A new way
to transform
business
Netcall plc
Annual Report and Accounts
for the year ended
30 June 2019
Stock code: NET
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WELCOME TO NetcallNetcall is a leading provider of low-code and customer engagement solutions. By enabling customer-facing and IT talent to collaborate, Netcall takes the pain out of big change projects, helping businesses dramatically improve the customer experience, while lowering costs. Over 600 organisations in financial services, insurance, local government and healthcare use the Netcall Liberty platform to make life easier for the people they serve.Netcall aims to help organisations radically improve customer experience through collaborative CX.Strategic reportFinancial and operational highlights 01Chairman’s and Chief Executive’s review 02Business model and Key performance indicators 08Principal risks and uncertainties 09GovernanceDirectors’ report 10Statement of Directors’ responsibilities 13Directors and advisers 14Corporate governance statement 15Independent Auditor’s report to the members of Netcall plc 21Financial Statements and notesConsolidated income statement 26Consolidated statement of comprehensive income 27Consolidated balance sheet 28Consolidated statement of changes in equity 29Consolidated cash flow statement 30Notes to the consolidated financial statements 31Parent Company balance sheet 64Parent Company statement of changes in equity 65Notes to the Parent Company financial statements 66ContentsView more online at: netcall.com27059 21 October 2019 2:44 pm Proof 7Stock code: NETStock code: NETSTRATEGIC REPORTNetcall AR2019.indd 421/10/2019 14:44:38 notes-heading-level-
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The Liberty platform
An all-in-one customer experience platform that lets you make huge,
transformational changes, fast.
Liberty is a tightly integrated suite of low-code, customer engagement and
contact centre solutions that lets you manage and improve your customer
experience, effortlessly.
Liberty Create
Liberty Converse
Liberty Connect
Low-code – the creation of apps
that drives workflows and business
processes
Omnichannel contact centre – customer
engagement including speech bots,
callback switchboard and auto
attendant.
Conversational messaging platform –
extend reach using digital channels
like Facebook, Twitter plus AI & bots
Financial and operational highlights
Recurring revenue
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Adjusted EBITDA
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Financial highlights
• Revenue up 5% to £22.9m (2018: £21.9m)
• Cloud and product bookings(1) increased by 62% year over year
to £10.5m (2018: £6.5m)
• Total annual contract value(2) (‘ACV’) at 30 June 2019 up 10% year
over year to £15.7m (30 June 2018: £14.2m)
• Adjusted EBITDA(3) of £3.41m (2018: £5.42m) after increased
spending on growth investment
• Profit before tax increased to £0.75m (2018: £0.05m)
• Cash generated from operations of £6.84m (2018: £2.66m)
• Group cash at 30 June 2019 was £7.77m, more than offsetting
debt of £6.63m
Operational highlights
• Low-code solution main driver of customer acquisition
and cross-selling with Cloud orders 260% higher at £5.8m
• Strong growth in commercial, healthcare and government sectors
including two NYSE quoted professional service firms and
Network Rail
• Unlocking the value of our customer base, with Low-code cross-sales
to date being three times higher ACV than the current average
Operating Cash Flow (4)
• Strong momentum in transition to cloud, with Cloud bookings
exceeding product bookings for the first annual period
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(1) Cloud services and product bookings are the total of all new orders received classified
as cloud subscription and support, product and support contract revenues.
(2) ACV, as of a given date, is the total of the value of each cloud and support contract
divided by the total number of years of the contract.
(3) Profit before interest, tax, depreciation and amortisation adjusted to exclude the effects
of share-based payments, acquisition, impairment, contingent consideration and non-
recurring transaction costs.
(4) Cash generated from operations before payment of non-recurring transaction costs
netcall.com
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Netcall plc Annual Report and Accounts for the year ended 30 June 2019
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IntroductionWe continued the transition to a high growth digital cloud operation, delivering a strong performance in our key financial metrics of Cloud services bookings and Annual Contract Value (‘ACV’). In particular Low-code cloud bookings performed strongly and as a result we reached an inflection point with Cloud services bookings exceeding product bookings for the first time on an annual basis. The addition of a Low-code offering has raised the profile of Netcall and given us access to new substantial corporate opportunities and added significant opportunity for cross-sales to our existing customers. Overall, Group performance was driven by the momentum in cloud sales and the transition to a recurring revenue model. The growth in bookings and ACV came through a combination of new customer wins and cross-sales of our expanded product suite. Low-code cloud bookings were derived from a broad range of orders, including two new cloud contracts worth a combined £2.9m with a three and four year duration respectively. In the year, our Low-code solutions represented £7.1m of Group revenues, increasing 35% in the year (FY18: £5.2m). The business model is underpinned by our highly profitable and cash generative premise-based business. In the year we continued to see growth in our maintenance and support revenues despite a decline in product sales as customers increasingly adopt recurring models. The profits and cash generation provided us with the ability to accelerate investment to benefit from the growing demand we are experiencing and provide a more compelling and differentiated proposition.Current trading and outlookWe have entered the new financial year with a strong sales pipeline, growing recurring revenue base and have secured significant new customer wins. The Board continues to monitor the potential impact of the political environment and business confidence on the timing of larger enterprise and product sale contracts. With a healthy financial position and continuing investment in our business and people, the Board remains confident in the prospects of the Group. Business ReviewThe ongoing shifts in consumer demand and expectations when interacting with organisations significantly changes the requirements on how organisations are expected to engage with their customers. At the same time technological advances enable an unprecedented digitalisation of business operations. Together, these megatrends pose both great opportunities and risks for businesses. Many enterprises are struggling to address these changes. They are challenged by inflexible legacy systems which are disruptive and expensive to change; undocumented and shadow processes; and a lack of resources. This leads to IT teams maintaining key existing systems and not addressing the chronic problems of poor customer experience or being able to capitalise on the improvements and savings from digitalisation. Our purpose is to help organisations transform their customer engagement activities and enable digital transformation faster and more efficiently, empowering them to improve customer experiences and operational efficiencies. We achieve this by delivering powerful and intuitive software that addresses the core elements of best-in-class customer experience and digital process automation. Our industry leading Liberty platform is a suite of Low-code, customer engagement and contact centre solutions, which empowers business users and IT developers to collaboratively develop products and systems that create a leaner, more customer-centric organisation. “Netcall continued the transition to a cloud business delivering a strong performance in our key financial metrics of Cloud services and product bookings and Annual Contract Value. This was led by significant growth in Low-code order bookings and revenues, which contributed £7.1m of Group revenues, increasing 35% in the year. We have now reached an inflection point, with Cloud services bookings exceeding product bookings for the first full annual period. The strategy remains to invest in our Cloud offering underpinned by a highly profitable, cash generative core business.The Group enters the new year in a healthy financial position, combining growing recurring revenues with a compelling proposition in a significant growth market.”Henrik BangCEO of NetcallView more online at: netcall.com27059 21 October 2019 2:44 pm Proof 7Netcall plc Annual Report and Accounts for the year ended 30 June 2019Stock code: NET02Stock code: NETSTRATEGIC REPORTChairman’s and Chief Executive’s reviewNetcall AR2019.indd 221/10/2019 14:44:39 The addressable market opportunity for these solutions is large and growing rapidly.The Group’s organic growth strategy focuses on four pillars:• growth through a land and expand model;• expansion of our customer base;• continued innovation and enhancement of our platform; and• growing our partner base.During the year we invested approximately £2m across the organisation to support our strategies. The strategic focus resulted in substantial booking growth in commercial, healthcare and government market sectors. In addition to the Group’s focused organic strategy, the Board continues to look for selective acquisitions with complementary proprietary software and/or additional customers in our target markets.Growth through a land and expand modelMany of our customers initially purchase an entry level solution with the objective of rolling out further applications and deploying the solutions more widely to support their future customer engagement and digital transformation initiatives. This, combined with continuously enhancing our product portfolio, provides significant cross-sale and up-sale opportunities in three areas: • Low-code solutions represent the largest opportunity as our existing customers digitise and modernise their operations enabling them to further leverage their existing Liberty estate;• transition of our premise-based customers to cloud. This opportunity is in its infancy where we see a small and growing number of customers considering transitioning their Liberty estate to a cloud model; and• ongoing upgrades and addition of modules to the Liberty platform as customers expand the use of the platform and we release new features and modules. Case StudyJoining legacy systems, improving CXNetwork Rail is all about efficiency. Low-code enables faster improvements and therefore drives down operational costs. Staff are more time-efficient. The team wanted to take Liberty Create forward to their business partners as a significant statement, empowering ownership by different teams to drive their own projects forward. Network Rail has centres of excellence. In roughly four months, five or six big business problems had been automated. These were being driven forward by the business users affected. Rather than becoming a problem for IT to solve, they can solve the issue themselves. Fast.27059 21 October 2019 2:44 pm Proof 7Netcall plc Annual Report and Accounts for the year ended 30 June 2019netcall.comnetcall.comSTRATEGIC REPORT03Netcall AR2019.indd 321/10/2019 14:44:42 To facilitate cross-sales and accelerate implementations we are also providing several pre-built applications and modules via our AppShare which supplement the existing Liberty applications used by our customers. This includes Citizen Hub which is a suite of local government business processes and citizen portals that integrate with our customer engagement solutions. The average annual contract value of the initial Low-code cross-sales has to date been approximately three times higher than the historic average of the Netcall customer base. This gives an early indication of the potential value of Low-code sales into the existing customer base.Cloud and product bookings from existing customers increased by 30% to £6.3m (FY18: £4.8m) driven by cross-sales of Low-code and Cloud contact centre solutions. Wins include orders worth approximately £1.4m from healthcare and government customers for our new cloud patient communication and Citizen Hub solutions.Cumbria County Council – digital transformation programmeCumbria County Council, a user of our contact centre solution, is also using our Low-code based Citizen Hub framework to transform services and deliver better outcomes for citizens. The council has created a team of internal builders who are developing for the council and have several live apps including Waste Permits, Blue Badge and Skips & Scaffolding permits. The full end to end Waste Permits application took four weeks to launch. The complete Blue Badge application, including integrations was launched after fourteen weeks. The council is one of several customers who are active in our Community and use AppShare to upload and download content achieving results faster and helping others. Expansion of our customer baseWe target organisations with large numbers of customers or employees and, in many cases, subject to a high level of regulations. This includes financial services, healthcare and government sectors where we currently have a strong market presence. Case StudyImproving citizen service and experienceThe way citizens interact with councils is changing. It is more online self-service and fewer letters and phone calls. And this is happening at speed with quickly changing requirements. Therefore, looking for a tech future that it can control, Hertsmere Borough Council’s challenge is to balance the requirement for new solutions while supporting ageing systems with rising costs and increasing complexity combined with resource shortages. Simply replacing old solutions with more modern point solutions involves big, costly and risk migration projections and is therefore not the answer to the challenge. Instead the council has invested in Liberty Create, a flexible low-code solution they can shape and control around the existing systems and infrastructure, to provide council specific applications so citizens can tackle everyday tasks online. Liberty Create makes it easier for citizens to make contact with the council, it helps improve processes and build better customer experiences in a flash. These services are built by the people who really know what their citizens require. And its use will drive costs down.27059 21 October 2019 2:44 pm Proof 7Netcall plc Annual Report and Accounts for the year ended 30 June 2019Stock code: NET04Stock code: NETSTRATEGIC REPORTChairman’s and Chief Executive’s review ContinuedNetcall AR2019.indd 421/10/2019 14:44:44 Cloud and product bookings from new customers increased by 157% to £4.2m (FY18: £1.6m) driven by sales of Low-code solutions. Network Rail: Accelerating change using Low-codeOne of the new Low-code customers secured in the year was a contract with Network Rail to help drive digital transformation faster across the organisation. The key three business challenges that Network Rail faced were scalability of people and skills, business demand pressure, and poor experience versus the cost of updating or replacing legacy IT. Key criteria for Network Rail were proof that the IT could actually deliver results and that the technology could stand up in such a safety critical organisation. In just a few months a number of business problems had been automated and driven forward by the business users affected. Rather than becoming a problem for IT to solve, they solved the problems themselves, quickly, using Low-code.Continued innovation and enhancement of our platformWe continue to invest in strengthening our Liberty platform. The main focus is on expanding the functionality available to our customers and enhancing integration of our solutions. Our Liberty platform/suite covers three integrated solution areas:• Low-code which enables the creation of apps that drives workflows and business processes with integration to our communication services as well as back-end systems.• Omnichannel contact centre for customer engagement which also includes solutions like speech bots, switchboard and auto attendant. • Conversational messaging platform enabling customers to extend their reach using digital channels like Facebook Messenger and Twitter as well as benefit from bots and automation. Digital business processes implemented on the Group’s Low-code platform can seamlessly drive customer journeys with integrated customer interactions such as Facebook, Twitter, bots, chat, SMS or contact centre. With the platform’s rich API capabilities these journeys can integrate with other systems, holding information required to deliver a smooth experience for customers and thereby retrieving or updating data critical for record management and back-end systems.It’s amazing, it’s so agile. Within weeks you have something tangible that you can test, use and iterate in real time.”Growing our partner base During the year, we have increased our engagement with several partners including global organisations that provide opportunity to access new markets and scale our business opportunity faster. The objective is to develop an ecosystem of partners who bring a combination of industry specific subject matter expertise together with service delivery and support capabilities. In addition to supporting our delivery of customer projects, partners support new customer acquisition by leveraging their capabilities and relationships. This will scale our ability to deliver solutions and generate additional licence revenue as partners support customers. Partners can also gain significant advantages by using the speed and flexibility of our Low-code platform by rapidly building solutions for their customers and thereby creating new revenues for their businesses. We have seen expansion of our partner network in the year, which combined now employ more trained Low-code builders than we have within our own organisation. Partner development of regulated process application within pharma industryOne example is an international life science consultancy which is using a Low-code based business process solution to manage regulatory submissions on behalf of its global customer. The solution is being built by an India-based partner and will deliver a specialised business process application integrated with the healthcare provider’s pharma CRM system. The solution, built in less than 12 weeks, streamlines and automates a complex and highly regulated business process providing higher visibility and cost savings for both organisations. The partner believes the application can be replicated for other opportunities within the pharma sector.Financial ReviewGroup revenue increased 5% to £22.9m (FY18: £21.9m) of which Low-code solutions now represent £7.1m of Group revenues, increasing 35% in the year.The Group’s revenue comprises the following components, reflecting the movement of the business towards primarily a provider of Cloud-based software and services: • Cloud services: revenue subscription and usage fees of our cloud-based offerings.• Product support contracts: provision of software updates, system monitoring and technical support services for our products.• Communications services: fees for telephony and messaging services.• Product revenues: predominantly software licence sales with supporting hardware.• Professional services: consultancy, implementation and training services. 27059 21 October 2019 2:44 pm Proof 7Netcall plc Annual Report and Accounts for the year ended 30 June 2019netcall.comnetcall.comSTRATEGIC REPORT05Netcall AR2019.indd 521/10/2019 14:44:44 I
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Chairman’s and Chief
Executive’s review
Continued
As set out in this year’s Interim Report,
the Board has, for a number of years,
measured trading performance using
indicators such as: revenue, EBITDA,
and operating cash flow. In addition, the
Group also reports Cloud and product
bookings and ACV. These metrics
measure sales momentum and give a
leading indicator on future revenue.
Cloud and product bookings (the total
of all new orders received classified as
cloud services subscription and support,
product and support contract revenues)
increased by 62% year over year to
£10.5m, of which Low-code rose 272%
to £6.0m.
As a result, revenue from Cloud
services, which are a key strategic
focus, have grown strongly and
increased by 34% to £5.74m (FY18:
£4.29m).
Total Low-code ACV as at 30 June 2019
increased by 36% year over year to
£4.5m (30 June 18: £3.3m). In the two
years of acquisition of the Low-code
platform the Group has increased the
Low-code ACV by 59%.
Total ACV increased by 10% year over
year to £15.7m (30 June 2018: £14.2m).
ACV, as of a given date, is the total of
the value of each cloud and support
contract divided by the total number of
years of the contract.
Product support contract revenue
increased by 4% to £9.25m (FY18:
£8.93m) reflecting high contract
retention combined with the contribution
of new product sales and price rises.
Communications services revenue was
£1.81m (FY18: £2.27m) due to lower
usage of call-back services in the period
by a partner.
Product sales, while improved over the
first half of the year, were impacted
by purchasing delays within the NHS
coupled with public sector customers
ordering the Group’s newly launched
Low-code cloud offerings. As a result,
product revenue was lower at £2.29m
(FY18: £3.06m).
Professional services revenues
increased 15% to £3.82m (FY18:
£3.33m) due to implementation services
increasing in line with new sales of cloud
solutions.
Gross profit margin was maintained at
90% (FY18: 90%).
Administrative expenses, before
depreciation, amortisation, impairment,
share-based payments and acquisition
related items increased to £17.1m
(FY18: £14.3m) which is in line with
expectations following the previously
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announced investment programme.
Investments have mainly been made
in expanding sales and marketing and
professional services teams to deliver
implementation services for the growing
cloud solutions and our own digital
business operation to support a larger
and growing organisation.
Consequently, the Group adjusted
EBITDA was £3.41m (FY18: £5.42m), a
margin of 15% of revenue (FY18: 25%).
Profit before tax increased to £0.75m
(FY18: £0.05m) after taking into account
acquisition related items and interest
on borrowings taken out to fund the
acquisition of MatsSoft in August 2017.
The Group tax charge of £0.14m (FY18:
£0.09m credit) represents an underlying
effective rate of tax of 10% (FY18: 3%
credit) on adjusted profit before tax. The
underlying effective rate of tax is lower
than the headline rate of corporation tax
due to deductions for R&D expenditure.
Diluted earnings per share increased by
355% to 0.41 pence (FY18: 0.09 pence)
and was 0.76 pence on an adjusted
basis (FY18: 2.04 pence).
Cash generated from operations
before non-recurring transaction cost
payments increased by 100% to £6.84m
(FY18: £3.42m), a conversion of 200%
(FY18: 63%) of adjusted EBITDA. The
increase is primarily due to the timing
of credit sales and significant MatsSoft
contract renewals falling in the period
before acquisition which created large
receivables in the prior year paid in the
current year.
Spending on research and development,
including capitalised software
development, was £3.21m (FY18:
£3.66m) of which capitalised software
expenditure was £1.53m (FY18:
£1.76m).
Total capital expenditure was £2.96m
(FY18: £2.07m); the balance after
capitalised development, being £1.43m
(FY18: £0.31m) was mainly office fit-out,
IT equipment and software.
The Company acquired MatsSoft
Limited in August 2017. The purchase
agreement provided for potential further
cash and shares to be paid dependent
on achieving specified performance
targets over various periods from
completion of the acquisition. During
the period the Company paid £0.59m
in cash under this arrangement. At
30 June 2019 the fair value of the
remaining contingent consideration
was re-estimated at a lower amount
of £1.68m resulting in £0.87m being
credited to the income statement as a
change in estimate.
To support the acquisition, the Company
issued a £7m Loan Note. Loan Note
interest payments in the period totalled
£0.59m (FY18: £0.36m). See note 7 for
further information.
As a result of these factors, net cash
was £1.14m at 30 June 2019 (30 June
2018: £0.74m net debt).
Dividend
In line with the Company’s dividend
policy to pay out 25% of adjusted
earnings per share, the Board intends to
declare a final dividend for this financial
year of 0.20p.
Henrik Bang
CEO of Netcall
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Business model
Success is ensured by focusing on the following primary value drivers:
Deliver operational
efficiency:
Maintain high margins to
allow for investment in
the business
Focus on
cross-selling:
Broadening the use
of our platform in our
customer base
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Grow our
customer base
and distribution
channels:
Increasing our market
presence and providing
future cross-selling
opportunities
Expand our product
suite and cloud
offerings:
To provide organic
growth
Retaining and
attracting high
quality people:
To build organisational
strength and
capabilities
Proprietary software:
Maintain high margins
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Complementary
product or
customer type:
Cross-selling Group
products and services is
important for future
growth
Ability to add value:
Opportunity to extract
synergies
Key performance indicators
The Directors monitor a wide range of financial and operating measures to track the Group’s progress. There are six core
key performance indicators (‘KPIs’) which are set out below. A review of these KPIs is provided in the Chairman’s and Chief
Executive’s review:
Revenue (£m)
Revenue recurring in nature (£m)
Gross profit margin (%)
Adjusted EBITDA (£m)
Cash generated from operations before payment of non-recurring
transaction costs (£m)
Total equity (£m)
2019
22.9
16.8
90%
3.41
6.84
21.9
2018
21.9
15.5
90%
5.42
3.42
21.5
Change
5%
8%
–
-37%
100%
2%
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Risk area and potential impactManagement of risksEconomic • The Group’s markets may fall into decline. • Weak economic conditions, including the potential impact of the UK’s vote to leave the European Union, may affect the ability of the Group’s clients to do business.• The Group has a diversified portfolio of customers and vertical markets. • Innovative solutions are offered in a variety of ways to best suit each customer’s business needs including traditional software licensing or payment by subscription via software as a service. Intellectual property rights (‘IPR’) • The Group is reliant on IPR surrounding its internally generated and licensed-in software. It may be possible for third parties to obtain and use the Group’s IPR without its authorisation. Third parties may also challenge the validity and/or enforceability of the Group’s IPR. • There is a supply risk of losing key software partners. This would have an impact on the Group as it sought to identify and then train staff in alternative products. • The Group relies upon IPR protections including patents, copyrights and contractual provisions. • The Group’s product team monitors contracts, and reviews and evaluates alternate suppliers.Product development • Competitors may develop similar products; the Group’s technology may become obsolete or less effective; or consumers may use alternative channels of communication, which may reduce demand for the Group’s products and services. In addition, the Group’s success depends upon its ability to develop new, and enhance existing, products on a timely and cost effective basis, that meet changing customer requirements and incorporate technological advancements.• The Group continues to monitor the marketplace for competitor development and maintains a significant investment in research and development.Loss of key management and staff• Could potentially lead to a lack of necessary expertise and continuity. • The Group places a significant emphasis on staff retention. Key management and staff are incentivised via bonus plans and share schemes.Project delivery • The Group contracts for multiple projects each year to deliver products and services to clients. Failure to deliver large or even smaller projects can result in significant financial loss.• The Group has proven procedures and policies for project delivery and regularly measures and reviews project progress. Regular testing of quality management processes is carried out. If issues arise on projects, senior management are involved to ensure timely resolution. Data security and business continuity • The loss or failure of Netcall systems would impact both on the Group’s operations and those of its hosted clients.• The Group maintains formal data security policies and procedures and a documented business continuity and disaster recovery plan which are tested and regularly reviewed.Acquisitions • The Group may fail to execute its acquisition strategy successfully, retain key acquired personnel, or encounter difficulties in integrating acquired operations.• Before an acquisition, management commissions financial and legal due diligence reports to highlight potential risks and post-acquisition it implements an integration plan which is monitored.This Strategic Report was approved by the Board on 24 September 2019 and signed on its behalf by:James Ormondroyd Director 24 September 2019The principal risks facing the Group and considered by the Board are:27059 21 October 2019 2:44 pm Proof 7Netcall plc Annual Report and Accounts for the year ended 30 June 2019netcall.comnetcall.comSTRATEGIC REPORT09Principal risks and uncertaintiesNetcall AR2019.indd 921/10/2019 14:44:52 G
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Directors’ report
The Directors present their report and the audited financial
statements of Netcall plc (the ‘Company’ or ‘Netcall’) and its
subsidiaries (together the ‘Group’) for the year ended
30 June 2019.
Group’s needs, individual responsibilities, performance and
market practice.
The main components of Executive Directors’ remuneration
comprise:
Results and dividends
The Group’s profit for the year after tax was £0.61m (2018:
£0.14m).
Subject to shareholder approval at the Annual General
Meeting to be held on 21 November 2019, the Board
proposes paying a final ordinary dividend of 0.20 pence per
share (2018: 0.53 pence per share). The estimated amount
payable is £0.29m (2018: £0.76m).
Research and development
The Group continues an active programme of research
and development into telecoms software and products. The
total expenditure for research and development excluding
amortisation was £3.21m (2018: £3.66m) comprising £1.68m
in the Consolidated income statement (2018: £1.90m) and
£1.53m capitalised development expenditure (2018: £1.76m).
Political donations and political expenditure
In accordance with the Board’s policy no political donations
were made or expenditure incurred during the year (2018: £nil).
Post balance sheet events
For details of post balance sheet events see note 16 to the
consolidated financial statements.
Directors and Directors’ interests
The Directors who held office during the year ended 30 June
2019 are as follows:
Henrik Bang
James Ormondroyd
Michael Jackson
Michael Neville
Chief Executive
Group Finance Director
Chairman and Non-Executive
Director
Non-Executive Director
Biographical details of persons currently serving as Directors
are set out on page 14.
Directors’ remuneration
As the Company is quoted on the Alternative Investment
Market of the London Stock Exchange (‘AIM’) it is not
required to set out its remuneration policy but is doing so on
a voluntary basis. As required by AIM Rule 19, the Company
has disclosed below the remuneration received by its
Directors during the financial year.
The Company’s policy is to remunerate Directors appropriately
to secure the skills and experience the Group needs to meet
its objectives and reward them for enhancing shareholder
value and returns. Each review is set in the context of the
• basic salary
• performance related bonus
• defined contribution to personal pension plan
• other benefits such as car allowances, medical and life
assurance
•
share option scheme
The basic salary of the Executive Directors is reviewed
annually by the Remuneration Committee, with changes, if
any, taking effect on 1 December of each year.
The Executive Directors participate in a bonus plan linked
to the achievement of financial and individual performance
targets set by the Remuneration Committee. The bonus
plan is structured so as to pay 100% of salary for Henrik
Bang and James Ormondroyd, respectively, on achieving
targets. Bonuses payable are subject to the discretion of
the Remuneration Committee after taking into account an
overall view of the Group’s performances and its assessment
of financial and personal performance. In the year ended
30 June 2019, performance against targets resulted in a
bonus award of 25% of salary for Henrik Bang and 25% for
James Ormondroyd.
In December 2013 the Company effected a Long Term
Incentive Plan (‘LTIP’) designed to provide the senior
management team with share options vesting upon the
attainment of certain criteria including the performance of the
Company’s ordinary share price up to £1.20. Further details
are set out below.
The remuneration of Non-Executive Directors is determined
by the Board within the limits set by the Company’s Articles of
Association and is based on fees paid in similar companies
and the skills and expected time commitment required by the
individual concerned.
The service contracts and letters of appointment of the
Directors include the following terms:
Date of
appointment
Notice
period
Executive Directors
Henrik Bang
James Ormondroyd
Non-Executive Directors
Michael Jackson
Michael Neville
13 February 2004
30 July 2010
12 months
12 months
23 March 2009
30 July 2010
12 months
12 months
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The table below sets out the detailed emoluments of each Director who served during the year:
Executive Directors
Henrik Bang
James Ormondroyd
Non-Executive Directors
Michael Jackson
Michael Neville
Salary
and fees
£000
Benefits
in kind
£000
Bonus
£000
292
211
57
35
595
19
17
–
–
36
73
50
–
–
123
2019
Total
£000
384
278
57
35
754
The table below sets out the contributions by the Company to Directors’ personal pension schemes during the year:
Executive Directors
Henrik Bang
James Ormondroyd
The table below sets out share options granted to Directors:
2019
£000
22
10
32
2018
Total
£000
344
249
55
32
680
2018
£000
21
10
31
Date of grant
Henrik Bang
29.04.14(1)
James Ormondroyd
29.04.14(1)
Michael Jackson
29.04.14(1)
Earliest
exercise date
Expiry date
30.04.17
30.04.21
30.04.17
30.04.21
30.04.17
30.04.21
Exercise
price
(pence)
Number at
1 July 2018
and 30 June
2019
5.0
5.0
5.0
7,000,000
7,000,000
4,100,000
1,000,000
12,100,000
(1) LTIP options are conditional on certain vesting criteria including: various share price hurdles based on the average share price over 40 business days up
to a share price of £1.20 from the date of grant until 30 April 2019; and the option holder being in employment during the vesting period. Once vested, up
to half may be exercised from 30 April 2017 to 30 April 2021 and the other half from 30 April 2019 to 30 April 2021.
The closing mid-market price of the Company’s shares at 30 June 2019 was 36.5 pence. During the financial year the share
price reached a high of 76.5 pence and a low of 27.3 pence.
Directors’ indemnity and insurance
The Group maintained insurance cover during the year for its Directors and Officers and those of subsidiary companies under a
Directors’ and Officers’ liability insurance policy against liabilities which may be incurred by them while carrying out their duties.
On the 25 April 2019 Netcall plc (the ‘Company’) entered into deeds of indemnity (‘Deeds’) with each of Michael Jackson,
Michael Neville, Henrik Bang and James Ormondroyd, comprising all the Directors of the Company. These indemnities, to the
extent permitted by law, indemnify each such Director in respect of all liabilities to third parties arising out of, or in connection
with, the execution of his powers, duties and responsibilities, as a Director of the Company or any Group company in which,
from time to time, the individual Director holds office. The Deed is a ‘Qualifying Third Party Provision’ as defined in section 234 of
the Companies Act 2006 and is believed to conform to the laws of the state of Delaware in the United States of America (‘US’) in
which the Company’s US subsidiaries are incorporated. A copy of each Deed is available for inspection at the registered office of
the Company during business hours on any weekday except public holidays.
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Directors’ report
Continued
The Company has one class of ordinary shares which carry
no right to fixed income. Each share carries the right to one
vote at general meetings of the Company. At the date of this
report and at 30 June 2019 the share capital of the Company
consisted of 143,307,102 issued and fully paid ordinary
shares with a nominal value of 5p per share, quoted on AIM,
together with 1,869,181 ordinary 5p shares held in Treasury.
There are no specific restrictions on the size of holding nor
on the transfer of shares which are both governed by the
general provisions of the Articles of Association and prevailing
legislation. The Directors are not aware of any agreements
between holders of the Company’s shares that may result in
restrictions on the transfer of securities or voting rights. No
person has any special rights of control over the Company’s
share capital and all issued shares are fully paid.
Details of share option schemes are set out in note 18 to the
consolidated financial statements.
Auditors
Grant Thornton UK LLP, who were re-appointed on
12 December 2018, have expressed their willingness to
continue in office as Auditors and a resolution to appoint them
and authorise the Directors to determine their remuneration
for the ensuing year will be proposed at the forthcoming
Annual General Meeting.
Annual General Meeting
The Annual General Meeting will be held at the offices of
TaylorWessing LLP, 5 New Street Square, London, EC4A 3TW
on 21 November 2019 at 10.30 am. Details and an explanation
of the resolutions to be proposed are contained in the Notice
of Annual General Meeting and explanatory notes either sent
to Shareholders with the annual report or available on the
Company’s website, www.netcall.com.
By order of the Board
James Ormondroyd
Director
24 September 2019
Corporate governance
The Company’s statement on corporate governance can be
found in the corporate governance statement on pages 15 to
20 of this annual report.
Employees
The Group encourages employee involvement in the business
at all levels with the staff of Netcall being the key to continuing
success. All employees are remunerated according to
results and wherever possible participate in bonus incentive
schemes.
Every effort is made to keep all staff informed and involved in
the operations and progress of the Group. This is achieved
through the use of electronic communications, the Group’s
intranet and staff briefings.
The Group is an equal opportunities employer. Its policy is
to ensure that no job applicant or employee receives less
favourable treatment on the grounds of gender, race, disability,
colour, nationality, ethnic or national origin, marital status,
sexuality, responsibility for dependants, religion or belief,
trade union activity or age. Selection criteria and procedures
are kept under review to ensure that individuals are selected,
promoted and treated on the basis of their relevant merits
and abilities. Fair consideration is given to applications for
employment from disabled people and the retention and
retraining, where practicable, of employees who become
disabled is encouraged.
Policy and practice on payment of creditors
The Group recognises the importance of good relationships
with its suppliers and subcontractors. Although the Group
does not follow any particular code or standard on payment
practice, its established payment policy is to agree payment
terms in advance of any commitment being entered into and
to seek to abide by these agreed terms provided that the
supplier has also complied with them. Trade creditor days for
the Company for the year were 10 days (2018: 22 days).
Financial instruments
Financial instruments, including financial risk management
objectives and policies for hedging, exposure to market risk,
credit risk and liquidity risk, are disclosed in note 12 to the
consolidated financial statements.
Share capital
Details of the issued share capital, together with details of
the movement in the Company’s issued share capital during
the year are shown in note 9(a) to the consolidated financial
statements.
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Statement of Directors’
responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they are
required to prepare Group financial statements in accordance
with International Financial Reporting Standards (‘IFRS’)
as adopted by the European Union (‘EU’) and have elected
to prepare the Parent Company financial statements in
accordance with United Kingdom Generally Accepted
Accounting Practice, including FRS 101 ‘Reduced Disclosure
Framework’.
Under company law the Directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs and profit or loss of
the Company and Group for that period. In preparing these
financial statements, the Directors are required to:
•
select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
•
state whether applicable IFRS as adopted by the EU,
and applicable United Kingdom Accounting Standards
have been followed for the Group and Parent Company
respectively, subject to any material departures disclosed
and explained in the financial statements; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Company or the Group will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors confirm that:
•
•
so far as each Director is aware, there is no relevant audit
information of which the Company’s Auditors are unaware;
and
the Directors have taken all steps that they ought to have
taken as Directors in order to make themselves aware of
any relevant audit information and to establish that the
Auditors are aware of that information.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
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Directors and advisers
Chairman
Michael Jackson*^~(69)
Group Finance Director
James Ormondroyd (47)
joined the Board in March 2009. He founded Elderstreet
Investments Limited in 1990 and is its Executive Chairman.
For the past 25 years, he has specialised in raising finance
and investing in the smaller companies quoted and unquoted
sector. Michael has been Chairman of two FTSE 100
companies and from 1997 until August 2006 was Chairman of
The Sage Group plc.
Chief Executive Officer
Henrik Bang (61)
was appointed to the Board in February 2004. Previously
he was Vice President in GN Netcom 1999-2004, part of the
Danish OMX listed GN Great Nordic Group. Before that he
held a number of international management positions in IBM
and AP Moller-Maersk Line.
was appointed to the Netcall Board on the acquisition of
Telephonetics plc on 30 July 2010 where he served as the
Finance Director and Company Secretary for five years;
previously he was the Finance Director and Company
Secretary at World Television Group plc. He is a Fellow of the
Institute of Chartered Accountants in England and Wales.
Non-Executive Director
Michael Neville *^~ (65)
was appointed to the Netcall Board on 30 July 2010 following
the acquisition of Telephonetics plc where he served as a
Non-Executive Chairman from July 2005. He has extensive
experience in capital markets and serves as a Non-Executive
Director for a number of AIM quoted companies. His
background is in the telecommunications and technology and
media arena.
* denotes membership of the Audit subcommittee of the Board
^ denotes membership of the Remuneration subcommittee of the Board
~ denotes membership of the Nomination subcommittee of the Board
Solicitors:
Auditors:
TaylorWessing LLP
5 New Street Square
London
EC4A 3TW
Orme & Slade Limited
NatWest Bank Chambers,
The Homend
Ledbury
Herefordshire
HR8 1AB
Grant Thornton UK LLP
Chartered Accountants and
Registered Auditor
101 Cambridge Science Park
Milton Road
Cambridge
CB4 0FY
Company registration
number:
01812912
Registered office:
1st Floor
Building 2
Peoplebuilding Estate
Maylands Avenue
Hemel Hempstead
Hertfordshire
HP2 4NW
Directors:
M Jackson
H Bang
J Ormondroyd
M Neville
Secretary:
M Greensmith
Bankers:
Lloyds Bank plc
Endeavour House
Chivers Way
Histon
Cambridge
CB24 9ZR
Nominated advisers:
finnCap Ltd
60 New Broad Street
London
EC2M 1JJ
Registrars:
Neville Registrars Limited
Neville House
Steelpark Road
Halesowen
B62 8HD
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Corporate governance statement
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Introduction
I am pleased to present to you this year's Corporate
governance statement.
In accordance with the London Stock Exchange amended
AIM Rules for Companies (‘AIM Rules’) the Board has chosen
to apply the Quoted Companies Alliance’s (QCA) Corporate
Governance Code 2018 (the ‘QCA Code’). The Board chose
to apply this code as it believes that it is more suitable for
small and mid-size companies.
The QCA Code includes ten governance principles and a
set of disclosures. The Board has considered how we apply
each principle to the extent appropriate. Below we provide an
explanation of the approach taken in relation to each and also
any areas where we do not comply with the QCA code.
Principle 1 – Establish a strategy and business model
which creates long-term value for shareholders
The purpose of the Netcall Group (‘Netcall’ or the ‘Group’) is
to help organisations transform their customer engagement
activities and enable digital transformation faster and more
efficiently, empowering them to get a return by driving
improved customer experiences and operational efficiencies.
We achieve this by developing powerful and intuitive software
that addresses the core elements of best-in-class customer
experience. Our industry leading Liberty platform is a tightly
integrated suite of Low-code, customer engagement and
contact centre solutions.
This is underpinned by our business model which is to license
our proprietary software and software-as-a-service marketed
within a flexible and viable commercial framework.
Our key strategies are to:
•
•
•
•
continue to enhance our Liberty platform;
continue to invest in and transition to Cloud business while
maintaining a lucrative premise based business;
leverage our enhanced product offering to unlock the
potential from Netcall's existing customer base with up-
sales and cross-sales;
take advantage of the Cloud and Low-code market
opportunity to acquire new customers;
• enhance distribution, including international presence, via
new channels including our AppShare;
• provide a flexible and viable commercial framework
making it easy for customers to buy from us; and
• manage organisational and operational flexibility within a
robust financial, control and compliance framework.
The objective is that this strategic framework will result in
a growing, profitable and highly valued business which will
benefit all stakeholders.
The key challenges being addressed within the strategic
framework include:
• Maintaining leading edge products in rapidly moving and
changing technological markets – the Group stays in close
contact with customers and leading industry analysts to
assist in the creation of our technology roadmap which is
developed and delivered by our qualified staff.
• Maintaining and improving high levels of quality across
the business value chain – we have adopted a quality
management system and are continuously increasing our
use of technology to assist in improving quality. The quality
management system is independently audited.
• Ensuring security of our customers’ data – the safekeeping
of customer data is of vital importance. Our IT services
are regularly audited for security by external parties.
Netcall is continuously developing its internal systems
and framework to improve and reduce risks. In addition,
features to reduce risks are implemented throughout our
proprietary software and systems.
• Delivering continuous availability – a failure in the Group’s
systems could lead to an inability to deliver services. This
is addressed by operating redundant systems across
multiple availability zones, a comprehensive disaster
recovery programme and employment of experienced
staff.
• Recruiting and retaining suitable staff – the Group’s
ability to execute its strategy is dependent on the skills
and abilities of its staff. We undertake ongoing initiatives
to foster good staff engagement and ensure that
remuneration packages are competitive in the market.
Principle 2 – Seek to understand and meet shareholder
needs and expectations
The CEO and the CFO are the key shareholder liaison
contacts. Shareholders can approach the Chairman or Non-
Executive Director should they have any questions about
Executive Directors.
The Company has open communications with its
Shareholders about its strategy and performance. We
communicate with shareholders through: the Annual Report
and Accounts; full-year and half-year announcements; trading
updates; the annual general meeting (AGM); and face-to-
face meetings. A range of information is also available to
Shareholders and the public on our website.
The AGM is the principal forum for dialogue with private
Shareholders. We encourage all Shareholders to attend
and take part. The Notice of AGM is sent to Shareholders
at least 21 days before the meeting. All Directors whenever
possible attend the AGM and answer questions raised by
Shareholders. Shareholders vote on each resolution, by way
of a poll. For each resolution, we announce the number of
votes received for, against and withheld and publish them on
our website.
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Corporate governance statement
Continued
The Directors seek to build a mutual understanding of
objectives with institutional Shareholders. Our CEO and
CFO give results presentations to analysts and institutional
investors. We communicate with institutional investors via
meetings, investor conferences, roadshows and informal
briefings with management. The Group’s Nominated Adviser
arranges the majority of these meetings, following which they
provide anonymised feedback from the analysts and fund
managers met. This, together with direct feedback, allows us
to understand investor motivations and expectations.
Principle 3 – Take into account wider stakeholder and
social responsibilities and their implications for
long-term success
The long-term success of the Group relies upon good
relations with a range of different stakeholders including our
staff, customers, suppliers and shareholders. We engage with
these stakeholders to obtain feedback as follows:
• Staff – management’s close day-to-day connection with
staff combined with periodic engagement surveys and
‘town hall meetings’ ensure good relations with, and
between, colleagues. These activities allow staff to share
their views on ways in which the Group can improve
products, processes and outcomes.
• Customers – delivering great customer service is a
core attribute of the Group. Our success and
competitive advantage are dependent upon fulfilling
their requirements, particularly in relation to experience,
integrity and quality of our software and services. We
seek feedback on our software and services frequently
including: via our account managers, product owners and
executive sponsors; project delivery boards; as well as
through a formal customer satisfaction survey programme.
• Suppliers – our key suppliers provide technology, which is
incorporated into our software, and technology services,
which enable the delivery of our Cloud platform and IT
equipment support for on-premise solutions. We operate
a formal supplier process covering supplier selection,
onboarding and ongoing relationship management. This
includes regular updates on our suppliers’ strategies
and inputs into our product and services design and
development.
• Shareholders – our approach to obtaining feedback is set
out in Principle 2 above.
Principle 4 – Embed effective risk management,
considering both opportunities and threats,
throughout the organisation
The Directors are responsible for risk assessment and the
systems of internal control. Although no system of internal
control can provide absolute assurance against material
misstatement or loss, the Group’s systems are designed
to provide the Directors with reasonable assurance that
problems are identified on a timely basis and dealt with
appropriately.
• Company management: The Board has put in place a
system of internal controls, set within a clearly defined
organisational structure with well understood lines of
responsibility, delegation of authority, accountability,
policies and procedures. Managers assume responsibility
for running day-to-day operational activities with
performance regularly reviewed and employees are
required to follow procedures and policies appropriate to
their position within the business.
• Business risks: The Board is responsible for identifying,
evaluating and managing all major business risks facing
the Group. To facilitate the assessment of risks, monthly
reports on non-financial matters are received by the
Board covering such matters as sales and operations
performance and research and development progress.
• Financial management: An annual operating budget is
prepared by management and reviewed and approved
by the Board. Monthly accounts comparing current year
performance with budget together with key performance
metrics are received and discussed by the Board.
The Group has in place documented authority levels
for approving purchase orders, invoices and all bank
transactions.
• Quality management: The Group is focused on meeting
the highest levels of customer satisfaction. Quality
procedures for the development of products, services
and maintenance support are documented and reviewed
frequently.
•
Internal audit: The Directors do not currently believe
that an additional separate internal audit function is
appropriate for the size and complexity of the Group but
will continue to review the position. The Group is ISO9001
and ISO27001 accredited which has been independently
audited.
Principle 5 – Maintain the Board as a well-functioning,
balanced team led by the Chair
The members of the Board have a collective responsibility
and legal obligation to promote the interests of the Group.
They are collectively responsible for defining corporate
governance arrangements. Ultimate responsibility for the
quality of, and approach to, corporate governance lies with the
chair of the Board.
The Board consists of four directors, of which two are
executive and two are non-executives. The Executive
Directors work full-time for Netcall. The Non-Executive
Directors are expected to commit one to two days per month.
The relevant experience and skills that each Director brings to
the Board are set out below.
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The QCA Code notes that it is usually expected that at least
half of the directors on a board are independent non-executive
directors. The Company does not comply with the QCA Code
as neither Non-Executive is independent as:
• Michael Neville became a Director of the Company
following the acquisition of Telephonetics plc, of which he
was a Director. He is a Director of other companies in the
Group and holds shares in the Company;
• Michael Jackson became a Director and Chairman without
the intervention of a Nomination Committee. He is also a
participant in the Group's Long Term Incentive Plan and a
shareholder of the Company.
The Board has three committees: audit, remuneration and
nomination. The Board does not comply with the QCA Code’s
recommendation that the Chairman of the Board should
not sit on any of the Board's committees. The Chairman’s
participation is necessary due to the limited number of Non-
Executive Directors.
Notwithstanding the above, the Non-Executive Directors have
sufficient industrial and public markets experience in order to
constructively challenge the Executive team and help drive
value for all stakeholders. Moreover, the Board considers
that the length of service of Messrs Neville and Jackson
to be a valuable asset to constructive Board discussion.
There are currently no female Non-Executive Directors. The
Board remains confident both that the opportunities in the
Company are not excluded or limited by any diversity issues
(including gender) and that the Board nevertheless contains
the necessary mix of experience, skills and other personal
qualities and capabilities necessary to deliver its strategy.
As part of the Board’s evolution the Company continues to
actively seek a further Non-Executive Director.
The Board meets regularly during the year. More meetings
are arranged as necessary for specific purposes. It has
a schedule of regular business, financial and operational
matters. Each Board committee has a schedule of work
to ensure that it addresses all areas for which it has
responsibility during the year. To inform decision-making the
Chairman is responsible for ensuring that Directors receive
accurate, sufficient and timely information. The Company
Secretary provides minutes of each meeting. Every Director is
aware of the right to seek independent advice at the Group’s
expense where appropriate.
Meetings held during the period under review and the attendance of Directors is set out below:
Remuneration
Board meetings
Attended
Possible
Audit Committee
Attended
Possible
Possible
Committee Nomination Committee
Attended
Attended
Possible
Executive
Directors
Henrik Bang
James Ormondroyd
Non-Executive
Directors
Michael Jackson
Michael Neville
10
10
10
10
10
10
10
10
–
–
2
2
2(1)
2(1)
2
2
–
–
2
2
–
–
2
2
–
–
–
–
–
–
–
–
(1) Attended by invitation as not a member of the Audit Committee.
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Corporate governance statement
Continued
Principle 6 – Ensure that the Directors collectively
have all appropriate skills, capabilities and experience
All four members of the Board bring relevant sector
experience in technology, all have at least nine years of
public markets experience and two members are chartered
accountants. The Board believes that its blend of relevant
experience, skills and personal qualities and capabilities is
sufficient to enable it to successfully execute its strategy.
Directors attend seminars and other regulatory and trade
events to ensure that their knowledge remains current.
Michael Jackson, Non-Executive Chairman
Term of office: Appointed as Chairman on 23 March 2009;
chairman of the Nomination Committee and member of the
Audit and Remuneration Committees.
Background and suitability for the role: Michael Jackson
studied law at Cambridge University, and qualified as
a chartered accountant with Coopers & Lybrand before
spending five years in marketing for various US multinational
technology companies. He founded Elderstreet Investments
Limited in 1990 and is its executive chairman where, for
the past 28 years, he has specialised in raising finance and
investing in the smaller companies quoted and unquoted
sector. From 1983 until 1987 he was a director and from 1987
until 2006 was chairman of FTSE 100 company The Sage
Group plc. He was also chairman of PartyGaming plc, another
FTSE 100 company.
Michael Neville, Non-Executive Director
Term of office: Joined as Non-Executive Director on 30 July
2010; Chair of the Audit and Remuneration Committees and
member of the Nomination Committee.
Background and suitability for the role: Michael Neville was
appointed to the Netcall Board on 30 July 2010 following
the acquisition of Telephonetics plc where he served as a
Non-Executive Chairman from July 2005. He has extensive
experience in capital markets and serves as a Non-Executive
Director for a number of AIM quoted companies. His
background is in the telecommunications, technology and
media arenas.
Henrik Bang, CEO
Term of office: Appointed CEO on 13 February 2004.
Background and suitability for the role: Henrik was previously
Vice President in GN Netcom 1999-2004, part of the Danish
OMX listed GN Great Nordic Group. Before that he held a
number of international management positions in IBM and AP
Moller-Maersk Line.
James Ormondroyd, Group Finance Director
Term of office: Joined as Group Finance Director on 30 July
2010.
Background and suitability for the role: James studied physics
at University of Manchester, and qualified as a chartered
accountant with PwC. He was appointed to the Netcall Board
on the acquisition of Telephonetics plc, a speech recognition
and voice automation software provider, on 30 July 2010
where he served as the Finance Director and Company
Secretary for five years. Prior to that he was the Finance
Director and Company Secretary at World Television Group
Plc, a multinational media and technology business.
Directors are initially appointed until the following Annual
General Meeting when, under the Company’s Articles
of Association, it is required that they be elected by
Shareholders. The Company’s Articles require that one third
of the current Directors must retire as Directors by rotation.
The QCA Code recommends that independent Directors
who have served for more than nine years should be re-
elected on an annual basis. The Company does not follow
this recommendation due to the current size of the Board
and considers the experience of the Company’s current
Non-Executive Directors to be more than sufficient for the
Company’s needs.
Principle 7 – Evaluate Board performance based on
clear and relevant objectives, seeking continuous
improvement
The performance and effectiveness of the Board, its
committees and individual Directors are reviewed by
the Chairman and the Board on an ongoing basis. The
performance and effectiveness of the Chairman is reviewed
by the other Board members. Training is available should a
Director request it, or if the Chairman feels it is necessary.
The performance of the Board is measured by the Chairman
with reference to the Company’s achievement of its strategic
goals. The Board does not undertake a formal evaluation of its
performance, as this is constantly under review given its size.
The Board continually assesses the candidacy of Netcall
staff with respect to succession planning for Executive
Management and has in place a short-term plan to be
instigated in the event of the loss or incapacity of either
CEO or CFO. A number of senior managers are directors of
subsidiary company boards and we continue to evaluate their
progress.
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Principle 8 – Promote a corporate culture that is based
on ethical values and behaviour
The Group’s long-term growth is underpinned by a set of
value-based operating principles. These principles have
regularly been reviewed and adapted as the Group has
developed and centre on customer focus, innovation,
integrity, quality and teamwork. The culture of the Group is
characterised by these values, and they are communicated
widely including within the Group’s competency framework
(which sets out how we want our colleagues to work within
Netcall to deliver our vision) and promoted throughout the
organisation by managers in their daily work.
We monitor the culture through the use of employee and
customer surveys and have in place comprehensive policies
and procedures to support ethical behaviour. The Board
reviews the findings of these and determines what action is
required and considers its culture is positive.
The Board believes that a culture based on these core
values is consistent with fulfilment of the Group’s mission and
execution of its strategy.
Principle 9 – Maintain governance structures and
processes that are fit for purpose and support good
decision-making by the Board
The Board sets the Group’s vision, strategy and business
model to deliver value to its Shareholders. It maintains
a governance structure appropriate for the Group’s size,
complexity and risk and ensures this structure evolves over
time in line with developments of the Group.
The Board defines a series of matters reserved for its
decision. It has terms of reference for its audit, remuneration
and nomination committees, to which it delegates certain
responsibilities. The chair of each committee reports to the
Board on the activities of that committee.
The Remuneration Committee sets and reviews the
compensation of Executive Directors including the targets and
performance frameworks for cash and share-based awards.
The Remuneration Committee comprises the Non-Executive
Directors under the chairmanship of Michael Neville. It meets
at least once per year. A Remuneration Committee report is
set out below. The terms of reference of the Remuneration
Committee are available on the Company’s website.
The Nomination Committee reviews the structure, size
and composition of the Board. It considers succession and
identifies and nominates Board candidates. It comprises
the Non-Executive directors under the chairmanship of
Michael Jackson. The Nomination Committee did not meet
formally during the year; however, members of the committee
discussed these matters regularly in Board meetings.
The primary responsibility of the Chairman is to lead the Board
and to oversee the Group’s corporate governance. He ensures
that:
•
•
•
•
the Board’s agenda concentrates on key operational
and financial issues with regular reviews of the Group’s
strategy and its implementation;
committees are properly structured and operate with
appropriate terms of reference;
regular performance reviews of the individual Directors,
the Board and its committees are undertaken;
the Board receives accurate, timely and clear information;
and
• he oversees communication between the Group and its
shareholders.
The CEO provides leadership and management of the Group.
He:
•
leads the development of objectives and strategies;
• delivers the business model within the strategy agreed by
the Board;
The Audit Committee monitors the integrity of the financial
results. It reviews the need for internal audit and considers
the engagement of external Auditors including the approval of
non-audit services. The Audit Committee comprises the Non-
Executive Directors under the chairmanship of Michael Neville.
It meets at least twice per year. An Audit Committee report is
set out below. The terms of reference of the Audit Committee
are available on the Company’s website.
• monitors and manages operational performance and key
risks to ensure the business remains aligned with the
strategy;
•
leads on investor relations activities to ensure good
communications with Shareholders and financial
institutions; and
• ensures that the Board is aware of the views and opinions
of employees on relevant matters.
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Corporate governance statement
Continued
Remuneration Committee Report
During the period under review the Remuneration Committee:
• undertook an annual review of the Executive Directors’
remuneration packages and ensured that individual
compensation levels, and total Board compensation, were
comparable with those of other AIM-listed companies;
•
•
considered and set the financial and individual
performance targets, in light of the strategic framework, for
the Executive Directors’ annual bonus plans; and
it reviewed the granting of unapproved options to key staff
with the objective of motivating and retaining them over
the mid to long term, designed to incentivise delivery of
the Group’s growth objectives.
Principle 10 – Communicate how the Company is
governed and is performing by maintaining dialogue
with Shareholders and other relevant stakeholders
This Corporate Governance Report is available on the Netcall
website. The Board will review and update it annually. Copies
of the Annual Report & Accounts, AGM notices, outcomes of
AGM votes and other governance materials are available on
the Netcall website.
Michael Jackson
Chairman
The Non-Executive Directors contribute independent thinking
and judgement through the application of their external
experience and knowledge. They scrutinise the performance
of management and provide constructive challenge to the
Executive Directors. They ensure that the Group is operating
within the governance and risk framework approved by the
Board.
The Company Secretary ensures that clear and timely
information flows to the Board and its committees. He
supports the Board on matters of corporate governance
and risk.
The matters reserved for the Board are:
• Setting long-term objectives and commercial strategy;
• Approving annual operating and capital expenditure
budgets;
• Changing the share capital or corporate structure of the
Group;
• Approving half-year and full-year results and reports;
• Approving dividend policy and the declaration of
dividends;
• Approving major investments, disposals, capital projects
or contracts;
• Approving resolutions and associated documents to be
put to general meetings of shareholders;
• Approving changes to the Board structure.
As part of the Board’s evolution, the addition of a further Non-
Executive Director is in progress.
Audit Committee Report
During the year, the Audit Committee has continued to focus
on the effectiveness of the controls throughout the Group.
The committee met twice, and the external Auditors and
the CEO and CFO were invited to attend these meetings.
Consideration was given to the Auditors’ pre and post-
audit reports and these provide opportunities to review
the accounting policies, internal control and the financial
information contained in both the annual and interim reports.
The committee reviewed the independence and performance
of the external Auditors.
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Netcall plc Annual Report and Accounts for the year ended 30 June 2019netcall.comnetcall.com21GOVERNANCE27059 21 October 2019 2:44 pm Proof 5Independent Auditor’s report to the members of Netcall plcOpinionOur opinion on the financial statements is unmodifiedWe have audited the financial statements of Netcall plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 30 June 2019, which comprise the Consolidated income statement, Consolidated statement of comprehensive income, Consolidated balance sheet, Consolidated statement of changes in equity, Consolidated cash flow statement, Parent Company balance sheet, 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 the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 ‘Reduced Disclosures Framework’ (United Kingdom Generally Accepted Accounting Practice).In our opinion:• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 June 2019 and of the group’s profit for the year then ended;• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.Basis for opinionWe 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 financial statements’ section of our report. We are independent of the group and the parent company 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 opinion.Conclusions relating to going concernWe 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 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 or 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: £229k, which represents 1% of the group’s revenue;• We performed full scope audit procedures on Netcall plc, Telephonetics Limited, Netcall Telecom Limited and Matssoft Limited; and• Key audit matters were identified as −the risk of improper recognition of revenue due to fraud; −the risk of impairment of goodwill and other intangible assets; and −the risk of impairment of investments.Key audit mattersKey audit matters are those matters that, in our professional judgement, were of most significance in our audit of the 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 financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.Netcall AR2019.indd 2121/10/2019 14:44:54 G
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Independent Auditor’s report
to the members of Netcall plc
Continued
Key Audit Matter for the group
How the matter was addressed in the audit
Risk of improper recognition of revenue due to fraud
Under International Standard on Auditing (UK) 240 ‘The
Auditor’s Responsibilities Relating to Fraud in an Audit of
Financial Statements’, there is a rebuttable presumed risk that
revenue may be misstated due to the improper recognition of
revenue due to fraud.
The group has recognised revenues of £22.9m, (2018:
£21.9m) in the year, which includes cloud and communication
services, product support, produce and other services
revenues.
The group adopted International Financial Reporting Standard
(IFRS) 15) ‘Revenue from Contracts with Customers’ for the
financial year ended 30 June 2019.
As the group’s revenue is material to the financial statements
and comprises multiple revenue streams subject to different
recognition policies that are an area of significant judgement,
the presumed risk of improper recognition of revenue due to
fraud has been identified as a significant risk, which was one of
the most significant assessed risks of material misstatement.
Risk of impairment of goodwill and other
intangible assets.
At 30 June 2019, the group had goodwill of £22.8m (2018:
£22.8m) and other intangible assets of £6.4m (2018: £6.2m).
In accordance with International Accounting Standard 36,
‘Impairment of Assets’, an annual impairment review is
required to be performed by management for goodwill, or
for other intangible assets when there is an indicator of
impairment, to determine whether the carrying value of these
assets is appropriate.
The impairment review is based on comparing the carrying
value of identified cash generating units with the forecast
future revenues and profits from those units and associated
assets, based on a value in use discounted cash flow model.
Management’s assessment of the potential impairment
of goodwill and other intangible assets incorporates key
assumptions including forecast revenues, growth rates, and
the discount rate.
Our audit work included, but was not restricted to:
•
•
•
•
assessing whether the revenue recognition policies adopted are
in accordance with IFRS 15 and checked whether management
accounted for revenue in accordance with the accounting
policies, including the accounting and disclosures for the
transition to the new IFRS;
assessing the application of IFRS 15 for each revenue stream
and in particular whether performance obligations are distinct,
should be recognised separately and whether they were
recognised at an appropriate stand-alone selling price;
testing the occurrence of revenues by selecting a sample of
transactions, throughout the year and agreeing the revenues
to signed contracts, purchase orders, cash receipts or other
supporting evidence;
testing the delivery of professional services by selecting a
sample of transactions throughout the year and agreeing
them to signed agreements/purchase orders and vouching
to supporting documentation where appropriate such as
timesheets; and
•
testing of revenue journals to highlight and corroborate any
postings that were outside of our expectations.
The group’s accounting policy on revenue recognition is shown
in note 20 to the financial statements and related disclosures are
included in note 3.
Key observations
Our testing did not identify any material misstatements in the
revenue recognised during the year which has been recognised in
accordance with the accounting policies set out in note 20.
Our audit work included, but was not restricted to:
•
•
•
•
•
•
•
assessing whether the impairment accounting policy adopted is
in accordance with accounting standards and checked whether
management have applied it appropriately;
assessing the completeness of management’s identification of
impairment indicators for other intangible assets;
comparing the carrying value of cash generating units to
management’s value in use calculations;
checking the mathematical accuracy of the impairment models;
challenging management and checking appropriateness of the
forecast growth rates to historical performance and performing
sensitivity analysis;
challenging management and assessing the appropriateness of
the discount rate applied to future cash flows by independently
calculating an appropriate rate and applying sensitivities; and
evaluating the other assumptions included in the impairment
models through, comparison with historical results, our
knowledge of the business and discussions with management.
Due to the inherent uncertainty involved in forecasting and
discounting future cash flows, we therefore identified the
impairment of goodwill and other intangible assets as a
significant risk, which was one of the most significant assessed
risks of material misstatement.
Key observations
Our testing did not identify any material misstatements within the
impairment of goodwill or other intangible assets balances within
the consolidated balance sheet.
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Key Audit Matter for the group
How the matter was addressed in the audit
Risk of impairment of investment
At 30 June 2019, the parent entity had investments of £38.2m
(2018: £37.9m).
In accordance with International Accounting Standard 36,
‘Impairment of Assets’, an impairment review is required to
be performed by management for any assets when there is
an indicator of impairment, to determine whether the carrying
value of these assets is appropriate.
The impairment review is based on comparing the carrying
value against the forecast future revenues and profits from
those investments, based on a value in use discounted cash
flow model. Management’s assessment of the potential
impairment incorporates key assumptions including forecast
revenues, growth rates, and the discount rate.
Due to the inherent uncertainty involved in forecasting and
discounting future cash flows, we therefore identified the
impairment of investments as a significant risk, which was one
of the most significant assessed risks of material misstatement.
Our audit work included, but was not restricted to:
•
•
•
•
•
•
•
•
assessing whether the impairment accounting policy adopted is
in accordance with accounting standards and checked whether
management have applied it appropriately;
assessing the completeness of management’s identification of
impairment indicators for investments;
comparing the carrying value of the investment to
management’s calculation of the recoverable amount;
checking the mathematical accuracy of the impairment models;
checking appropriateness of the forecast growth rates to
historical performance and performing sensitivity analysis;
assessing the appropriateness of the discount rate applied to
future cash flows by independently calculating an appropriate
rate and applying sensitivities;
evaluating the other assumptions included in the impairment
models through, comparison with historical results, our
knowledge of the business and discussions with management;
and
comparing the carrying value of the single CGU against the
market capitalisation of the business.
The company’s accounting policy on impairment of investments is
shown in note A(c) to the financial statements.
Our testing did not identify any material misstatements within the
impairment calculations.
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Independent Auditor’s report
to the members of Netcall plc
Continued
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.
Materiality was determined as follows:
Materiality measure
Financial statements as a whole
Performance materiality used to drive
the extent of our testing
Specific materiality
Group
£229k which is 1% of group revenue.
This benchmark is considered the most
appropriate because the group has
changed its focus and now implemented
a growth investment programme meaning
that EBITDA is reducing and revenue is
the most stable benchmark year on year.
Parent
£221k which is based on 1% of total
assets but restricted to 96% so as
not to exceed group materiality. This
benchmark is considered the most
appropriate because the parent entity
does not generate its own earnings and
acts as a holding company for the group.
Materiality for the current year is higher
than the level that we determined for
the year ended 30 June 2018 which is a
function of the increase in revenue.
Materiality for the current year is higher
than the level that we determined for the
year ended 30 June 2018 which is linked
to the growth in group revenue, as the
parent entity component materiality has
been restricted.
75% of financial statement materiality.
75% of financial statement materiality.
We also determined a lower level of
specific materiality for certain areas such
as Directors’ remuneration and related
party transactions.
We determined a lower level of specific
materiality for certain areas such as
Directors’ remuneration and related party
transactions.
Communication of misstatements to
the audit committee
£11k and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
£11k and 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 based on a thorough understanding
of the group’s business and is risk based. We take into
account the size and risk profile of each entity, any changes
in the business and other factors when determining the level
of work to be performed at each entity, which in particular
included the following considerations:
• Netcall plc has centralised processes and controls over
the key areas of our audit focus. Group management are
responsible for all judgemental processes and significant
risk areas. All accounting is centralised and we have
tailored our audit response accordingly with all audit
work undertaken by the same UK based audit team. In
assessing the risk of material misstatement to the group
financial statements we considered the transactions
undertaken by each entity and therefore where the focus
of our work was required;
• We performed full scope audits of the financial information
of the parent company Netcall plc, Telephonetics Limited,
Netcall Telecom Limited and MatsSoft Limited; and
• A targeted approach was taken to MatsSoft Holdings and
MatsSoft Inc; all other entities are insignificant to the group
or dormant, so analytical procedures were conducted
using group materiality.
Other information
The directors are responsible for the other information.
The other information comprises the information included
in the annual report and accounts, 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 financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
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misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to
determine whether there is a material misstatement in the
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.
In preparing the financial statements, the directors are
responsible for assessing the group’s and 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 group or the parent company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the 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 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.
Use of our report
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.
Adrian Bennett
Senior Statutory Auditor
For and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Cambridge
24 September 2019
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
financial statements are prepared is consistent with the
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 group
and 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 13, the directors are
responsible for the preparation of the 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 financial statements that are free
from material misstatement, whether due to fraud or error.
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Consolidated income statement
for the year ended 30 June 2019
Revenue
Cost of sales
Gross profit
Administrative expenses
Other income
Other gains/(losses) – net
Adjusted EBITDA
Depreciation
Net loss on disposal of property, plant and equipment
Impairment charge on intangible assets
Amortisation of acquired intangible assets
Amortisation of other intangible assets
Non-recurring transaction costs
Change in fair value of contingent consideration
Post completion services
Share-based payments
Operating profit
Finance income
Finance costs
Finance costs/ (income) – net
Profit before tax
Tax (charge)/ credit
Profit for the year
Earnings per share – pence
Basic
Diluted
Notes
3
5(a)
5(b)
8(a)
4(a)
8(b)
8(b)
4(b)
4(c)
4(d)
18(c)
5(f)
5(f)
6
2019
£000
22,903
(2,329)
20,574
(19,058)
–
(11)
3,411
(310)
(2)
–
(512)
(1,120)
–
865
(244)
(583)
1,505
41
(794)
(753)
752
(142)
610
2018
£000
21,875
(2,143)
19,732
(18,961)
23
(12)
5,421
(252)
–
(792)
(547)
(1,119)
(464)
–
(464)
(1,001)
782
29
(766)
(737)
45
91
136
19(a)
19(a)
0.43
0.41
0.10
0.09
All activities of the Group in the current and prior period are classed as continuing. All of the profit for the period is attributable to
the shareholders of Netcall plc. The notes on pages 31 to 63 form part of these financial statements.
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Consolidated statement
of comprehensive income
for the year ended 30 June 2019
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences arising on translation of foreign operations
Items that will not be reclassified to profit or loss
Notes
2019
£000
610
2018
Restated
£000
136
9(c)
(17)
(5)
Changes in the fair value of equity investments at fair value through other
comprehensive income
9(c)
Total other comprehensive income for the year
Total comprehensive income for the year
–
(17)
593
(216)
(221)
(85)
All of the comprehensive income for the year is attributable to the shareholders of Netcall plc. The notes on pages 31 to 63 form
part of these financial statements.
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Consolidated balance sheet
as at 30 June 2019
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Financial assets at fair value through other comprehensive income
Total non-current assets
Current assets
Inventories
Other current assets
Contract assets
Trade receivables
Other financial assets at amortised cost
Current tax asset
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Non-current liabilities
Other payables
Contract liabilities
Borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
Current liabilities
Trade and other payables
Contract liabilities
Provisions
Total current liabilities
Total liabilities
Net assets
Equity attributable to owners of the Parent Company
Share capital
Share premium
Other equity
Other reserves
Retained earnings
Total equity
Notes
8(a)
8(b)
8(c)
7(c)
8(d)
8(e)
3(c)
7(a)
7(b)
7(d)
7(g)
3(c)
7(f)
8(c)
8(f)
7(e)
3(c)
8(f)
9(a)
9(a)
9(b)
9(c)
2019
£000
1,210
29,188
501
72
30,971
165
1,314
1,178
3,864
100
–
7,769
14,390
45,361
–
207
6,632
851
77
7,767
5,265
10,395
–
15,660
23,427
21,934
7,259
3,015
4,832
4,440
2,388
21,934
2018
Restated
£000
2017
Restated
£000
445
28,938
584
72
30,039
215
1,077
1,437
6,078
117
–
5,779
14,703
44,742
925
488
6,518
754
44
8,729
5,095
9,302
128
14,525
23,254
21,488
7,242
3,015
4,832
3,917
2,482
21,488
473
11,444
505
288
12,710
334
787
1,055
2,561
28
11
12,724
17,500
44,958
–
114
–
294
112
530
2,508
6,166
–
8,674
9,204
21,006
7,054
3,015
2,697
2,854
5,386
21,006
The notes on pages 31 to 63 form part of these financial statements. These financial statements on pages 26 to 63 were
approved and authorised for issue by the Board on 24 September 2019 and were signed on its behalf by:
James Ormondroyd
Director
Netcall plc, registered no. 01812912
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Consolidated statement of
changes in equity
for the year ended 30 June 2019
Notes
9(a), 9(b)
9(c)
9(c)
6(d)
9(c)
13(b)
9(a)
9(c)
6(d)
9(c)
13(b)
Balance at 30 June 2017
Issue of ordinary shares as
consideration for acquisition in a
business combination
Proceeds from share issue
Increase in equity reserve in relation
to options issued
Tax debit relating to share options
Reclassification following exercise
or lapse of options
Dividends provided for or paid
Transactions with owners
Profit for the year
Other comprehensive income –
Restated
Total comprehensive income
for the year – Restated
Balance at 30 June 2018 – Restated
Proceeds from share issue
Increase in equity reserve in relation
to options issued
Tax credit relating to share options
Reclassification following exercise or
lapse of options
Dividends provided for or paid
Transactions with owners
Profit for the year
Other comprehensive income
Total comprehensive income
for the year
Balance at 30 June 2019
Share
capital
£000
7,054
Share
premium
£000
3,015
Other
equity
£000
2,697
Other
reserves
£000
Retained
earnings
£000
Total
£000
2,854
5,386
21,006
175
9
–
–
4
–
188
–
–
–
–
–
–
–
–
–
–
–
2,135
–
–
–
–
–
2,135
–
–
–
1,364
1
(81)
–
1,284
–
–
–
–
–
77
(3,117)
(3,040)
136
2,310
9
1,364
1
–
(3,117)
567
136
–
(221)
–
(221)
–
7,242
16
–
3,015
–
–
4,832
–
(221)
3,917
–
136
2,482
–
(85)
21,488
16
–
–
1
–
17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
633
(38)
(55)
–
540
–
(17)
–
–
54
(758)
(704)
610
–
633
(38)
–
(758)
(147)
610
(17)
–
7,259
–
3,015
–
4,832
(17)
4,440
610
2,388
593
21,934
The notes on pages 31 to 63 form part of these financial statements.
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Consolidated cash flow statement
for the year ended 30 June 2019
Cash flows from operating activities
Profit before income tax
Adjustments for:
Depreciation and amortisation
Impairment of intangible assets
Loss on disposal of property, plant and equipment
Share-based payments
Net finance costs/ (income) – net
Changes in operating assets and liabilities, net of effects from purchasing of subsidiary
undertaking:
Decrease in inventories
Decrease/ (increase) in trade receivables
Decrease/ (increase) in contract assets
Increase in other financial assets at amortised cost
Increase in other current assets
Decrease in trade and other payables
Increase in contract liabilities
(Decrease)/ increase in provisions
Cash generated from operations
Analysed as:
Cash generated from operations before payment of non-recurring transaction costs
Non-recurring transaction costs payment
Interest received
Interest paid
Income tax refunded
Net cash inflow from operating activities
Cash flows from investing activities
Payment for acquisition of subsidiary, net of cash acquired
Purchase of property, plant and equipment
Payment of software development costs
Purchase of other intangible assets
Proceeds from sale of property, plant and equipment
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from issues of ordinary shares
Proceeds from borrowings
Interest paid on Loan Notes
Dividends paid to Company’s shareholders
Net cash (outflow)/ inflow from financing activities
Net increase/ (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Effects of exchange rate on cash and cash equivalents
Cash and cash equivalents at end of period
The notes on pages 31 to 63 form part of these financial statements.
Notes
4(b)
7(g)
8(a)
8(b)
8(b)
9(a)
7(f)
13(b)
2019
£000
752
1,942
–
2
583
753
51
2,216
252
24
(257)
(242)
862
(95)
6,843
6,843
–
41
(4)
–
6,880
(591)
(1,078)
(1,532)
(350)
1
(3,550)
16
–
(590)
(758)
(1,332)
1,998
5,779
(8)
7,769
2018
£000
45
1,918
792
–
1,001
737
118
(2,575)
(377)
74
(194)
(900)
1,675
341
2,655
3,420
(765)
29
(7)
11
2,688
(10,974)
(171)
(1,764)
(137)
–
(13,046)
9
7,000
(471)
(3,117)
3,421
(6,937)
12,724
(8)
5,779
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Notes to the consolidated
financial statements
1 Significant changes in the current reporting period
The financial position and performance of the Group was particularly affected by the following event during the reporting period:
• The fair value of contingent consideration, relating to the acquisition of MatsSoft Limited, was reviewed at the year end
resulting in a credit to the income statement of £0.87m (see note 4(c)).
For a detailed discussion about the Group’s performance and financial position please refer to the Chairman’s and Chief
Executive’s review on pages 2 to 7.
2 Segment information
2(a) Description of segment and principal activities
The Group’s Board consider that there is one operating business segment being the design, development, sale and support
of software products and services, which is consistent with the information reviewed by it when making strategic decisions.
Resources are reviewed on the basis of the whole business performance.
The Board primarily uses a measure of adjusted earnings before interest, taxation, depreciation and amortisation (‘adjusted
EBITDA’) to assess the performance of the segment. It also receives information about the segment’s revenue and assets on a
monthly basis. Information about the segment revenue is disclosed in note 3(a).
2(b) Adjusted EBITDA
Adjusted EBITDA excludes the effects of significant items of income and expenditure which may have an impact on the quality
of earnings such as acquisition, contingent consideration and transaction costs and impairments when the impairment is the
result of an isolated, non-recurring event. The Board believes this gives a better view of maintainable earnings levels. It also
excludes the effects of equity-settled share-based payments.
Adjusted EBITDA reconciles to operating profit as follows:
Adjusted EBITDA
Depreciation
Net loss on disposal of property, plant and equipment
Impairment charge on intangible assets
Amortisation of acquired intangible assets
Amortisation of other intangible assets
Non-recurring transaction costs
Change in fair value of contingent consideration
Post completion services
Share-based payments
Operating profit
2019
£000
3,411
(310)
(2)
–
(512)
(1,120)
–
865
(244)
(583)
1,505
2018
£000
5,421
(252)
–
(792)
(547)
(1,119)
(464)
(464)
(1,001)
782
2(c) Segment assets and liabilities
Segment assets and liabilities are measured in the same way as in the financial statements. All non-current assets are located
in the UK.
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Notes to the consolidated
financial statements
Continued
3 Revenue from contracts with customers
3(a) Revenue by category
The Group derives revenue from the transfer of goods and services over time and at a point in time in the following major
product lines:
Cloud services
Communication services
Product support contracts
Product
Services
Timing of revenue recognition:
At a point in time
Over time
2019
£000
5,741
1,805
9,253
2,285
3,819
22,903
4,091
18,812
2018
£000
4,295
2,265
8,929
3,058
3,328
21,875
5,323
16,552
3(b) Revenue by location and major customers
The business is domiciled in the UK. The result of its revenue from external customers in the UK is £21.7m (2018: £21.1m), and
the total from external customers from other countries is £1.2m (2018: £0.78m).
No single customer accounted for more than 10% of the Group’s revenue in the year.
3(c) Assets and liabilities related to contracts with customers
The Group has recognised the following assets and liabilities related to contracts with customers:
Trade receivables
Contract assets
Contract liabilities – current
Contract liabilities – non-current
2019
£000
3,864
1,178
10,395
207
2018
£000
6,078
1,437
9,302
488
Trade receivables have decreased by £2.21m as the prior year included an atypical amount of contract billings just prior to the
year-end which were then paid in the current year. Contract assets have decreased as the Group has provided fewer services
ahead of the agreed payment schedules for fixed-price contracts. Contract liabilities have increased by £0.81m due to an
increase in advance subscription payments due to new Cloud services contracts.
3(d) Revenue recognised in relation to contract liabilities
Set out below is the amount of revenue recognised from:
Amounts included in contract liabilities at the beginning of the year.
Performance obligations satisfied in previous years
2019
£000
9,302
–
2018
£000
6,170
–
3(e) Unsatisfied long-term contracts
The unsatisfied performance obligations for communication services, product and professional service revenues are a part of a
contract that has an original expected duration of one year or less.
The unsatisfied performance obligations for Cloud services and product support contracts as at 30 June may span a duration of
more than one year, and as at 30 June are as follows:
Within one year
More than one year
2019
£000
11,395
10,700
2018
£000
9,068
8,378
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3(f) Accounting policies and significant judgements
The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018 on a retrospective basis. IFRS
15 replaced all existing revenue recognition requirements in IFRS and sets out a comprehensive framework for determining
whether, when and how much revenue to recognise. The Group has completed its assessment of IFRS 15 and has not identified
any material differences between the requirements of IFRS 15 and the Group’s previous revenue recognition policy. Accordingly,
no financial restatement was required.
Revenue is recognised at the fair value of the right to the consideration received or receivable for goods sold and services
provided in the normal course of business during the year. Revenue is shown net of value added tax, returns, rebates and
discounts and after eliminating sales within the Group.
Critical judgements in recognising revenue and allocating the transaction price
Revenue is recognised upon transfer of control of the promised product and/or services to customers. The Group enters into
contracts which can include combinations of services, products, support fees and other professional services, each of which
is capable of being distinct and is usually accounted for as a separate performance obligation. Where there are multiple
performance obligations, revenue is measured at the value of the expected consideration received in exchange for the products
or services, allocated by the relative stand-alone selling prices of each of the performance obligations.
The Group generates revenue principally through the supply of:
• Cloud services – comprises the subscription and usages fees to access our software through a hosted solution. The
software, maintenance and support and hosting elements are not distinct performance obligations, and represent a
combined service provided to the customer. Revenue is recognised as the service is provided to the customer on a straight-
line basis over the period of supply.
• Product support contracts – provides customers with software updates, system monitoring and tuning and technical
support services. Revenues are recognised over time on a straight-line basis over the contract period.
• Communication services – revenues comprise fees for telephony and messaging services. Fees are recognised when the
call or message has been delivered over the Group’s network;
• Product – consists of software product license fees and hardware. Revenue for products is recognised at a point in time
when the customer has control of the asset; and,
• Services – consists primarily of consultancy, implementation services and training. Revenue from these services is
recognised as the services are performed by reference to the costs incurred as a proportion of the total estimated costs of
the service project. If an arrangement includes both software license or subscriptions and service elements, an assessment
is made as to whether the software element is distinct in the context of the contract, based on whether the services provided
significantly modifies or customises the base product. Where it is concluded that a licence is distinct, the licence element
is recognised as a separate performance obligation. In all other cases, revenue from both licence and service elements is
recognised when control is deemed to have passed to the customer.
Where invoices are raised in advance of the performance obligations being satisfied, these are recorded on the balance sheet
as contract liabilities. This deferred income relates predominantly to services which are recognised on a straight-line basis
over the period of supply. These services are typically invoiced at the beginning of the provision of service and the associated
revenue is recognised over the service period which typically ranges from one to five years.
Where Group recognition criteria have been met but no invoice to the customer has been raised at the reporting date, revenue
is recognised and included as a contract asset.
The Group has voluntarily changed the presentation of certain amounts in the balance sheet to reflect the terminology of IFRS
15 including the comparative amounts:
• Contract assets were previously presented as part of trade and other receivables (£1.44m as at 30 June 2018; £1.06m as at
1 July 2017).
• Contract liabilities previously included in deferred income (£9.79m as at 30 June 2018; £6.28m as at 1 July 2017).
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Notes to the consolidated
financial statements
Continued
4 Material profit or loss items
The Group identified a number of items which are material due to the significance of their nature and/or their amount. These are
listed separately here to provide a better understanding of the financial performance of the Group.
Impairment charge on intangible assets
Non-recurring transaction costs
Change in fair value of contingent consideration
Post-completion services expense
Notes
4(a)
4(b)
4(c)
4(d)
2019
£000
–
–
865
(244)
621
2018
£000
(792)
(464)
–
(464)
(1,720)
4(a) Impairment charge on intangible assets
Following the acquisition of MatsSoft Limited in August 2017 management undertook a review of its enlarged product
portfolio. The review concluded that the Group would market Citizen Hub, built on MatsSoft’s Low-code platform instead of
its CXM product. As a result of this decision the carrying value of £0.79m of internally generated software assets relating to
CXM, included within intangible assets, was written down to £nil in the prior period. The impairment charge is included in
‘administrative expenses’ in the income statement.
4(b) Non-recurring transaction costs
In 2017, the Parent Company expensed professional advisor fees of £0.46m in connection with the acquisition of MatsSoft Ltd.
These costs are included in ‘administrative expenses’. The Company paid £0.76m in 2018 in relation to these expenses and
related amounts included in trade and other payables on 1 July 2017.
4(c) Change in fair value of contingent consideration
The purchase of MatsSoft Ltd included a contingent consideration arrangement based on certain performance obligations.
These were initially recorded at fair value, which is the present value of the expected payments. At the year-end the estimates
of achieving the performance obligations were reassessed. This resulted in a reduction in the fair value of the contingent
consideration liability with a corresponding credit to the income statement of £0.87m.
4(d) Post-completion services expense
A number of former owners of MatsSoft Ltd continued to work in the business following its acquisition and in accordance with
IFRS 3 a proportion of the contingent consideration arrangement is treated as remuneration and expensed in the income
statement (see note 7(g)).
5 Other income and expenses items
This note provides a breakdown of items included in ‘other income’, ‘other gains/(losses)’, ‘finance income and costs’ and an
analysis of expenses by nature and employee benefit expenses.
5(a) Other income
Rental income
5(b) Other gains/(losses)
Net foreign exchange (losses)/gains
Net loss on disposal of property, plant and equipment
Total other gains/(losses)
2019
£000
–
2019
£000
(9)
(2)
(11)
2018
£000
23
2018
£000
(12)
–
(12)
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5(c) Breakdown of expenses by nature
Inventory recognised as an expense
Employee benefit expenses
Depreciation and amortisation
Impairment of other intangible assets
Operating lease payments
Non-recurring transaction costs
Other expenses
Total cost of sales and administrative expenses
Notes
5(d)
8(a), 8(b)
4(a)
15(a)
4(b)
Research and development costs of £1.68m have been expensed during the year (2018: £1.90m).
The table below sets out the cost of services provided by the Company’s auditors and its associates:
Fees payable to Company’s auditor for the audit of Parent Company and consolidated financial
statements
Fees payable to the Company’s auditor for other services:
– the audit of the Company’s subsidiaries pursuant to legislation
– assurance related services
– corporate finance services
5(d) Breakdown of employee benefit expenses
Wages and salaries
Less: internal development costs capitalised in the year
Social security costs
Share options granted to Directors and employees
Pension costs – defined contribution plans
5(e) Average number of people employed during the year
Average number of people (including Executive Directors) employed:
Sales and marketing
Development and operations
Management and administration
Total average headcount
Notes
18(a)
2019
£000
266
14,047
1,942
–
297
–
4,835
21,387
2018
£000
362
12,350
1,918
792
334
464
4,884
21,104
2019
£000
2018
£000
20
35
7
–
62
2019
£000
12,791
(1,333)
1,463
507
619
14,047
2019
£000
65
140
25
230
20
33
7
29
89
2018
£000
11,424
(1,710)
1,327
848
461
12,350
2018
£000
67
128
22
217
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Notes to the consolidated
financial statements
Continued
5 Other income and expenses items continued
5(f) Finance income and costs
Finance income
Interest income from financial assets held for cash management purposes
Interest income on available-for-sale financial assets
Finance income
Finance costs
Interest and finance charges paid/ payable for financial liabilities at amortised cost
Borrowings: unwinding of discount (see note 7(f))
Other payables: unwinding of discount (see note 7(g))
Finance costs expensed
Net finance (costs)/ income
2019
£000
2018
£000
41
–
41
613
114
67
794
(753)
29
–
29
558
102
106
766
(737)
6 Tax expense
This note provides an analysis of the Group’s tax expense, shows what amounts are recognised directly in equity and how the
tax expense is affected by non-assessable and non-deductible items. It also explains significant estimates made in relation to
the Group’s tax position.
6(a) Tax expense
Current tax
Current tax on profits for the year
Adjustments in respect of prior years
Total current tax expense
Deferred tax
Decrease/(increase) in deferred tax assets
Increase/(decrease) in deferred tax liabilities
Total deferred tax expense/(credit)
Total tax charge/(credit)
2019
£000
2018
£000
–
–
–
45
97
142
142
–
–
–
(77)
(14)
(91)
(91)
6(b) Significant estimate – tax
The Group is subject to United Kingdom corporate taxation and judgement is required in determining the provision for income
and deferred taxation. The Group recognises taxation assets and liabilities based upon estimates and assessments of many
factors including past experience, advice received on the relevant taxation legislation and judgements about the outcome of
future events. To the extent that the final outcome of these matters is different from the amounts recorded, such differences will
impact on the taxation charge made in the Consolidated Income Statement in the period in which such determination is made.
The Group has tax losses available for carrying forward against future taxable income of £8.39m (2018: £6.94m). The Group
has recognised a deferred tax asset of £0.37m (2018: £0.36m) which is 25% of the total loss as management consider that it is
more likely than not that the future taxable profits will exceed this amount within the next five years.
In addition, the Group has not recognised a deferred tax asset of £1.14m (2018: £1.14m) in respect of losses that are capital in
nature amounting to £6.68m (2018: £6.68m) or a deferred tax asset of £0.20m (2018: £0.38m) in relation to temporary timing
differences due to share-based payment charges of £1.03m (2018: £1.98m).
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6(c) Reconciliation of tax expense to prima facie tax payable
The tax charge on the Group’s profit before tax differs from the theoretical amount that would arise using the standard rate of
corporation tax in the UK as explained below:
Profit before tax
Tax expense calculated at 19% (2018: 19%)
Tax effects of:
– expenses not deductible for tax purposes
– change in fair value of contingent consideration
– additional deductions for R&D expenditure
– utilisation of previously unrecognised tax losses
– tax losses arising in the period not provided as a deferred tax asset
– relief for employee share schemes
– other
Adjustment in respect of prior years
Total tax charge/ (credit)
6(d) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the year and not recognised in net profit or loss or
other comprehensive income but directly debited or credited to equity:
Deferred tax: share-based payments
7 Financial assets and liabilities
This note provides information about the Group’s financial instruments including:
• an overview of all financial instruments held by the Group;
•
specific information about each type of financial instrument;
• accounting policies; and,
2019
£000
752
143
262
(177)
(302)
(17)
252
(30)
11
–
142
2018
£000
45
9
337
–
(211)
(222)
29
(35)
2
–
(91)
2019
£000
2018
£000
(38)
(38)
1
1
•
information about determining the fair value of the instruments including judgements and estimation of uncertainty involved.
The Group holds the following financial instruments:
Financial assets
Financial assets at fair value through other comprehensive income
Financial assets at amortised cost
• Trade receivables
• Contract assets
• Other financial assets at amortised cost
• Cash and cash equivalents
Total financial assets
Financial liabilities
Liabilities at amortised cost
• Trade and other payables (excluding statutory liabilities)
• Borrowings
Total financial liabilities
Notes
2019
£000
2018
£000
7(c)
7(a)
3(c)
7(b)
7(d)
7(e), 7(g)
7(f)
72
72
3,864
1,178
100
7,769
12,983
4,575
6,632
11,207
6,078
1,437
117
5,779
13,483
4,982
6,518
11,500
The Group’s exposure to various risks associated with the financial instruments is discussed in note 12. The maximum exposure
to credit risk at the end of the reporting period is the carrying amount of each class of financial asset mentioned above.
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Notes to the consolidated
financial statements
Continued
7 Financial assets and liabilities continued
7(a) Trade receivables
Current assets
Trade receivables
Loss allowance (see note 12(c))
2019
£000
3,946
(82)
3,864
2018
£000
6,179
(101)
6,078
Classification as trade receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business.
They are generally due for settlement within 30 days and therefore are all classified as current. Trade receivables are recognised
initially at the amount of consideration that is unconditional unless they contain significant financing components, when they
are recognised at fair value. The Group holds the trade receivables with the purpose of collecting the contractual cash flows
and therefore measures them subsequently at amortised cost using the effective interest method. Details about the Group’s
impairment policies and the calculation of the loss allowance are provided below.
Fair values of trade receivables
Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.
Impairment and risk exposure
Information about the impairment of trade receivables and the Group’s exposure to credit risk, foreign currency risk and interest
rate risk can be found in notes 12(a), 12(b), and 12(c).
7(b) Other financial assets at amortised cost
Other receivables
2019
£000
100
100
2018
£000
117
117
Classification as financial assets at amortised cost
The Group classifies its financial assets as at amortised cost only if both of the following criteria are met:
•
•
the asset is held within a business model whose objective is to collect the contractual cash flows, and
the contractual terms give rise to cash flows that are solely payments of principal and interest.
Fair values of other financial assets at amortised cost
Due to the short-term nature of the current other receivables, their carrying amount is considered to be the same as their fair
value.
Impairment and risk exposure
Information about the impairment of other financial assets amortised at cost can be found in note 12. All amounts due are within
one year and are denominated in UK pounds.
7(c) Financial assets at fair value through other comprehensive income
Classification of financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income (FVOCI) comprise equity securities which are not held for
trading, and which the group has irrevocably elected at initial recognition to recognise in this category. These are strategic
investments and the Group considers this classification to be more relevant. On disposal of these equity investments, any
related balance within the FVOCI reserve is reclassified to retained earnings.
In the prior financial year, the Group had designated equity investments as available-for-sale where management intended to
hold them for the medium to long term. Note 20(a) explains the change of accounting policy and the reclassification of certain
equity investments from available-for-sale to at FVOCI.
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Equity investments at fair value through other comprehensive income
Non-current assets
Unlisted equity
Macranet Ltd
2019
£000
2018
Restated
£000
2017
Restated
£000
72
72
288
The investment is denominated in sterling (£). The investment in Macranet Ltd (a provider of social media engagement
solutions) has a historic cost of £0.29m. The fair value measurement is classified as level 3 in the hierarchy as there is no
observable market data. The Company is a minority investor alongside Draper Esprit VCT plc, a quoted venture capital
trust. They have established fair value using the Private Equity and Venture Capital Guidelines. In line with this valuation the
Company has recognised a change in the fair value of the investment of £0.22m in the prior year through other comprehensive
income.
7(d) Cash and cash equivalents
Cash at bank and in hand
Deposits at call
Cash and cash equivalents
2019
£000
7,769
–
7,769
2018
£000
5,779
–
5,779
Classification as cash equivalents
Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and
are repayable with 24 hours’ notice with no loss of interest.
7(e) Trade and other payables
Current liabilities
Trade payables
Payroll tax and other statutory liabilities
Other payables
2019
£000
336
690
4,239
5,265
2018
£000
373
1,038
3,684
5,095
Trade payables are unsecured and are usually paid within 30 days of recognition.
Other payables includes the fair value of contingent consideration liabilities of £1.68m (2018: £1.82m) see note 7(g).
The carrying amounts of the remainder of trade and other payables are considered to be the same as their fair values, due
to their short-term nature.
7(f) Borrowings
Unsecured
Loan Notes
Total borrowings
2019
Current
£000
2019
Non-current
£000
–
–
6,632
6,632
2019
Total
£000
6,632
6,632
2018
Current
£000
2018
Non-current
£000
–
–
6,518
6,518
2018
Total
£000
6,518
6,518
Immediately prior to the acquisition of MatsSoft, on 4 August 2017, the Company entered into a subscription agreement with
Business Growth Fund (‘BGF’) for a £7.0m investment. The investment comprises the issue of a £7.0m Loan Note and the
award of options over 4,827,586 new ordinary shares of 5p each at a price of 58p per share. The Loan Note is unsecured, has
an annual interest rate of 8.5% payable quarterly in arrears and is repayable in six instalments from 30 September 2022 to 31
March 2025.
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Notes to the consolidated
financial statements
Continued
7 Financial assets and liabilities continued
7(f) Borrowings continued
In the prior year the £7.0m investment was allocated between the fair value of the Loan Note, £6.42m, and the fair value of the
share options granted, £0.58m which are classified as equity instruments. The fair value of the share options was determined
using the Binomial valuation method. The significant inputs into the model were the mid-market share price of 66.5p at the grant
date, volatility of 25%, dividend yield of 1.85%, an expected option life of five years, and an annual risk-free interest rate of
0.267%. The total expense relating to the fair value of the share options is being charged to the income statement over the five-
year option life. The Loan Notes are presented in the balance sheet as follows:
Face value of notes issued
Share schemes reserve – value of share option
Unwinding of discount:
Opening balance
Movement in the year
Closing balance
Non-current liability
2019
£000
7,000
(584)
6,416
102
114
216
6,632
Details of the Group’s exposure to risks arising from borrowings are set out in note 12.
7(g) Other payables - contingent consideration
Contingent consideration
2019
Current
£000
1,680
2019
Non-current
£000
–
2019
Total
£000
1,680
2018
Current
£000
1,824
2018
Non-current
£000
925
Movements in contingent consideration liability during the year are set out below:
Opening balance
Acquisition of MatsSoft Limited
Charged/ (credited) to profit or loss:
– post-completion services expense(1)
– unwinding of discount
– change in fair value of contingent consideration(2)
Amounts paid during the year
Closing balance
2019
£000
2,749
–
320
67
(865)
(591)
1,680
2018
£000
7,000
(584)
6,416
–
102
102
6,518
2018
Total
£000
2,749
2018
£000
–
2,338
617
106
–
(312)
2,749
(1) Of which: £0.24m (2018: £0.46m) relates to contingent cash consideration and is included as ‘post-completion services’; and £0.08m (2018: £0.16m)
relates to contingent share consideration and is included as ‘share-based payments’, both within ‘administrative expenses’.
(2) The purchase of MatsSoft Limited included a contingent consideration arrangement based on certain performance obligations. These were initially
recorded at fair value, which is the present value of the expected payments. At the year-end the estimates of achieving the performance obligations were
reassessed. This resulted in a reduction in the fair value of the contingent consideration liability with a corresponding credit to the income statement of
£0.87m.
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8 Non-financial assets and liabilities
This note provides information about the Group’s non-financial assets and liabilities, including:
•
specific information about each type of non-financial asset and non-financial liability
− property, plant and equipment (note 8(a))
− intangible assets (note 8(b))
− deferred tax balances (note 8(c))
− inventories (note 8(d))
− other current assets (note 8(e))
− provisions (note 8(f))
• accounting policies
•
information about determining the fair value of the asset and liabilities, including judgements and estimation of the
uncertainty involved.
8(a) Property, plant and equipment
Cost
At 30 June 2017
Acquisition of subsidiary
Additions
Disposals
At 30 June 2018
Additions
Disposals
At 30 June 2019
Accumulated depreciation
At 30 June 2017
Disposals
Depreciation charge
At 30 June 2018
Disposals
Depreciation charge
At 30 June 2019
Net book amount
At 30 June 2017
At 30 June 2018
At 30 June 2019
Furniture,
fittings and
equipment
£000
Computer
equipment
£000
427
21
2
–
450
804
(260)
994
335
–
70
405
(258)
121
268
92
45
726
1,210
32
169
–
1,411
274
(1)
1,684
829
–
182
1,011
–
189
1,200
381
400
484
Total
£000
1,637
53
171
–
1,861
1,078
(261)
2,678
1,164
–
252
1,416
(258)
310
1,468
473
445
1,210
Depreciation expense of £0.31m (2018: £0.25m) has been charged in ‘administrative expenses’.
Depreciation methods and useful lives
Depreciation is calculated using the straight-line method to allocate their cost less their residual values over their estimated
useful lives, as follows:
• Computer equipment
3–7 years
• Furniture, fittings and equipment 3–7 years.
See note 20(n) for the other accounting policies relevant to property, plant and equipment.
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Notes to the consolidated
financial statements
Continued
8 Non-financial assets and liabilities continued
8(b) Intangible assets
Customer
contracts and
relationships
£000
Brand
names
£000
Acquired
software
£000
Goodwill
£000
Internally
generated
software
£000
Trademarks
and
licenses
£000
Total
£000
Cost
At 30 June 2017
Acquisition of
subsidiary
Additions
Disposals
At 30 June 2018
Additions
Disposals
At 30 June 2019
Accumulated amortisation
At 30 June 2017
Impairment charge
Amortisation charge
Disposals
At 30 June 2018
Amortisation charge
Disposals
At 30 June 2019
Net book amount
At 30 June 2017
At 30 June 2018
At 30 June 2019
4,136
12
–
–
4,148
300
–
4,448
3,961
–
112
–
4,073
71
–
4,144
175
75
304
60
206
–
–
266
–
–
266
60
–
63
–
123
69
–
192
–
143
74
3,278
7,160
4,760
997
20,391
2,237
–
–
5,515
–
–
5,515
2,185
–
372
–
2,557
372
–
2,929
1,093
2,958
2,586
15,597
–
–
22,757
–
–
22,757
–
–
–
–
–
–
–
–
7,160
22,757
22,757
–
1,764
–
6,524
1,532
–
8,056
2,135
792
989
–
3,916
949
–
4,865
2,625
2,608
3,191
–
137
–
1,134
50
–
1,184
607
–
130
–
737
171
–
908
390
397
276
18,052
1,901
–
40,344
1,882
–
42,226
8,948
792
1,666
–
11,406
1,632
–
13,038
11,443
28,938
29,188
Amortisation of £1.63m (2018: £1.67m) and impairment charges of £nil (2018: £0.79m) are included within ‘administrative
expenses’.
Amortisation methods and useful lives
The Group amortises intangible assets with a limited useful life using the straight-line method over the following periods:
• Brand names
• Acquired software
• Customer contracts and relationships
•
Internally generated software
• Trademarks and licenses
18 months
4–15 years
7–10 years
4 years
3–10 years.
See note 20(o) for the other accounting policies relevant to intangible assets, and note 20(i) for the Group’s policy regarding
impairments.
Significant estimate – useful lives of acquired intangible assets
These useful lives are based on management’s estimates of the period that the assets will generate revenue. These estimates
are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying
value and amounts charged to the Consolidated Income Statement in specific periods.
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Significant estimate – internally generated software capitalisation and impairment
During the year, the Group capitalised £1.53m (2018: £1.76m) of expenses as internally generated software assets. The Group
is required to assess whether expenditure on research and development should be recognised as an internally generated
intangible asset on the balance sheet. The recognition criteria include a number of judgements regarding the development’s
feasibility, the probable future economic benefits and being able to measure reliably the expenditure attributable to the intangible
asset during its development. The assessments and estimates used by the Group could have a significant impact on the amount
of expenditure capitalised.
Any such assets capitalised are: subject to impairment reviews whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable; and are amortised over their useful lives in accordance with the accounting
policy stated above. Changes to estimates can result in significant variations in the carrying value and amounts charged to the
Consolidated Income Statement in specific periods. The carrying value of capitalised internally generated software amounted to
£3.19m (2018: £2.61m) after an impairment charge of £nil (2018: £0.79m) (see note 4(a)).
Impairment tests for goodwill
Goodwill is monitored by management at the level of the operating segment identified in note 2 which is considered to be a
single cash-generating unit (‘CGU’). Goodwill was tested for impairment on 30 June 2019 following IAS 36 criteria. Management
compared the carrying value of the CGU to the value-in-use, to confirm that no impairment of goodwill is necessary, as is shown
in the table below:
Netcall
Goodwill
£000
22,757
Acquired
intangibles
£000
2,964
Carrying
value
£000
25,721
Value-in-use
£000
33,545
Excess
value-in-use
£000
7,824
Sensitivity
%
30
The sensitivity shows the excess of value-in-use in relation to the carrying value of the CGU. Management is not aware of any
probable changes that would require changes in its key estimates that would lead to impairment. The key assumption impacting
the value in use is the revenue forecast.
Significant estimate – key assumptions used for value-in-use calculation
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in
note 20(i). The recoverable amount of the CGU was determined based on value-in-use calculations which require the use of
assumptions. The calculations use cash flow projections based on the most recent financial plan approved by the Board for the
five years ending 30 June 2024 and terminal values based on the perpetuity of cash generated with a 1.4% long-term growth
rate applied. The forecast and growth assumption for the CGU is based on management’s experience and understanding of
the market place for its software. Forecasts and terminal values for both cash-generating units were discounted at a pre-tax
adjusted discount rate of 10% (2018: 10%). The pre-tax discount rates are based on the Group’s weighted average cost of
capital.
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Notes to the consolidated
financial statements
Continued
8 Non-financial assets and liabilities continued
8(c) Deferred tax balances
Deferred tax assets
The balance comprises temporary differences attributable to:
Tax losses
Accelerated tax depreciation
Share-based payments
Other
The movement in deferred tax assets during the year was:
2019
£000
366
–
98
37
501
Deferred tax assets
At 30 June 2017
Acquisition of subsidiary
Credited /(charged) to the income statement
Credited to equity
At 30 June 2018
Credited/ (charged) to the income statement
Charged to equity
At 30 June 2019
Accelerated
tax
depreciation
£’000
3
–
(3)
–
–
–
–
–
Share-based
payments
£’000
175
–
33
1
209
(73)
(38)
98
Tax
losses
£’000
306
–
54
–
360
6
–
366
Other
temporary
differences
£’000
21
1
(7)
–
15
22
–
37
See note 6(b) for details of significant estimates relating to tax losses.
Deferred tax liabilities
The balance comprises temporary differences attributable to:
Acquired intangibles
Internally generated software assets
Accelerated tax depreciation
The movement in deferred tax liabilities during the year was:
2019
£000
360
413
78
851
Deferred tax liabilities
At 30 June 2017
Acquisition of subsidiary
(Credited)/charged to the income statement
At 30 June 2018
Charged/(credited) to the income statement
At 30 June 2019
Accelerated
tax
depreciation
£’000
–
8
(5)
3
75
78
Acquired
intangibles
£’000
34
466
(72)
428
(68)
360
Internally
generated
software
assets £’000
260
–
63
323
90
413
2018
£000
360
–
209
15
584
Total
£’000
505
1
77
1
584
(45)
(38)
501
2018
£000
428
323
3
754
Total
£’000
294
474
(14)
754
97
851
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8(d) Inventories
Current assets
Goods for resale
2019
£000
2018
£000
165
215
The cost of individual items are determined on first-in first-out basis. See note 20(m) for the Group’s other accounting policies
for inventories.
Inventories recognised as an expense during the year amounted to £0.27m (2018: £0.36m) of which write downs of inventories
to net realisable value amounted to £nil (2018: £0.04m). These were recognised as an expense during the year and included in
‘cost of sales’.
8(e) Other current assets
Prepayments
8(f) Provisions
Dilapidations
Total provisions
2019
£000
1,314
1,314
2019
Current
£000
–
–
2019
Non-current
£000
77
77
2019
Total
£000
77
77
2018
Current
£000
128
128
2018
Non-current
£000
44
44
2018
£000
1,077
1,077
2018
Total
£000
172
172
The dilapidations provision provides for the estimated costs of restoring the Group’s leasehold properties at lease termination,
to the condition in which they were originally leased. The majority of the provision is anticipated to be utilised in June 2021.
Movements in provisions
Movements in each class of provision during the year are set out below:
At 30 June 2017
Acquisition of MatsSoft Limited
Charged to profit or loss:
additional provision
− unused amounts reversed
Amounts used during the year
At 30 June 2018
Charged to profit or loss:
− additional provision
− unused amounts reversed
Amounts used during the year
At 30 June 2019
Dilapidations
£000
122
120
21
(73)
(18)
172
39
(60)
(74)
77
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Notes to the consolidated
financial statements
Continued
9 Equity
9(a) Share capital and premium
At 30 June 2017
Issue of ordinary shares as consideration for acquisition of a
business combination
Employee share schemes issue (note 19(a))
At 30 June 2018
Employee share schemes issue (note 19(a))
At 30 June 2019
Number
of shares
141,071,756
3,499,864
275,156
144,846,776
329,507
145,176,283
Ordinary
shares
£000
7,054
Share
premium
£000
3,015
175
13
7,242
17
7,259
–
–
3,015
–
3,015
Total
£000
10,069
175
13
10,257
17
10,274
Share capital
Share capital represents the nominal value of equity shares and comprises ordinary shares with a par value of 5 pence. They
entitle the holder to participate in dividends, and to share in the proceeds of winding up the Company in proportion to the number
of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or
by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. All issued shares are fully paid.
The Company purchased none of its own shares during the year (2018: nil). The total number of ordinary shares held in
Treasury at the end of the year was 1,869,181 (2018: 1,869,181), the value of which is included within a Treasury Reserve (see
note 9(c)).
Information relating to the share options, including details of options issued, exercised and lapsed during the financial year and
options outstanding at the end of the year, is set out in note 18.
Share premium
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.
9(b) Other equity
At 30 June 2017
Additions
At 30 June 2018 and 30 June 2019
Merger
reserve
£000
2,509
2,135
4,644
Capital
reserve
£000
188
–
188
Total
£000
2,697
2,135
4,832
Merger reserve
Merger reserve includes the premium arising on the fair values ascribed to shares issued in the course of business combinations
where over 90% of the issued share capital of the acquiree is acquired by the Company.
Capital reserve
Capital reserve represents amounts set aside following a capital reduction scheme;
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The table below shows a breakdown of the balance sheet line item ‘other reserves’ and the movements in these reserves during
the year. A description and purpose of each reserve is provided below the table.
At 30 June 2017
Increase in equity reserve in relation to options
issued
Tax credit relating to share options
Reclassification following exercise or lapse of
options
Exchange differences arising on translation of
foreign operations
Revaluation
At 30 June 2018
Increase in equity reserve in relation to options
issued
Tax debit relating to share options
Reclassification following exercise or lapse of
options
Exchange differences arising on translation of
foreign operations
At 30 June 2019
Treasury
shares
£000
(419)
Share option
reserve
£000
3,273
Foreign
currency
translation
£000
–
Financial
assets at
FVOCI
£000
–
–
–
–
–
–
(419)
–
–
–
–
(419)
1,364
1
(81)
–
–
4,557
633
(38)
(55)
–
5,097
–
–
–
(5)
–
(5)
–
–
–
–
–
–
–
(216)
(216)
–
–
–
(17)
(22)
–
(216)
Total
£000
2,854
1,364
1
(81)
(5)
(216)
3,917
633
(38)
(55)
(17)
4,440
Treasury shares
Treasury shares represents shares in Netcall plc purchased and retained by the Parent Company.
Share option reserve
Share option reserve represents equity-settled share-based payments until such share options are exercised.
Foreign currency translation
Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income as
described in note 20(d) and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or
loss when the net investment is disposed of.
Financial asset at FVOCI
The Group has elected to recognise changes in the fair value of certain investments in equity securities in other comprehensive
income. These changes are accumulated within the financial assets FVOCI reserve within equity. The Group transfers amounts
from this reserve to retained earnings when the relevant equity securities are derecognised.
10 Net Funds/ (Debt) reconciliation
This section sets out an analysis of net funds/ (debt) and the movements in net funds/ (debt) for each year presented.
10(a) Net Funds/ (Debt)
Cash & cash equivalents
Borrowings – fixed interest and repayable after one year
2019
£000
7,769
(6,632)
1,137
2018
£000
5,779
(6,518)
(739)
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Notes to the consolidated
financial statements
Continued
10 Net Funds/ (Debt) reconciliation continued
10(b) Movements in Net Funds/ (Debt)
At 30 June 2017
Cash flow
Share-based payment reserve (note 7(f))
Unwinding of discount (note 7(f))
Foreign exchange adjustments
At 30 June 2018
Cash flow
Unwinding of discount (note 7(f))
Foreign exchange adjustments
At 30 June 2019
Cash & cash
equivalents
£000
12,724
(6,937)
–
–
(8)
5,779
1,998
–
(8)
7,769
Borrowings
due after
1 year
£000
–
(7,000)
584
(102)
–
(6,518)
–
(114)
–
(6,632)
Total
£000
12,724
(13,937)
584
(102)
(8)
(739)
1,998
(114)
(8)
1,137
11 Critical estimates and judgements
The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the
actual results. Management also need to exercise judgement in applying the Group’s accounting policies.
This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are
more likely to be materially adjusted due to estimates and assumptions turning out to be wrong. Detailed information about each
of these estimates and judgements is included in other notes together with information about the basis of calculation for each
affected line item in the financial statements.
The areas involving significant judgement or estimate are:
• Recognition of revenue and allocation of transaction price – note 3
• Estimation of current tax payable and current tax expense – note 6(b)
• Recognition of deferred tax assets for carried forward tax losses – note 6(b)
• Estimation of useful life of intangible assets – note 8(b)
• Estimated impairment of internally generated software assets – note 8(b)
• Estimated recoverable value of goodwill – note 8(b)
• Estimation of fair values of contingent purchase consideration in a business combination – note 7(g)
• Estimation of fair value of share-based payments – note 18
Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including
expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the
circumstances.
12 Financial risk management
This note explains the Group’s exposure to financial risks and how these risks could affect the Group’s future financial
performance. Current year profit and loss information has been included where relevant to add further context.
The Board has overall responsibility for the determination of the Group’s financial risk management objectives and policies and,
while retaining ultimate responsibility for them, it has delegated the authority for designing, operating and reporting thereof to
the Group’s finance function. The overall objective is to set policies that seek to reduce risk as far as possible without unduly
affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below.
The principal financial instruments used by the Group are bank deposits, trade receivables, other financial assets at amortised
cost, trade payables that arise directly from its operations and borrowings. The main purpose of these financial instruments is
to provide finance for the Group’s operations. The main risks arising from these financial instruments are: market risk (including
currency risk and interest rate risk), credit risk and liquidity risk.
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12(a) Market Risk – Foreign currency
The Group conducts some trade in Euros and US dollars and therefore holds a small amount of cash and trade balances in
these currencies, as set out below:
At 30 June 2019
Trade receivables
Contract assets
Other financial assets at amortised cost
Cash and cash equivalents
Trade and other payables (excluding statutory liabilities)
At 30 June 2018
Trade receivables
Contract assets
Other financial assets at amortised cost
Cash and cash equivalents
Trade and other payables (excluding statutory liabilities)
US dollar
£000
Euro
£000
Total
£000
38
–
–
86
(22)
102
40
–
–
125
(21)
144
111
–
–
4
(10)
105
50
–
–
19
(27)
42
149
–
–
90
(32)
207
90
–
–
144
(48)
186
The Group does not consider there to be a material foreign exchange risk and therefore does not hedge against movements in
foreign currency. A 10% movement in the exchange rate between sterling and the Euro or US dollar would not have a material
effect on the net assets or net profit of the Group.
12(b) Market Risk – Interest rate
The Group’s borrowings are at a fixed rate of interest. Therefore, the Group’s interest rate risk arises principally from bank
deposits. The Group manages its cash held on deposit to gain reasonable interest rates whilst maintaining sufficient liquidity
to support the Group’s strategy by placing a proportion of cash into short-term treasury deposits and retaining the balance in
current accounts. The average interest rate gained on cash held during the year was 0.6% (2018: 0.5%). A 1% movement in
interest rates would impact upon equity and net profit by approximately £52,000 (2018: £50,000).
12(c) Credit risk
The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting
date, which are principally cash and cash equivalents, trade receivables and contract assets.
Cash and cash equivalents are held at banks with good independent credit ratings in accordance with the Group treasury policy.
The Group is mainly exposed to credit risk from credit sales. It is Group policy to assess credit risk of new customers before
entering contracts and actively manage the collections process. Historically, bad debts across the Group have been low. The
concentration of credit risk is limited due to the large and unrelated customer base comprising mainly blue chip companies and
public sector organisations.
The Group’s management considers that its financial assets that are not impaired or past due for each of the reporting dates
under review are of good credit quality. All receivables are subject to regular review to ensure that they are recoverable and any
issues identified as early as possible.
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Notes to the consolidated
financial statements
Continued
12 Financial risk management continued
12(c) Credit risk continued
Impairment
The Group’s financial assets that are subject to the expected credit loss model: trade receivables from contracts with customers
and contract assets.
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was
immaterial.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables and contract assets.
The payment profiles and historical credit losses experienced over a period of three years to 30 June 2019 has been reviewed,
and as incidence of credit losses is very low, a single-loss rate has been applied to trade receivables from contracts. Contract
assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the
same types of contracts. The Group has therefore concluded that the expected loss rates for trade receivables are a reasonable
approximation of the loss rates for the contract assets.
On that basis, the loss allowance as at 30 June 2019 and 1 July 2018 (on adoption of IFRS 9) was determined as follows for
both trade receivables and contract assets:
Expected loss rate
Gross carrying amount – trade receivables
Gross carrying amount – contract assets
Loss allowance
2019
£000
2.2%
3,946
1,178
111
2018
£000
2.9%
6,179
1,437
219
The closing loss allowances for trade receivables and contract assets as at 30 June 2019 reconcile to the opening balance as
follows:
At 1 July – calculated under IAS 39
Amounts restated through opening retained earnings
Opening loss allowance as at 1 July 2018 – calculated under IFRS 9
Acquisition of MatsSoft Limited
Increase in loss allowance recognised in profit or loss during the
year
Receivables written off during the year as uncollectible
Unused amounts reversed
Contract assets
Trade receivables
2019
£000
118
–
118
–
26
–
(115)
29
2018
£000
73
–
–
45
–
–
118
2019
£000
101
–
101
–
70
(79)
(10)
82
2018
£000
11
–
11
174
102
(138)
(48)
101
Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators that there
is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the
Group, and a failure to make contractual payments for a period of greater than 120 days past due.
Impairment losses on trade receivables and contract assets are presented as net impairment losses within operating profit.
Subsequent recoveries of amounts previously written off are credited against the same line item.
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Previous accounting policy for impairment of trade receivables
In the prior year, the impairment of trade receivables was assessed based on the incurred loss model.
Individual receivables which were known to be uncollectible were written off by reducing the carrying amount directly. The Group
considered that there was evidence of impairment if any of the following indicators were present:
•
significant financial difficulties of the debtor; and
• probability that the debtor would enter bankruptcy or financial reorganisation.
Receivables for which an impairment provision was recognised were written off against the provision where there was no
expectation of recovering additional cash.
12(d) Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty
in meeting its financial obligations as they fall due. The Board reviews an annual 12-month financial projection as well as
information regarding cash balances on a monthly basis. At the balance sheet date, liquidity risk was considered to be low given
the fact the Group is cash generative, has no borrowings repayable before 2022 and cash and cash equivalents are thought to
be at acceptable levels.
The Group’s financial liabilities have contractual maturities as summarised below:
Less than
6 months
£000
6 to 12
months
£000
Between
1 and 2
years
£000
Between
2 and 5
years
£000
Over
5 years
£000
Total
contractual
cash flows
£000
Carrying
value
£000
At 30 June 2019
Trade and other payables(1)
Borrowings
At 30 June 2018
Trade and other payables(1)
Borrowings
(1) excluding statutory liabilities.
4,575
–
4,575
2,940
–
2,940
13 Capital management
–
–
–
–
–
–
–
–
–
1,617
–
1,617
–
4,667
4,667
–
2,333
2,333
–
2,333
2,333
–
4,667
4,667
4,575
7,000
11,575
4,982
7,000
11,982
4,575
6,632
11,207
4,982
6,518
11,500
13(a) Risk management
The Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through
a combination of capital growth and dividends. An analysis of net capital is set out in the table below:
Net funds/ (debt)
Equity attributable to owners of the Parent Company
Net capital
2019
£000
1,137
21,934
20,797
2018
£000
(739)
21,448
22,187
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. In order to maintain or adjust the capital structure, the
Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, or issue new shares or debt.
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Notes to the consolidated
financial statements
Continued
13 Capital management continued
13(b) Dividends
Year to June 2019
Final ordinary dividend for the year to June 2018
Paid
Pence
per share
6/2/19
0.53p
Year to June 2018
Interim enhanced dividend for year to June 2017
Final ordinary dividend for the year to June 2017
27/7/17
12/1/18
1.05p
1.16p
Cash flow
statement
(£’000)
Statement
of changes
in equity
(£’000)
Balance
sheet
(£’000)
758
758
1,461
1,656
3,117
758
758
1,461
1,656
3,117
–
–
–
–
–
It is intended that this year’s final ordinary dividend of 0.20 pence per share will be paid to shareholders on 5 February 2020.
Netcall plc shares will trade ex-dividend from 19 December 2019 and the record date will be 20 December 2019. The estimated
amount payable is £0.29 million. The proposed final dividend is subject to approval by shareholders at the Annual General
Meeting and has not been included as a liability in these financial statements.
14 Interests in other entities
Netcall Telecom Limited
MatsSoft Limited
MatsSoft Holdings Limited
MatsSoft, Inc.
Telephonetics Limited
Serengeti Systems Limited
Datadialogs Limited
Netcall Telecom, Inc.
Netcall Telecom Europe Limited
Netcall UK Limited
Q-Max Systems Limited
Voice Integrated Products Limited
Country of
Nature of business
incorporation
Software & services
UK
UK
Software & services
UK Intermediate holding
company
US
Software & services
UK Intermediate holding
company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
UK
UK
US
UK
UK
UK
UK
Proportion
of ordinary
shares held
by Parent
Company
0%
100%
Proportion
of ordinary
shares held
by the Group
100%
0%
100%
0%
0%
100%
100%
0%
100%
100%
100%
100%
0%
100%
0%
0%
100%
0%
0%
0%
0%
100%
All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings
held directly by the Parent Company does not differ from the proportion of ordinary shares held.
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15 Commitments
15(a) Non-cancellable operating leases
The Group leases various offices under non-cancellable operating lease agreements. The lease terms are between one and five
years and none of them contain renewal or purchase options or escalation clauses or any restrictions regarding further leasing.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
No later than 1 year
Later than 1 year and no later than 5 years
More than one year
Total
2019
£000
141
474
155
770
2018
£000
190
59
–
249
16 Post balance sheet events
The Board recommended a final dividend for the year ended 30 June 2019 on 24 September 2019. See note 13(b) for details.
17 Related party transactions
Netcall plc is the parent and ultimate controlling Company of the Group.
17(a) Sale and purchase of goods and services
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and
are therefore not disclosed.
17(b) Key management compensation
Key management is the Executive and Non-Executive Directors of the Company. The compensation paid or payable to key
management for employee services is shown below:
Salaries and other short-term employee benefits
Company contributions to money purchase pension schemes
Share-based payments
Total
17(c) Directors
Aggregate emoluments
Company contributions to money purchase pension schemes
Total
2019
£000
855
32
176
1,063
2019
£000
754
32
786
2018
£000
778
31
413
1,222
2018
£000
680
31
711
Details of individual Director’s emoluments are set out on page 11 of the Directors’ report.
The highest paid Director was paid £384,000 (2018: £344,000). Personal pension contributions paid to the highest paid Director
were £22,000 (2018: £21,000).
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Notes to the consolidated
financial statements
Continued
17 Related party transactions continued
17(c) Directors continued
The Directors received dividend payments as follows:
Executive Directors
Henrik Bang(1)
James Ormondroyd(2)
Non-Executive Directors
Michael Jackson(3)
Michael Neville
2019
£000
24
9
4
3
2018
£000
104
36
15
13
(1) including dividends received by Henrik Bang’s pension schemes and shares held jointly with his spouse.
(2) including dividends received by James Ormondroyd’s spouse.
(3) including dividends received by shares held by Michael Jackson and Richard Jackson as trustees of the W&E Jackson Trust whose beneficiaries are the
children and remoter issue of Michael Jackson.
18 Share-based payments
18(a) Employee Share Options
The Company operates a number of employee share option plans to provide long-term incentives for senior managers
(including Directors) and certain employees. Below is a summary of current plans:
• A Long Term Incentive Plan (“LTIP”) was introduced in June 2011. The options are granted at an exercise price of 5 pence.
Options are conditional on certain vesting criteria including: achievement of the Company’s ordinary share price up to 55
pence in the period from the date of grant until 1 January 2017; and, the option holder being in employment at the date the
option is exercised. The options have a contractual option term of ten years; and once vested up to 100% of the options
awarded may be exercised.
•
•
•
•
•
In December 2013 the Company effected another Long Term Incentive Plan (“LTIP2”). The options are granted at an
exercise price of 5 pence. Options are conditional on certain vesting criteria including: achievement of the Company’s
ordinary share price up to 95 pence in the six years following the date of grant; and, the option holder being in employment
at the date the option is exercised. The options have a contractual option term of ten years; and once vested up to 100% of
the options awarded may be exercised.
In April 2014 the Company effected a further Long Term Incentive Plan (“LTIP3”). The options are granted at an exercise
price of 5 pence. Options are conditional on certain vesting criteria including: achievement of the Company’s ordinary share
price up to £1.20 in the seven years following the date of grant; and, the option holder being in employment at the date the
option is exercised. The options have a contractual option term of seven years; and once vested up to half of the options
awarded may be exercised three years after grant and the other half five years after grant.
In November 2015 and October 2016 the Company granted a number of Unapproved Share Options (“Unapproved”). These
options are granted at an exercise price of nil pence. Options are conditional on the employee being in employment in two
years from grant; and, having made suitable arrangements with the Company for payment of any income tax or employee
national insurance arising as a result of the award.
In August 2017 the Company granted a number of Unapproved Share Options (“Unapproved 2”). These options are
granted at an exercise price of 5 pence. Options are conditional on certain vesting criteria including achievement of the
MatsSoft Limited contingent consideration targets; the employee being in employment at exercise and having made suitable
arrangements with the Company for payment of any income tax or employee national insurance arising as a result of the
award. The options have a contractual option term of ten years; and once vested up to 100% of the options awarded may be
exercised.
In November 2017 the Company granted a number of Unapproved Share Options (“Unapproved 3”). These options are
granted at an exercise price of nil pence. Options are conditional on the employee being in employment three years from
grant; and, having made suitable arrangements with the Company for payment of any income tax or employee national
insurance arising as a result of the award.
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Options are granted under the plans for no consideration and carry no dividend or voting rights.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
At 1 July
Granted
Exercised
Forfeited
At 30 June
2019
Weighted
average
exercise price in
pence per share
4.9
5.0
4.6
5.0
5.0
2018
Weighted
average
exercise price in
pence per share
4.9
4.2
3.4
5.0
4.9
2019
Options
(thousand)
18,816
285
(330)
(40)
18,731
2018
Options
(thousand)
17,542
1,604
(275)
(55)
18,816
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Grant date
July 2011
July 2012
December 2013
April 2014
June 2014
March 2015
November 2015
November 2015
October 2016
August 2017
November 2017
December 2018
Expiry date
July 2021
July 2022
April 2021
April 2021
April 2021
March 2022
April 2022
November 2022
October 2023
August 2027
November 2024
December 2025
Scheme
LTIP1
LTIP1
LTIP2
LTIP3
LTIP3
LTIP3
LTIP3
Unapproved
Unapproved
Unapproved 2
Unapproved 3
Unapproved 3
Exercise price in
pence per share
5.0
5.0
5.0
5.0
5.0
5.0
5.0
0.0
0.0
5.0
0.0
0.0
5.0
Options (thousands)
2019
173
334
1,836
12,100
760
378
1,287
48
33
1,246
251
285
18,731
2018
292
334
2,006
12,100
761
379
1,293
66
42
1,292
251
–
18,816
At 30 June 2019, out of the 18,731,028 outstanding options (2018: 18,816,539 options), 5,653,971 options (2018: 3,130,960)
were exercisable. The weighted average exercise price for options exercisable at the year-end was 4.9 pence (2018: 4.9
pence).
Options exercised in the year resulted in 329,507 shares (2018: 275,156) being issued at a weighted average price of 4.6 pence
each (2018: 3.4 pence). The related average weighted share price at the time of exercise was 51.7 pence per share (2018: 58.9
pence per share).
See note 18(c) for the total expense recognised in the income statement for share options granted to Directors and employees
(including associated national insurance).
Significant estimate – fair value of options granted
The weighted average fair value of the Unapproved 3 options granted during the period determined using the Black-Scholes
opting pricing model was 30.2 pence per option. The significant inputs into the model were mid-market share price of 37.5
pence at the grant date; exercise price of 5 pence; volatility of 27%; an expected option life of 3.0 years; a bid price share
discount of 2.5%; and, an annual risk-free interest rate of 1.1%. The volatility measured at the standard deviation of continuously
compounded share returns is based on statistical analysis of weekly share prices over the last four years.
18(b) Other share option agreements
The Company entered into a subscription agreement with Business Growth Fund (‘BGF’) for an investment on 4 August 2017.
It included an award of options over 4,827,586 new ordinary shares of 5p each at a price of 58p per share. The option may be
exercised at any time up to 30 September 2024 unless the Company shall have redeemed 50% or more of the Loan Notes prior
to 30 June 2022, in which case the option shall end on 30 September 2022.
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financial statements
Continued
18 Share-based payments continued
18(c) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit
expense were as follows:
Employee share options
Post-completion services
19 Earnings per share
19(a) Basic and diluted
Notes
18(a)
7(g)
2019
£000
507
76
583
2018
£000
848
153
1,001
The basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the
weighted average number of ordinary shares in issue during the year, excluding those held in Treasury.
Net earnings attributable to ordinary shareholders (£000)
Weighted average number of ordinary shares in issue (thousands)
Basic earnings per share (pence)
2019
£000
610
143,038
0.43
2018
£000
136
142,460
0.10
The diluted earnings per share has been calculated by dividing the net profit attributable to ordinary shareholders by the
weighted average number of shares in issue during the year, adjusted for potentially dilutive shares that are not anti-dilutive.
Weighted average number of ordinary shares in issue (thousands)
Adjustments for share options
Weighted average number of potential ordinary shares in issue (thousands)
Diluted earnings per share (pence)
2019
£000
143,038
6,085
149,123
0.41
2018
£000
142,460
4,901
147,361
0.09
19(b) Adjusted basic and diluted
Adjusted earnings per share have been calculated to exclude the effect of acquisition, contingent consideration and
reorganisation costs, share-based payment charges, amortisation of acquired intangible assets and with a normalised rate of
tax. The Board believes this gives a better view of ongoing maintainable earnings. The table below sets out a reconciliation of
the earnings used for the calculation of earnings per share to that used in the calculation of adjusted earnings per share:
Profit used for calculation of basic and diluted earnings per share
Non-recurring transaction costs
Change in fair value of contingent consideration
Share-based payments
Post-completion services
Amortisation of acquired intangible assets
Impairment charge on intangible fixed assets
Unwinding of discount – contingent consideration and borrowings
Tax effect of adjustments
Profit used for calculation of adjusted basic and diluted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
2019
£000
610
–
(865)
583
244
512
–
181
(125)
1,140
2019
Pence
0.80
0.76
2018
£000
136
464
–
1,001
464
547
792
208
(613)
2,999
2018
Pence
2.11
2.04
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20 Summary of significant accounting policies
This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial
statements to the extent they have not already been disclosed in the other notes above. These policies have been consistently
applied to all the years presented, unless otherwise stated. The financial statements are for the group consisting of Netcall Plc
and its subsidiaries.
20(a) Basis of preparation
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting
Standards (‘IFRS’) as adopted by the European Union (‘EU’), and interpretations issued by the IFRS Interpretations Committee
(‘IFRIC’) and the Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared on a historical cost basis, except certain financial assets and
liabilities are measured at fair value.
As a result of the level of cash generated from operating activities, the Group has maintained a healthy liquidity position as
shown on the consolidated balance sheet. The Group’s forecasts and projections, taking account of reasonably possible
changes in trading performance, show that the Group should be able to continue in operational existence for the foreseeable
future. The Group therefore continues to adopt the going concern basis in preparing its consolidated financial statements.
The Group has applied the following standards and amendments, IFRS 9 Financial Instruments and IFRS 15 Revenue from
Contracts with Customers, for the first time for the annual reporting period commencing 1 July 2018. Details on each are set out
below.
IFRS 9 Financial Instruments
The Group has adopted IFRS 9 Financial Instruments with a date of initial application of 1 July 2018. IFRS 9 replaces IAS 39
and impacts upon the classification and measurement of financial instruments and requires certain additional disclosures. The
only change on adoption of IFRS 9 was to record a change in the fair value of the Group’s investment in Macranet through
other comprehensive income in 2018 as further described in Note 7(c). The following areas were identified as the main items of
interest to the Group:
• Credit losses: IFRS 9 replaced the existing incurred loss model with a forward-looking expected credit loss model. The
expected credit losses on these trade receivable and contract assets are estimated using a single-loss rate based on the
Group’s historical credit loss experience, adjusted for management judgement concerning factors that are specific to the
receivables, general economic conditions and assessment of the current as well as the forecast direction of conditions at the
reporting date based on reasonable and supportable information that is available, without undue cost or effort to obtain. Due
to the exemption in IFRS 9, there is no requirement to restate comparative periods in the year of initial application and as a
consequence, any adjustments to the carrying amounts of financial assets or liabilities are to be recognised at 1 July 2018.
The change from an incurred loss model under IAS 39 to an expected loss model has not had a material impact and no
adjustment is required at 1 July 2018. See note 12(c) for further information.
• Available-for-sale financial assets: The classification of financial assets as ‘available-for-sale’ no longer exists under
IFRS 9. In the prior financial year, the Group had designated equity investments as available-for-sale where management
intended to hold them for the medium to long term. The Group has irrevocably elected to reclassify equity securities, which
are not held for trading, as financial assets at fair value through other comprehensive income. See note 7(c) for further
information.
IFRS 15 Revenue from Contracts with Customers
The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 July 2018 on a retrospective basis. IFRS
15 replaced all existing revenue recognition requirements in IFRS and sets out a comprehensive framework for determining
whether, when and how much revenue to recognise. The Group has completed its assessment of IFRS 15 and has not identified
any material differences between the requirements of IFRS 15 and the Group’s previous revenue recognition policy. Accordingly,
no financial restatement has been made. Revenue is only recognised when (or as) control of goods or services passes to the
customer, in accordance with when distinct performance obligations are met, and at the amount to which the Group expects to
be entitled. The impact of adopting IFRS 15 is detailed in note 3(f).
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financial statements
Continued
20 Summary of significant accounting policies continued
20(a) Basis of preparation continued
Standards and interpretations not yet applied by the Group
Certain new standards and interpretations have been published that are not mandatory for 30 June 2019 reporting periods
and have not been adopted early. The Group’s assessment of the impact of these new standards and interpretations is set out
below.
IFRS 16 Leases (effective for the year beginning 1 July 2019) will require all leases to be recognised on the balance sheet.
Currently, IAS 17 Leases only requires leases categorised as finance leases to be recognised on the balance sheet, with leases
categorised as operating leases not recognised. Lessees will recognise a ‘right-of-use’ asset and a corresponding liability on
the balance sheet. The asset will be amortised over the length of the lease and the liability measured at amortised cost. Existing
operating lease commitments are set out in note 15(a).
The Group expects to recognise right-of-use assets of approximately £0.80m on 1 July 2019, lease liabilities of £0.82m
(after adjustments for prepayments and accrued lease payments recognised as at 30 June 2019). Overall net assets will be
approximately £0.03m lower, and net current assets will be £0.16m lower due to the presentation of a portion of the liability as
a current liability. The Group expects that net profit after tax will decrease by approximately £nil for 2019 as a result of adopting
the new rules. Adjusted EBITDA used to measure segment results is expected to increase by approximately £0.24m, as the
operating lease payments were included in EBITDA, but the amortisation of the right-of-use assets and interest on the lease
liability are excluded from this measure. Operating cash flows will increase and financing cash flows decrease by approximately
£0.19m as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities.
The Group will apply IFRS 16 from its mandatory adoption date of 1 July 2019.
There are no other standards that are not yet effective that would be expected to have a material impact on the entity in the
current or future reporting periods and on foreseeable future transactions.
20(b) Principles of consolidation and equity accounting
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control ceases.
The Group uses the acquisition method of accounting to account for business combinations see note 20(h) (except Netcall UK
Limited see explanation below).
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Unrealised gains and losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the Group.
Where a Group company has acquired an investment in a subsidiary undertaking and applies merger relief, under section 612 of
the Companies Act 2006, the difference between the nominal value and fair value of the shares issued is credited to the merger
reserve.
The Group elected not to apply IFRS 3 Business Combinations retrospectively to business combinations prior to date of
transition to IFRS from UK GAAP. Accordingly, the classification of the combination remains unchanged from that used under
UK GAAP. Assets and liabilities are recognised at date of transition, 1 July 2006, if they would be recognised under IFRS, and
are measured using their UK GAAP carrying amount immediately post-acquisition as deemed cost under IFRS, unless IFRS
requires fair value measurement. When Netcall plc acquired Netcall UK Limited in 1996, ordinary shares were issued to form the
consideration. The UK GAAP merger accounting criteria were met and so a merger reserve was recognised. Due to the election
not to apply IFRS 3 Business Combinations prior to the date of transition, this merger reserve has remained unchanged on
transition to IFRS.
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20(c) Segment 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, who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the Board.
20(d) Foreign currency translation
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the ‘functional currency’). The consolidated financial statements are
presented in sterling (£), which is the Company’s functional and the Group’s presentational currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are generally recognised in profit
or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are
attributable to part of the net investment in a foreign operation.
Foreign exchange gains and losses that relate to cash are presented in the income statement within ‘finance income or cost’. All
other foreign exchange gains and losses are presented in the income statement within ‘other gains/(losses) – net’.
The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that
have a functional currency different from the presentation currency are translated into the presentation currency as follows:
• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet
•
income and expenses for each statement of profit or loss and statement of comprehensive income are translated at
average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the dates of the transactions), and
• all resulting exchange differences are recognised in other comprehensive income.
20(e) Revenue
The accounting policies for the Group’s revenue from contracts with customers is explained in note 3.
20(f) Current and deferred taxation
The tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable
income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary
differences and to unused tax losses.
The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period
in the countries where the company and its subsidiaries and associates operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if
they arise from the initial recognition of goodwill. Deferred tax is also not accounted for if it arises from initial recognition of an asset
or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable
profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the
reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities
and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where
the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the
liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive
income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
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financial statements
Continued
20 Summary of significant accounting policies continued
20(g) Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease.
20(h) Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments
or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:
•
•
fair values of the assets transferred
liabilities incurred to the former owners of the acquired business
• equity interests issued by the Group
•
•
fair value of any asset or liability resulting from a contingent consideration arrangement, and
fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the
acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of
the acquired entity’s net identifiable assets.
Acquisition-related costs are expensed as incurred.
The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity, and acquisition-date
fair value of any previous equity interest in the acquired entity, over the fair value of the net identifiable assets acquired is
recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the
difference is recognised directly in profit or loss as a bargain purchase. Goodwill written off to reserves prior to date of transition
to IFRS remains in reserves. There is no reinstatement 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.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present
value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a
similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are
subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity
interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement
are recognised in profit or loss.
20(i) Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets 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 carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
20(j) Financial instruments
The Group’s financial instruments comprise cash and various items such as trade receivables and trade payables that arise
directly from its operations. Finance payments associated with financial liabilities are dealt with as part of finance expenses.
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Financial assets
The Group’s financial assets are trade receivables and other financial assets carried at amortised cost . These assets are
non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included
in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-
current assets. They arise principally through the provision of services to customers (trade receivables), but also incorporate
other types of contractual monetary asset such as deposits on rental property and prepayments, which are contractually
recoverable. They are initially recognised at fair value and subsequently carried at amortised cost. Unless otherwise indicated,
the carrying amounts of the Group’s financial assets are a reasonable approximation of their fair values.
Financial assets at fair value through other comprehensive income (FVOCI) comprise equity securities which are not held for
trading, and which the group has irrevocably elected at initial recognition to recognise in this category. These are strategic
investments and the Group considers this classification to be more relevant. On disposal of these equity investments, any
related balance within the FVOCI reserve is reclassified to retained earnings. In the prior financial year, the Group had
designated equity investments as available-for-sale where management intended to hold them for the medium to long term.
Financial liabilities
The Group’s financial liabilities are trade payables and other financial liabilities. These liabilities are initially recognised at fair
value and subsequently measured at amortised cost using the effective interest rate method. Unless otherwise indicated, the
carrying amounts of the Group’s financial liabilities are a reasonable approximation of their fair values.
Share capital
Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a
financial liability. The Group’s ordinary shares are classified as equity instruments.
Further information on the Group’s financial instruments can be found in note 7 and note 9.
20(k) Cash and cash equivalents
A definition of cash and cash equivalents is set out in note 7(d).
20(l) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairments. See note 7(a) for further information about the Group’s accounting for trade receivables
and for a description of the Group’s impairment policies.
20(m) Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of finished goods and work-in-progress comprises
computer hardware and software, direct labour, other direct costs and relevant production overheads. Net realisable value is the
estimated selling price in the ordinary course of business, less applicable variable selling expenses. See note 8(d) for further
information.
20(n) Property, plant and equipment
Property, plant and equipment is stated at historical cost, net of depreciation and any provision for impairment. Historical cost
includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or
loss in the financial period in which they are incurred.
The depreciation methods and periods used by the Group are disclosed in note 8(a).
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An
asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount (note 21(i)).
Gain and loss on disposal of an asset is determined by comparing the proceeds with the carrying amount and are recognised
within ‘Other gains/ (losses) – net’ in the income statement.
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financial statements
Continued
20 Summary of significant accounting policies continued
20(o) Intangible assets
Goodwill
Goodwill is measured as described in note 20(h). Goodwill on acquisitions of subsidiaries is included in intangible assets.
Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances
indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal
of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-
generating units or groups of cash-generating units that are expected to benefit from the business combination in which
the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal
management purposes, being the operating segments (note 2).
Customer contracts and relationships, brand names, acquired software, trademarks and licences
(‘other intangible assets’)
Separately acquired other intangible assets are shown at historical cost. Other intangible assets acquired in a business
combination are recognised at fair value at the acquisition date. They have a finite useful life and are subsequently carried
at cost less accumulated amortisation and impairment losses. The amortisation methods and periods used by the group are
disclosed in note 8(b).
Internally generated software costs
Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development
costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group
are recognised as intangible assets when the following criteria are met:
•
it is technically feasible to complete the software product so that it will be available for use;
• management intends to complete the software product and use or sell it;
•
•
there is an ability to use or sell the software product;
it can be demonstrated how the software product will generate probable future economic benefits;
• adequate technical, financial and other resources to complete the development and to use or sell the software product are
available; and
•
the expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs
and an appropriate portion of relevant overheads.
Internally generated software development costs recognised as assets are carried at cost less amortisation, and amortised from
the point at which the asset is ready to use. The amortisation methods and periods used by the Group are disclosed in note
8(b).
20(p) Trade payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are
unpaid. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the
reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective
interest method.
20(q) Borrowings
Borrowings are initially recognised at fair value. Borrowings are subsequently measured at amortised cost. Any difference
between the proceeds and the redemption amount is recognised in profit or loss over the period of the borrowings using the
effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to
the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw
down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is
capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
The fair value of any option agreement connected to borrowings is determined using the Binomial Method and recorded in
shareholders’ equity, the remainder of the proceeds is allocated to borrowings.
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Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or
expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another
party and the consideration paid is recognised in profit or loss as other income or finance costs.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at
least 12 months after the reporting period.
20(r) Provisions
Provisions for leasehold dilapidations and contingent consideration are recognised when the Group has a present legal
or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the
obligation and the amount can be reliably estimated.
Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in
the provision due to passage of time is recognised as interest expense.
20(s) Employee benefits - pensions
Contributions to the Group’s defined contribution pension scheme and employees’ personal pension plans are charged to the
income statement as employee benefit expenses when they are due. The Group has no further payment obligation once the
contributions have been paid.
20(t) Share-based payments
The Group operates a number of share schemes under which it makes equity-settled share-based payments to certain
employees. The fair value of employee services received in exchange for the grant of the options is recognised as an expense
and a credit to the employee share scheme reserve. The total amount to be expensed is determined by reference to the fair
value of the options granted: including any market performance conditions and any non-vesting conditions but excluding the
impact of any service and non-market performance vesting conditions (for example profitability targets and remaining an
employee of the Group for a specified period).
Non-market conditions are included in assumptions about the number of options that are expected to vest. The total expense is
recognised over the vesting period, which is the period over which all of the specified vesting conditions are satisfied. At each
balance sheet date, the Group revises its estimates of the number of options that are expected to vest based on the non-market
vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding
adjustment to equity.
Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value
of the shares issued are allocated to share capital with any excess being recorded as share premium. The liability for social
security costs arising in relation to the awards is measured at each reporting date based upon the share price at the reporting
date and the elapsed portion of the relevant vesting periods to the extent that it is considered that a liability will arise.
20(u) Equity
Equity comprises share capital, share premium, other equity, other reserves and retained earnings.
Retained earnings represents the cumulative net gains and losses recognised in the consolidated income statement. See note 9
for descriptions of the other classes of equity.
20(v) Dividend distribution
Dividend distributions payable to the Company’s shareholders are recognised as a liability in the Group’s financial statements in
the period in which the dividends are approved by the Company’s shareholders. Interim dividend distributions to the Company’s
shareholders approved by the Board are not included in the financial statements until paid.
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Parent Company balance sheet
as at 30 June 2019
Assets
Non-current assets
Intangible assets
Investments in subsidiaries
Other investments
Deferred tax asset
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Other equity
Other reserves
Retained earnings
Total equity
Liabilities
Non-current liabilities
Borrowings
Other payables
Total non-current liabilities
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
2019
£000
2018
£000
E
F
G
L
H
M
N
O
I
J
K
822
38,240
72
244
39,378
1,479
2,624
4,103
43,481
7,259
3,015
2,843
4,462
16,543
34,122
6,632
–
6,632
2,727
2,727
9,359
43,481
984
37,904
72
228
39,188
1,193
2,448
3,641
42,829
7,242
3,015
2,843
3,884
15,560
32,544
6,518
925
7,443
2,842
2,842
10,285
42,829
The notes on pages 66 to 70 form part of these financial statements.
The Company has taken the exemption under Section 408 of the Companies Act 2006 to not present a full Income Statement.
The Company made a profit for the financial year of £1.68m (2018: £0.19m).
These financial statements on pages 64 to 70 were approved and authorised for issue by the Board on 24 September 2019 and
were signed on its behalf by:
James Ormondroyd
Director
Netcall plc, Registered no. 01812912
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Parent Company statement
of changes in equity
as at 30 June 2019
Share
capital
£000
7,054
Share
premium
£000
3,015
Other
equity
£000
708
Other
reserves
£000
2,817
Retained
earnings
£000
18,410
2,135
–
175
–
4
9
–
188
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,135
–
–
–
7,242
–
3,015
–
2,843
–
1
16
–
17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
77
–
(3,117)
(3,040)
190
–
190
15,560
–
54
–
(758)
(704)
1,687
1,364
(81)
–
–
1,283
–
(216)
(216)
3,884
633
(55)
–
–
578
–
–
Balance at 30 June 2017
Issue of ordinary shares as
consideration for acquisition
of a business combination
Increase in equity reserve in
relation to options issued
Reclassification following exercise
or lapse of options
Proceeds from share issue
Dividends to equity holders
of the Company
Transactions with owners
Profit and total comprehensive
income for the year
Other comprehensive loss
for the year
Profit and total comprehensive
income for the year
Balance at 30 June 2018
Increase in equity reserve in
relation to options issued
Reclassification following exercise
or lapse of options
Proceeds from share issue
Dividends to equity holders
of the Company
Transactions with owners
Profit for the year
Other comprehensive loss
for the year
Profit and total comprehensive
income for the year
Balance at 30 June 2019
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
I
I
Total
£000
32,004
2,310
1,364
–
9
(3,117)
566
190
(216)
(26)
32,544
633
–
16
(758)
(109)
1,687
–
7,259
–
3,015
–
2,843
–
4,462
1,687
16,543
1,687
34,122
–
–
The notes on pages 66 to 70 form part of these financial statements.
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Notes to the Parent Company
financial statements
A Principal accounting policies
(a) Basis of preparation
The financial statements have been prepared in accordance with Financial Reporting Standard 101, ‘Reduced Disclosure
Framework’ (FRS 101) and the Companies Act 2006 (the ‘Act’). FRS 101 sets out a reduced disclosure framework for a
‘qualifying entity’ as defined in the standard which addresses the financial reporting requirements and disclosure exemptions
in the individual financial statements of qualifying entities that otherwise apply the recognition, measurement and disclosure
requirements of EU-adopted IFRS.
FRS 101 sets out amendments to EU-adopted IFRS that are necessary to achieve compliance with the Act and related
regulations. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under
the standard in relation to business combinations, financial instruments, capital management, presentation of comparative
information in respect of certain assets, presentation of a cash flow statement, standards not yet effective, impairment of assets
and related party transactions, where equivalent disclosures are given in the consolidated financial statements of Netcall plc.
The Company financial statements are prepared on a going concern basis as set out in note 1 of the consolidated financial
statements of Netcall plc.
The Directors have taken advantage of the exemption under Section 408 of the Act and not presented an Income Statement or
a Statement of Comprehensive Income for the Company alone.
The financial statements have been prepared under the historical cost convention, modified in respect of the revaluation of
financial assets and liabilities at fair value and share-based payments that have been measured at fair value.
The Company applies the Group accounting policies which are set out on page 70 in addition to the accounting policies set out
below.
(b) Revenue
Revenue is royalties received for license of its intellectual property rights from the Company’s subsidiaries. It is recognised on
an ‘as earned’ basis.
(c) Investments in subsidiaries
Investments in subsidiaries are held at cost less accumulated impairment losses. As part of the acquisition strategy of the
Company, the trade and net assets of subsidiary undertakings at or shortly after acquisition may be transferred at book value to
fellow subsidiaries. Where a trade is hived across to a fellow subsidiary undertaking, the cost of the investment in the original
subsidiary, which then becomes a non-trading subsidiary, is added to the cost of the investment in the entity to which the trade
has been hived. In order to accurately assess any potential impairment of investments, the carrying value of the investment in
all companies transferred is considered together against future cash flows and net asset position of those companies which
received the trade and net assets.
(d) Share-based payments
In addition to the policy set out in note 20(t), the Company has accounted for options granted to the employees of subsidiary
undertakings as capital contributions, which have been recharged to the intermediate company holding the investment. The
corresponding credit has been recognised in the employee share schemes reserve.
B Employees and Directors
The Company employed an average of two employees (including Executive Directors) during the year (2018: two). The only
employees of the Company are the Executive Directors. Directors’ remuneration has been disclosed within the Directors’ report
on page 11.
C Services provided by the Company’s auditor and its associates
Fees payable to the Company’s auditor for the audit of the Company’s accounts and for other services are set out in note 5(c) of
the consolidated financial statements.
D Profit for the financial year
The Company made a profit for the financial year of £1.68m (2018: £0.19m).
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T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
I
I
E Intangible assets
Cost
At 30 June 2017
Additions
At 30 June 2018
Additions
At 30 June 2019
Accumulated amortisation
At 30 June 2017
Amortisation charge
At 30 June 2018
Amortisation charge
At 30 June 2019
Net book amount
At 30 June 2017
At 30 June 2018
At 30 June 2019
F Investments in subsidiaries
Cost and Net book amount
At 30 June 2017
Additions – acquisition of MatsSoft Limited
Additions – share incentive charges to subsidiaries
At 30 June 2018
Additions – share incentive charges to subsidiaries
At 30 June 2019
Acquired
software
£000
Trademarks
and
licences
£000
2,223
–
2,223
–
2,223
1,149
148
1,297
148
1,445
1,074
926
778
179
–
179
–
179
121
–
121
14
135
58
58
44
Total
£000
2,402
–
2,402
–
2,402
1,270
148
1,418
162
1,580
1,132
984
822
Total
£000
22,169
15,310
425
37,904
366
38,240
The Company’s subsidiaries at the year-end are set out in note 14 of the consolidated financial statements.
All of the investments are unlisted.
G Other investments
Other investments comprise:
FVOCI
Equity – Macranet Ltd
2019
Current
£000
2019
Non-current
£000
2019
Total
£000
2018
Current
£000
2018
Non-current
£000
2018
Total
£000
–
72
72
–
72
72
Note 20(a) explains the change of accounting policy and the reclassification of the investment in Macranet Ltd from available-
for-sale to at fair value through profit or loss.
In the prior year a change in the fair value of this investment of £0.22m was recognised through other comprehensive income.
Information about the methods and assumptions used in determining fair value is provided in note 7(c).
All of the other investments are unlisted and denominated in sterling (£).
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Notes to the Parent Company
financial statements
Continued
H Trade and other receivables
Amounts owed from Group undertakings(1)
Prepayments and accrued income
All amounts are due within one year.
2019
£000
1,354
125
1,479
(1) Amounts due to Group undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
I Borrowings
Unsecured
Loan Notes
Total borrowings
2019
Current
£000
2019
Non-current
£000
–
–
6,632
6,632
2019
Total
£000
6,632
6,632
2018
Current
£000
2018
Non-current
£000
–
–
6,518
6,518
2018
£000
1,063
130
1,193
2018
Total
£000
6,518
6,518
Immediately prior to the acquisition of MatsSoft Limited, on 4 August 2017, the Company entered into a subscription agreement
with Business Growth Fund (‘BGF’) for a £7.0m investment. The investment comprises the issue of a £7.0m Loan Note and the
award of options over 4,827,586 new ordinary shares of 5p each at a price of 58p per share. The Loan Note is unsecured, has
an annual interest rate of 8.5% payable quarterly in arrears and is repayable in six instalments from 30 September 2022 to 31
March 2025.
The £7.0m investment has been allocated to the fair value of the Loan Note, £6.42m, and the fair value of the share options
granted, £0.58m. The fair value of the share options was determined using the Binomial valuation method. The significant inputs
into the model were the mid-market share price of 66.5p at the grant date, volatility of 25%, dividend yield of 1.85%, an expected
option life of five years, and an annual risk-free interest rate of 0.267%. The total expense relating to the fair value of the share
options is being charged to the income statement over the five-year option life. The Loan Notes are presented in the balance
sheet as follows:
Face value of notes issued
Share schemes reserve – value of share option
Unwinding of discount:
Opening balance
Movement in the year
Closing balance
Non-current liability
2019
£000
7,000
(584)
6,416
102
114
216
6,632
2018
£000
7,000
(584)
6,416
–
102
102
6,518
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T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
I
I
J Other payables – contingent consideration
2019
Non-current
£000
–
–
2019
Current
£000
1,680
1,680
Contingent consideration
2019
Total
£000
1,680
1,680
2018
Current
£000
1,824
1,824
2018
Non-current
£000
925
925
2018
Total
£000
2,749
2,749
See note 7(g) for information about the contingent consideration liability and its estimate. The current balance of £1.68m (2018:
£1.82m) is included within ‘Trade and other payables - Other liabilities’.
Movements during the year are set out below:
Opening balance
Acquisition of MatsSoft Limited
Charged/ (credited) to profit or loss:
− post-completion services expense
− share-based payment charge
− unwinding of discount
− change in fair value of contingent consideration
Amounts paid during the year
Closing balance
K Trade and other payables
Amounts owed to Group undertakings(1)
Trade payables
Social security and other taxes
Other liabilities
Accruals
2019
£000
2,749
–
244
76
67
(865)
(591)
1,680
2019
£000
348
–
54
1,854
471
2,727
(1) Amounts due to Group undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
L Deferred taxation
Deferred tax assets comprises:
Losses
Opening balance
Movement in the year
Closing balance
2019
£000
244
228
16
244
2018
£000
–
2,338
464
153
106
–
(312)
2,749
2018
£000
250
50
56
2,161
325
2,842
2018
£000
228
271
(43)
228
Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit
through future taxable profits is probable.
The Company has not recognised a deferred tax asset of £1.14m (2018: £1.14m) in respect of losses that are capital in nature
amounting to £6.68m (2018: £6.68m) or £0.18m (2018: £0.37m) in relation to timing differences due to share-based payment
charges of £0.92m (2018: £1.96m).
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T
S
Notes to the Parent Company
financial statements
Continued
M Share capital
Allocated, called up and fully paid
Ordinary shares of 5p each
2019
shares
2019
£000
2018
shares
2018
£000
145,176,283
7,259 144,846,776
7,242
Details of the Company’s issued share capital and share options are detailed in notes 9(a) and 18 of the consolidated financial
statements.
N Other equity
At 30 June 2017
Additions
At 30 June 2018
Additions
At 30 June 2019
O Other reserves
At 30 June 2017
Increase in equity reserve in relation to options issued
Reclassification following exercise or lapse of options
Revaluation
At 30 June 2018
Increase in equity reserve in relation to options issued
Reclassification following exercise or lapse of options
At 30 June 2019
Merger
reserve
£000
520
2,135
2,655
–
2,655
Share
options
reserve
£000
3,236
1,364
(81)
–
4,519
633
(55)
5,097
Capital
reserve
£000
188
–
188
–
188
Financial
assets at
fair value at
FVOCI
£000
–
–
–
(216)
(216)
–
–
(216)
Total
£000
708
2,135
2,843
–
2,843
Total
£000
2,817
1,364
(81)
(216)
3,884
633
(55)
4,462
Treasury
shares
£000
(419)
–
–
–
(419)
–
–
(419)
P Related party transactions
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 (only Directors are deemed to fall into this
category) of the Company have been disclosed in note 17 of the Group financial statements.
Q Post balance sheet events
Note 16 of the consolidated financial statements sets out the Company’s post balance sheet event relating to dividends.
R Ultimate controlling party
The Directors have assessed that there is no ultimate controlling party.
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Netcall plc
1st Floor
Building 2
Peoplebuilding Estate
Maylands Avenue, Hemel Hempstead
Hertfordshire, UK, HP2 4NW
t: 0330 333 6100
e: ir@netcall.com
w: netcall.com
N
e
t
c
a
l
l
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
f
o
r
t
h
e
y
e
a
r
e
n
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0
J
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0
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