing the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the parent company financial statements
Our objectives are to obtain reasonable assurance about whether the parent company financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent company financial statements.
A further description of our responsibilities for the audit of the parent company financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Other matter
We have reported separately on the group financial statements of Idox plc for the year ended 31 October 2017. That report includes details of the group key audit matters; how we applied the concept of materiality in planning and performing our audit; and an overview of the scope of our audit. The opinion in that report is qualified.
[**Signature**]
Simon Bevan
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
28 February 2018
Company Balance Sheet at 31 October 2017
Note 2017 2016
GBP000 GBP000
Non-current assets
Investments 6 121,096 93,236
Debtors: falling due after
one year 7 56 145
-------- --------
121,152 93,381
-------- --------
Current assets
Debtors: falling due within
one year 7 128 100
Creditors: amounts falling
due within one year 8 (14,086) (5,333)
-------- --------
Net current liabilities (13,958) (5,233)
-------- --------
Total assets less current
liabilities 107,194 88,148
Creditors: amounts falling
due after more than one
year 9 (21,519) (26,500)
Net assets 85,675 61,648
======== ========
Capital and reserves
Called up share capital 10 4,145 3,640
Capital redemption reserve 1,112 1,112
Share premium account 34,109 13,480
Other reserve 6,234 -
Treasury reserve (621) (1,244)
Share option reserve 11 1,726 2,218
Retained earnings 38,970 42,442
-------- --------
Shareholders' funds 85,675 61,648
======== ========
The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The parent company's loss for the year was GBP1,209,000 (2016: profit GBP37,159,000).
The financial statements were approved by the Board of Directors and authorised for issue on 28 February 2018 and are signed on its behalf by:
Richard Kellett-Clarke
Chief Executive Officer
28 February 2018
The accompanying accounting policies and notes form an integral part of these accounts.
Company name: Idox plc Company number: 03984070
Company Statement of Changes in Equity
Share Capital Capital Share premium Share
redemption account Other reserve Treasury option Retained
reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 31 October
2015 3,587 1,112 11,741 - (1,271) 1,900 8,451 25,520
Issue of share
capital 53 - 1,739 - - - - 1,792
Share options
reserve
movement - - - - - 318 - 318
Exercise of
options
from treasury
reserve - - - - 27 - (19) 8
Dividends paid - - - - - - (3,149) (3,149)
------------- ----------- ------------- --------------- ---------- -------- --------- -------
Transactions
with
owners 53 - 1,739 - 27 318 (3,168) (1,031)
------------- ----------- ------------- --------------- ---------- -------- --------- -------
Profit for the
year - - - - - - 37,159 37,159
------------- ----------- ------------- --------------- ---------- -------- --------- -------
Total
comprehensive
income for the
year - - - - - - 37,159 37,159
------------- ----------- ------------- --------------- ---------- -------- --------- -------
At 31 October
2016 3,640 1,112 13,480 - (1,244) 2,218 42,442 61,648
Issue of share
capital 505 - 20,629 6,234 - - - 27,368
Share options
reserve
movement - - - - - (492) - (492)
Exercise of
options
catch-up - - - - - - 2,278 2,278
Exercise of
options
from treasury
reserve - - - - 623 - (324) 299
Dividends paid - - - - - - (4,217) (4,217)
------------- ----------- ------------- --------------- ---------- -------- --------- -------
Transactions
with
owners 505 - 20,629 6,234 623 (492) (2,263) 25,236
------------- ----------- ------------- --------------- ---------- -------- --------- -------
Profit for the
year - - - - - - (1,209) (1,209)
------------- ----------- ------------- --------------- ---------- -------- --------- -------
Total
comprehensive
income for the
year - - - - - - - -
------------- ----------- ------------- --------------- ---------- -------- --------- -------
At 31 October
2017 4,145 1,112 34,109 6,234 (621) 1,726 38,970 85,675
============= =========== ============= =============== ========== ======== ========= =======
Notes to the company financial statements
1 COMPANY INFORMATION
Idox plc is a company which is incorporated and domiciled in the UK. The address of its registered office is 2nd Floor, 1310 Waterside, Arlington Business Park, Theale, Reading, RG7 4SA. The registered number of the Company is 03984070.
2 ACCOUNTING POLICIES
Basis of preparation
These financial statements have been prepared in accordance with applicable accounting standards and in accordance with Financial Reporting Standard 101 - 'The Reduced Disclosure Framework' (FRS 101). The principal accounting policies adopted in preparation of these financial statements are set out below. These policies have all been applied consistently throughout the year unless otherwise stated.
The financial statements have been prepared on a historical cost basis as modified by the revaluation of certain financial assets and liabilities, being derivatives at fair value through profit or loss.
The financial statements are presented in Sterling (GBP).
Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS101. Therefore, these financial statements do not include:
-- A statement of cash flows and related notes -- Disclosure of key management personnel compensation -- Certain disclosure in relation to share based payments -- Disclosures in relation to impairment of assets -- The effect of future accounting standards not adopted
Share based payment
All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 November 2006 are recognised in the financial statements.
All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets).
Employees to whom share options have been granted provide their services in subsidiary companies of Idox plc. All equity settled share-based payments are recognised as an expense in the profit and loss account of the relevant subsidiary company. In Idox plc, the cost is allocated to investments in subsidiaries.
If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options that have vested are not exercised.
Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to reserves.
Investments
Fixed asset investments in subsidiary undertakings are stated at cost less provision for impairment. If there is a subsequent change in the total consideration paid, such as a refund received from the seller, then the Company will recognise an adjustment to the acquisition price which will reduce the cost, and consequently the next book value, of that investment.
Financial instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet.
Share capital is classed as an equity instrument where the contractual terms do not have any terms meeting the definition of a financial liability. Dividends and distributions relating to equity instruments are debited direct to equity.
Interest and expenditure arising on financial instruments is recognised on the accruals basis and credited or charged to the profit and loss account in the financial period to which it relates
Reserves
Equity comprises the following:
-- "Capital redemption reserve" for the Company was created during 2003 when the entire deferred ordinary share capital was bought in exchange for one ordinary 1p share.
-- "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.
-- "Other reserves" arose as a result of share premium arising on consideration shares issued on the acquisition of 6PM Holdings plc and Halarose Holdings Limited.
-- Treasury reserve" represents shares repurchased by the Company to be held for redistribution as share options. The cost of treasury shares is debited to the Treasury reserve.
-- "Share options reserve" represents shares to be issued on potential exercise of those share options that have been accounted for under FRS 101.
-- "Retained earnings" represents retained profits.
3 DIRECTORS AND EMPLOYEES
There are no wages and salaries paid by the parent company.
The Company has no employees and Directors are remunerated by other Group companies. Details of the remuneration for each Director are included in the Report on Remuneration which can be found on pages 23 to 24 but which do not form part of the audited accounts.
4 dividends
2017 2016
GBP000 GBP000
Final dividend paid in respect of the year
ended 31 October 2016 and 31 October 2015 2,627 1,885
------ -------
Pence per ordinary share 0.650p 0.525p
------ -------
Interim dividend paid in respect of the
year ended 31 October 2017 and 31 October
2016 1,590 1,263
------ -------
Pence per ordinary share 0.385p 0.350p
------ -------
The Directors have proposed the payment of a final dividend of 0.655p per share, which would amount to GBP2,705,000 (2016: 0.650p).
5 PROFIT FOR THE FINANCIAL YEAR
The parent company's loss for the year was GBP1,209,000 (2016: profit GBP37,159,000). During the prior year, the Idox Group performed a review of intercompany balances and elected to waive various balances. This resulted in a credit of GBP32,816,000 to the Company's profit for the year ended 31 October 2016.
6 INVESTMENTS
Investment in
Group undertakings
GBP000
Cost or market value
At 1 November 2016 96,293
Additions 26,948
Reversal of disposals 1,462
Adjustment to acquisition price (550)
-------------------
At 31 October 2017 124,153
-------------------
Impairment
-------------------
At 1 November 2016 and 31 October 2017 3,057
Net book amount
At 31 October 2017 121,096
===================
At 31 October 2016 93,236
===================
On review of the treatment of share option exercises which had previously been treated as disposals of investments, we do not believe this reflects the substance of the transactions. As a result, we have processed a catch up amount of GBP1,462,000 which is not material. We have reviewed the revised investment value and do not consider this value has any indicators of impairment.
The adjustment to the acquisition price of GBP550,000 (2016: GBPnil) was processed in the period in relation to a cash refund relating to the historical acquisition price of Rippleffect Limited.
6 INVESTMENTS (CONTINUED)
At 31 October 2017 the Company held investments in the following companies:
Country Class of Proportion
of registration share held held Nature of business
Idox Trustees Limited* England Ordinary 100% Corporate trustee
of Employee share
ownership trust
Idox Software Limited England Ordinary 100% Software services
Cloud Amber Limited England Ordinary 100% Dormant Company
Open Objects Software Limited England Ordinary 100% Dormant Company
Reading Room Limited England Ordinary 100% Dormant Company
Reading Room London Limited England Ordinary 100% Dormant Company
Reading Room Studio Limited England Ordinary 100% Dormant Company
Reading Room Manchester Dormant Company
Limited England Ordinary 100%
Rippleffect Studio Limited England Ordinary 100% Dormant Company
Idox Belgium NV Belgium Ordinary 100% Information services
Idox Netherlands BV Holland Ordinary 100% Information services
Idox Germany GmbH Germany Ordinary 100% Software services
McLaren Software Limited Scotland Ordinary 100% Software services
McLaren Software Inc USA Ordinary 100% Software services
Idox France SARL France Ordinary 100% Software services
Idox India Private Limited** India Ordinary 100% Software services
Interactive Dialogues Limited England Ordinary 100% Dormant Company
McLaren Software Group Limited Scotland Ordinary 100% Holding Company
McLaren Software GmbH Germany Ordinary 100% Dormant Company
McLaren Consulting BV Holland Ordinary 100% Dormant Company
McLaren Software SARL Switzerland Ordinary 100% Dormant Company
Buildonline Global Limited England Ordinary 100% Dormant Company
Buildonline Ireland Limited Ireland Ordinary 100% Dormant Company
CT Space Limited England Ordinary 100% Dormant Company
CT Space Inc USA Ordinary 100% Dormant Company
Citadon Inc USA Ordinary 100% Dormant Company
6PM Holdings plc Malta Ordinary 100% Software services
Halarose Holdings Limited England Ordinary 100% Software services
*i-documentsystems Trustees Limited was renamed Idox Trustees Limited during the accounting period.
**CT Space India Technologies Pvt Ltd was renamed Idox India Private Limited during the accounting period.
7 DEBTORS
2017 2016
GBP000 GBP000
Falling due within one year:
Other debtors 128 100
====== ======
Falling due after one year:
Other debtors - 90
Amounts owed by Group undertakings 56 55
56 145
====== ======
Included in the above for the Company is GBP56,000 (2016: GBP55,000) owed by Group undertakings which is due after more than one year. The Directors consider this loan to be recoverable.
8 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2017 2016
GBP000 GBP000
Bank loan 2,500 2,500
Amounts owed to Group undertakings 9,246 452
Other creditors 2,206 2,209
Accruals and deferred income 134 172
------ ------
14,086 5,333
====== ======
9 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
2017 2016
GBP000 GBP000
Bank loan 21,519 26,500
====== ======
At the balance sheet date, the Group had two loan facilities in place through a two-bank facility with Royal Bank of Scotland and Silicon Valley Bank. The facilities consist of a term loan of GBP9.5m and a revolving credit facility of GBP23m.
At the balance sheet date, the term loan had an outstanding balance of GBP9.5m (2016: GBP12m) and during the period the loan was held, the average interest rate was 2.81% (2016: 3.06%).
At the balance sheet date, the revolving credit facility had an outstanding balance of GBP14.5m (2016: GBP17m) and during the period the loan was held, the average interest rate was 2.58% (2016: 2.75%).
There are unamortised loan fees of GBP90,000 (2016: GBP190,000) at the balance sheet date.
An accounting adjustment of GBP19,000 has been processed during the period to take into account the effective rate of interest on the bank facilities.
As security for the above loans, Royal Bank of Scotland and Silicon Valley Bank hold a fixed and floating charge over the assets of Idox plc and certain subsidiaries, a guarantee supported by Idox plc and certain subsidiaries and a share pledge in respect of the entire issued share capital of each subsidiary company.
The Directors estimate that the fair value of the Group's borrowing is not significantly different to the carrying value.
10 SHARE CAPITAL
2017 2016
GBP000 GBP000
Authorised:
650,000,000 ordinary shares of 1p each
(2016: 650,000,000) 6,500 6,500
Allotted, called up and fully paid:
As at 1 November 3,640 3,587
Issued and allotted during the year 505 53
414,464,265 ordinary shares of 1p each
(2016: 364,012,063) 4,145 3,640
====== ======
Movement in issued share capital in the year
During the year to 31 October 2017, six employees exercised share options across seventeen separate exercises. To satisfy the exercise of sixteen of these transactions, the Company issued and allotted 6,663,971 new ordinary shares of 1p each. The one remaining exercise was settled with treasury shares totalling 1,500,000 ordinary shares of 1p each.
During the year, the Company issued new 1p ordinary shares totalling 34,166,667 as part of a placing in respect of the acquisition of 6PM Holdings plc, then subsequently 7,182,540 as part of the consideration for the 6PM Holdings plc and 2,439,024 as part of the consideration for Halarose Holdings Limited.
The Company has one class of ordinary share which carries no right to fixed income.
At 31 October 2017, there were 2,479,532 (2016: 2,259,329) shares in issue under ESOP. During the year, the average issue share price was 67p (2016: 57p).
At 31 October 2017, there were 1,491,219 (2016: 2,991,219) shares held in treasury.
11 SHARE OPTIONS
The Company has an unapproved share option scheme for all employees (including Directors). All share options are exercisable at a price equal to the average market price of the Company's shares on the date of grant. The vesting period is quarterly from the date of grant. Per the contractual agreements, the options are settled in equity once exercised.
An Employee Share Investment Trust is in place to allow employees a tax efficient way of investing in the Company. The Company purchases matching shares which become the property of the employee after a three year vesting period.
At start At end Exercise Exercise Exercise of year Granted Exercised Lapsed of year price date from date to 666,000 - 666,000 - - 7.50p May 2007 May 2017 341,000 - 341,000 - - 8.125p Jun 2007 Jun 2017 3,311,727 - 1,701,971 - 1,609,756 10.25p Mar 2010 Mar 2020 5,750,000 - 3,500,000 - 2,250,000 20.00p Mar 2011 Mar 2021 965,000 - 575,000 - 390,000 18.00p Mar 2011 Mar 2021 430,000 - 250,000 - 180,000 35.00p Apr 2012 Apr 2022 300,000 - 300,000 - - 44.00p Sep 2012 Sep 2022 200,000 - - - 200,000 35.75p Jul 2013 Jul 2023 500,000 - 500,000 - - 39.12p Mar 2014 Mar 2024 446,668 - - - 446,668 39.00p Jul 2014 Jun 2024 1,130,000 - 330,000 - 800,000 38.38p Feb 2016 Feb 2025 2,395,000 - - - 2,395,000 50.00p Apr 2017 Apr 2026 700,000 - - - 700,000 50.00p Apr 2016 Apr 2026 17,135,395 - 8,163,971 - 8,971,424 =========== ========= ========== ====== ==========
11 SHARE OPTIONS (CONTINUED)
Details of all share options over 1p Ordinary shares, falling within the measurement and recognition criteria of IFRS 2 "Share-based Payment" and forming part of the unapproved share scheme, including their contractual life and exercise prices are as follows:
The following table sets out the number of share options and associated weighted average exercise price (WAEP) outstanding during the year:
2017 2016
WAEP WAEP
No. Pence No. Pence
Outstanding at the beginning
of the year 17,135,395 25.95 17,728,081 20.23
Granted during the year - - 3,095,000 50.00
Exercised during the year (8,163,971) 19.57 (3,437,686) 17.43
Lapsed during the year - - (250,000) 35.75
Outstanding at the end of
the year 8,971,424 31.75 17,135,395 25.95
----------- ----- ----------- -----
Exercisable at the end of
the year 8,796,424 31.39 15,313,635 23.15
----------- ----- ----------- -----
The share options outstanding at the end of the year have a weighted average remaining contractual life of 6 years. The share options exercised during the year had a weighted average exercise price of 19.57p and a weighted average market price of 63.05p.
No share options were granted during the year ended 31 October 2017.
The Group recognised a total charge of GBP146,000 (2016: GBP419,000) for equity-settled share-based payment transactions related to the unapproved share option scheme during the year. The charge of GBP146,000 (2016: GBP419,000) related to share options granted and GBPnil (2016: GBPnil) related to share options exercised.
As the share option scheme is a Group scheme, there has been no charge recognised in the parent Company accounts.
Long-Term Incentive Plan (LTIP)
During the year, no further options were granted under the Long-Term Incentive Plan.
The Group recognised a total charge of GBP178,000 (2016: GBP178,000) for equity-settled share-based payment transactions related to the LTIP during the year. The total cost was in relation to share options granted and GBPnil (2016: GBPnil) related to share options exercised.
The number of options in the LTIP scheme is as follows:
2017 2016
No. No.
Outstanding at the beginning of the year 3,600,000 3,600,000
Granted - -
Forfeited - -
Vested - -
Outstanding at the end of the year 3,600,000 3,600,000
--------- ---------
Exercisable at the end of the year - -
========= =========
As the LTIP share option scheme is a Group scheme, there has been no charge recognised in the parent Company accounts.
Richard Kellett-Clarke stepped down as CEO on 9 November 2016. The Nomination & Remuneration Committee of the Idox Board agreed that on the anniversary of that date, namely 9 November 2017, Richard's outstanding LTIP award of 1,900,000 shares will become unconditional and therefore vest on that date.
As part of the conditions of the LTIP under a Lock In deed, Richard is restricted from selling any or all of them, unless required to settle tax liability, for a further two years from that date.
Andrew Riley's LTIP entitlement, consisting of 1,700,000 shares at an exercise price of 1p, was forfeited following the end of the year on account of the failure to meet all specified criteria for vestment.
12 Related party disclosures
As permitted by FRS 101, related party transactions with wholly owned members of the Group have not been disclosed. Related party transactions regarding remuneration and dividends paid to key management of the Company have been disclosed in note 29 of the Group financial statements.
13 CAPITAL COMMITMENTS
The Company had no capital commitments at 31 October 2017 or 31 October 2016.
14 CONTINGENT LIABILITIES
There were no material Company contingent liabilities at 31 October 2017 or 31 October 2016.
15 ultimate controlling party
There is no ultimate controlling party.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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