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 d e d 3 0 J u n e 2 0 2 1 A new way to transform business Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 3 30838 Netcall-AR-2021.indd 3 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:15 05/11/2021 10:52:15 30838 5 November 2021 10:51 am v9Liberty ConverseDeliver exceptional experiences with an omnichannel contact centre.Liberty ConnectOutstanding customer experience with conversational messaging.Liberty CreateAccelerate app development with our low-code solution.Liberty RPAFree-up people with AI-powered robotic process automation.The Liberty PlatformAn all-in-one customer experience platform that lets you make huge, transformational changes, fast.Liberty is a tightly integrated suite of customer engagement and intelligent automation solutions that lets you manage and improve your customer experience, effortlessly.Netcall’s Liberty software platform with Intelligent Automation and Customer Engagement solutions helps organisations transform their businesses faster and more efficiently, empowering them to create a leaner, more customer-centric organisation. Netcall’s customers span enterprise, healthcare and government sectors. These include two-thirds of the NHS Acute Health Trusts and leading corporates, such as Legal and General, Lloyds Banking Group, ITV and Nationwide Building Society.Stock code: NETNetcall plc Annual Report and Accounts for the year ended 30 June 2021View more online at: netcall.com30838 Netcall-AR-2021.indd 330838 Netcall-AR-2021.indd 305/11/2021 10:52:1605/11/2021 10:52:16 30838 5 November 2021 10:51 am v9(1) 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.(2) Profit before interest, tax, depreciation and amortisation adjusted to exclude the effects of share-based payments, acquisition, impairment, profit or loss on disposals, contingent consideration and non-recurring transaction costs. (3) Cloud net retention rate is calculated by starting with the Cloud ACV from all customers 12 months prior to the period end and comparing it to the Cloud ACV from the same customers at the current period end. The current period ACV includes any upsells and is net of contraction or churn over the trailing 12 months but excludes ACV from new customers in the current period. The Cloud net retention rate is the total current period ACV divided by the total prior period ACV.(4) Based on Scope 1 emissions (direct emissions from owned or controlled sources) and Scope 2 emissions (indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the Company) following the UK Government GHG Conversion Factors for Company Reporting, 2020.netcall.com01Netcall plc Annual Report and Accounts for the year ended 30 June 2021STRATEGIC REPORTSTRATEGIC REPORTStrategic ReportFinancial and operational highlights01Chairman’s and Chief Executive’s review02Business model and key performance indicators10Principal risks and uncertainties11Environmental statement13Section 172(1) statement14GovernanceDirectors’ report15Statement of Directors’ responsibilities19Directors and Advisers20Corporate governance statement21Independent Auditor’s report to the members of Netcall plc27Financial Statements and NotesConsolidated income statement37Consolidated statement of comprehensive income38Consolidated balance sheet39Consolidated statement of changes in equity40Consolidated cash flow statement41Notes to the consolidated financial statements42Parent Company balance sheet 74Parent Company statement of changes in equity75Notes to the Parent Company financial statements76ContentsTotal revenueAdjusted EBITDAAnnual contract valueFinancial and operational highlights192021£27.2m£25.1m£16.8m192021£5.3m£4.4m£3.4m192021£18.5m£16.8m£15.7mFinancial highlightsOperational highlights• Significant cloud business growth, with cloud contracts now contributing over half of total ACV providing improved visibility of future revenues • New customer wins from various verticals including Financial Services, Utilities, Healthcare and Public Sectors• Cloud net retention rate(3) increased to 116% (FY20: 113%)• Continued cross-selling with 22% of total ACV from customers who have purchased both Intelligent Automation and Customer Engagement solutions• Increased momentum in existing customer migrations from on-premise to cloud solutions • Annual revenue run-rate from Intelligent Automation is now £10.8m, representing 40% of Group revenue• Ongoing platform innovation with new products launched, including AI-powered robotic process automation, providing customers with increasingly powerful automation capabilities • Greenhouse Gas emissions(4) reduced by 31% over the year and on track to be carbon neutral for Scope 1 and 2 emissions by end of 2022 and Scope 3 net zero by end of 2026• Revenue up 8% to £27.2m (FY20: £25.1m)• Cloud business revenue growth of 26% to £8.3m (FY20: £6.6m)• Total annual contract value(1) (‘ACV’) at 30 June 2021 up 10% year over year to £18.5m (30 June 2020: £16.8m) • Cloud services ACV at 30 June 2021 up 25% year over year to £9.4m (30 June 2020: £7.5m)• Adjusted EBITDA(2) up 21% to £5.34m (FY20: £4.41m). • Profit before tax up 98% to £0.99m (FY20: £0.50m)• Group cash at 30 June 2021 was £14.5m (FY20: £12.7m) more than offsetting borrowings of £6.86m (FY20: £6.75m)• Final ordinary dividend of 0.37p proposed, an increase of 48% (FY20: 0.25p) 30838 Netcall-AR-2021.indd 130838 Netcall-AR-2021.indd 105/11/2021 10:52:1605/11/2021 10:52:16 Chairman and Chief Executive’s review Overview Netcall delivered a strong trading performance during the year with revenue growing 8% to £27.2m and adjusted EBITDA increasing by 21% to £5.34m. This overall performance was driven by significant cloud business revenue growth of 26% to £8.3m (FY20: £6.6m). The ongoing transition to a cloud business model has continued to accelerate with bookings for cloud solutions contributing to more than 75% of total bookings. As a result, Cloud services ACV increased by 25% to £9.4m (FY20: £7.5m) underpinning continued revenue cloud growth momentum into the new financial year. The growth in Cloud services ACV is due to both new customer wins and upsell into the existing customer base, and now represents more than half of the Group’s total ACV which grew by 10% to £18.5m (FY20: £16.8m). The continued demand for Liberty solutions, especially cloud, increased future contracted revenues by 27% to £33.4m (FY20: £26.4m). The Board is grateful to the Netcall team who made this performance possible by responding positively during the COVID-19 pandemic and showing tremendous flexibility, resilience and creativity. The Group’s trading performance and robust financial footing meant that no pay- cuts, furlough or redundancies were required and with a move to flexible working, Netcall took the decision to permanently close two office locations, whilst retaining two offices and moving the Group’s registered office to Bedford. Netcall’s markets represent a substantial and growing opportunity and the Liberty platform’s unique combination of Customer Engagement and Intelligent Automation solutions continues to gain market traction as we support our customers’ Digital Transformation strategies. Today, 22% of total ACV is from customers who have purchased both Intelligent Automation and Customer Engagement solutions, up from zero in 2018. This has contributed to growth in average contract values and a significant increase in recurring revenue from those customers, demonstrating the value of our existing customer base. We continued to innovate and expand the power of our platform, both through internal R&D and M&A activity. The Group’s Intelligent Automation capabilities were enhanced during the year through the acquisition of Oakwood Technologies BV (trading as ‘Automagica’), a Robotic Process Automation (‘RPA’) software company, in October 2020 which resulted in the release of our first version of Liberty RPA in February 2021. We also made good strides towards achieving our sustainability objectives and reducing the Group’s impact on the environment. This was the first year we initiated voluntary environmental impact reporting in recognition that sustainable business practices will play an increasingly important part in the Group’s long-term objectives. Over the year we lowered the Group’s direct carbon emissions by 31% and are well on track to reach our target of being carbon neutral for Scope 1 and 2 emissions by end of 2022 and Scope 3 net zero by end of 2026. We are pleased with the solid performance for the year driven by demand for our cloud-based Liberty offering, resulting in 26% growth in cloud business revenue and a significant increase in profitability as Netcall continues the transition to a cloud business model. In addition to new customer momentum, we see a greater number of customers expanding their engagement with the enlarged Liberty platform, contributing to growth in average contract values and recurring revenue. “Trading conditions in the new financial year has remained positive, with a healthy pipeline of new business, combined with a growing cloud business revenue stream underpinned by the increase in signed annual contract value. “The Group’s target markets represent a substantial and growing opportunity with our Liberty platform being well positioned to support customers’ digital transformation strategies. Our growing cloud business is delivering enhanced profitability and revenue visibility which combined with our product innovation produces new growth opportunities. This, combined with a robust foundation of recurring revenues and a cash-generative business model, provides the Board with confidence in the Group’s growth prospects.” Henrik Bang CEO of Netcall 02 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 2 30838 Netcall-AR-2021.indd 2 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:17 05/11/2021 10:52:17 30838 5 November 2021 10:51 am v9netcall.com03Netcall plc Annual Report and Accounts for the year ended 30 June 2021STRATEGIC REPORTThe Group’s fast-growing cloud business together with a highly cash-generative business model, is providing the funds to invest in the expansion of our offering to support customers and capture new business opportunities. Throughout the year, the Group maintained a robust balance sheet supported by strong cash generation with the cash position at 30 June 2021 increasing to £14.5m (FY20: £12.7m). The normalised cash position was £13.1m (FY20: £10.5m), excluding deferred VAT of £1.4m (FY20: £2.2m) which will be repaid by December 2021.As we look forward, the journey towards digitalising communications and embracing automation to create leaner and more customer-centric organisations continues to represent a growing opportunity. The advancements that Netcall has made during the year have left the Group in a stronger position to push forward in its mission to help organisations harness the power of technology to make meaningful, valuable and more effective connections with their stakeholders.Current trading and outlookTrading conditions in the new financial year have remained positive, with a healthy pipeline of new business, combined with a growing cloud business revenue stream underpinned by an increase in annual contract value. The Group’s target markets represent a substantial and growing opportunity with its Liberty platform being well positioned to support customers’ digital transformation strategies. Our significant and growing cloud business is delivering enhanced profitability and revenue visibility which, combined with our product innovation, produces new growth opportunities. This, combined with a robust foundation of recurring revenues and a cash-generative business model, provides the Board with confidence in the Group’s growth prospects. Business ReviewCreating meaningful connections through powerful technologyToday, rapid technological advances across all industries has resulted in more data, 24/7 ‘always on’ availability, increased automation and growing channels of communication. Organisations must change to succeed in this ‘Age of the Customer’ with expectations of fast, personal and flexible engagements. Netcall’s Liberty platform provides a comprehensive and easy-to-use digital transformation tool kit that helps customers manage this complexity and build leaner, more customer-centric organisations. Through the provision of automation and communication technologies, Netcall’s solutions enable organisations to connect data silos, improve and automate processes, create better solutions and do it faster to deliver better outcomes. The CX Dreams are made ofWith a boom in demand for its customer service team during the pandemic, Dreams needed technology that would empower its agents to deliver personable, personalised and memorable customer interactions. They chose Liberty Converse and Connect to improve customer experience.• Described as “a complete breath of fresh air”• Teams could easily see and explain what they’re doing for all customers • Place customers in more appropriate queues• Make changes at the touch of a button • Supports the team in doing a better job30838 Netcall-AR-2021.indd 330838 Netcall-AR-2021.indd 305/11/2021 10:52:1805/11/2021 10:52:18 30838 5 November 2021 10:51 am v9Stock code: NETNetcall plc Annual Report and Accounts for the year ended 30 June 202104Chairman and Chief Executive’s reviewThe platform is built around two complementary and integrated solution areas unifying intelligent automation and customer engagement, delivering a broad range of product capabilities:Intelligent Automation:• Liberty Create: A low-code software solution for faster development of applications utilising an intuitive drag-and-drop environment, enabling both professional and business developers to create enterprise grade applications that drive and automate workflows and business processes. This is combined with easy integration to other parts of the Liberty platform, as well as third-party solutions, such as SAP and Salesforce. • Liberty RPA: An AI-powered robotic process automation solution, acquired through Automagica, which frees up people from mundane and cumbersome tasks, enabling them to be more productive. Liberty RPA is available in both an unattended and attended version, where it can function as a personal assistant to knowledge workers, such as contact centre agents and take over repetitive tasks and updating of records.Customer engagement:• Liberty Converse: A complete omnichannel contact centre solution for customer engagement which also includes solutions, such as automated speech bots, workforce and quality management, switchboard and auto attendant.• Liberty Connect: A cloud messaging and bot platform enabling customers to extend their reach using digital channels like web chat, Facebook Messenger and Twitter, as well as benefiting from bots and automation.StrategyNetcall’s powerful technologies and services support customers with their digital transformation strategies so that they can create more valuable and effective connections with their stakeholders. Our focus is primarily on sectors characterised by large, complex ecosystems of customers, suppliers or staff and are often subject to a high level of regulation, including healthcare, public sector and financial services. These three core market segments continue to see significant new demand and today represent 85% South Hams accelerate process delivery Looking to accelerate process delivery and drive improved customer experiences during the pandemic, South Hams turned to Liberty Create to host customer requests, perform complex case management and operate workflows. It has enabled the council to transform three times faster than previous systems allowed.• Built and went live with an application in only six days• 70 processes went live in less than a year• Over 200,000 cases started by customers• Around 50% of the Council are active users• Integrated with Liberty Converse• £250k in reduced costsof Group revenues. The Group’s growth strategy remains centred on the execution of four strategic growth pillars: new customer acquisition, both through direct and partner channels; expanded uptake within the existing customer base; supported by an innovative R&D programme. In addition to supporting the organic growth strategies, the Group’s financial position provides the opportunity to assess the market for selective acquisitions with complementary proprietary software and/or additional customers in the Group’s target markets. Four Strategic PillarsCustomer-based expansionThe Group’s cloud solutions are the main driver of new business acquisition as more organisations recognise the necessity to pursue digital transformation initiatives, particularly through automation. We successfully added new customers across a range of market verticals, including from the Group’s three core segments of healthcare, public sector and financial services. 30838 Netcall-AR-2021.indd 430838 Netcall-AR-2021.indd 405/11/2021 10:52:1905/11/2021 10:52:19 STRATEGIC REPORT During the year, we also made further progress in the utility market following a targeted sales and marketing programme combined with the release of a dedicated LaunchPad initiative, comprising solutions developed specifically for this market segment. Additionally, we launched Tenant Hub, a dedicated suite of solutions for the Housing Sector, where new wins were secured during the year. New customer implementations include: • A utility company used the Liberty Create low-code platform to develop a tailor-made customer portal to allow 24/7 payment support for customers, including communications options to resolve payment plans entirely online. This is an example of our Low-code technology being used to quickly create a departmental solution solving a specific problem which can then be scaled across the business. • A leading insurance firm purchased the Liberty Create low-code platform to build a digital-first insurance claims management platform. This is an example of a direct license win for our technology and implemented through our partner channel. • A Fortune 500 financial services firm, spanning 120 countries signed a global framework agreement to utilise the Liberty platform to build and deploy business applications at scale. KEY STATS +10% Annual contract value +20% Intelligent Automation revenue +26% Cloud revenue netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 05 30838 Netcall-AR-2021.indd 5 30838 Netcall-AR-2021.indd 5 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:23 05/11/2021 10:52:23 30838 5 November 2021 10:51 am v9Land and ExpandThe Group’s land and expand strategy continues to represent a significant opportunity for the business. Positively, the Group’s cloud net retention rate increased to 116% from 113% a year ago, as customers increased purchases of new solutions and upgrades. This reflects Netcall’s high customer retention rate combined with continuous enhancements to our product portfolio and tighter integration between the various solutions which provides substantial opportunities in three areas:Stock code: NET06Netcall plc Annual Report and Accounts for the year ended 30 June 2021Chairman and Chief Executive’s review• The ongoing migration of on-premise Customer Engagement base to cloud solutions where sales to date show that these migrations deliver more than a 50% increase in ACV.• Further cross-selling as the Group continues to roll-out new product capabilities.• Considerable progress in cross-selling Intelligent Automation solutions to Customer Engagement customers, where sales to date show that these cross-sales, on average, triple the customer ACV, which illustrates the growth potential within the customer base alone. The Group’s AppShare community continues to be a valuable resource to customers offering pre-built accelerators and modules to enrich customers’ interaction with the Liberty platform solutions. The community now consists of 1,400 members who can collaborate and build upon existing applications, with over 230 pieces of content shared to date. Examples of existing customers expanding their uptake of Liberty solutions, include:• A pan-European retailer and service provider who is an existing customer expanded their use of the platform by adopting Liberty RPA to automate a specific manual data entry process to free up internal capacity, enable volume growth and de-risk data entry accuracy. The customer is currently expanding the usage of Liberty RPA with additional processes being automated. • A number of public sector customers currently engaged with Netcall for Customer Engagement solutions have subsequently taken up our Tenant Hub and Citizen Hub offerings, comprising both low-code and customer engagement offerings and tailored to the sector focus.• A number of existing NHS Foundation Trusts which were existing on-premise Customer Engagement customers undertook transformation projects to migrate to Netcall’s Liberty Converse cloud solution.Innovation and product enhancementInvestment in innovative new products continues at pace and underpins the Group’s go-to-market model, positioning the Liberty platform as a one stop shop toolkit for digital transformation. 30838 Netcall-AR-2021.indd 630838 Netcall-AR-2021.indd 605/11/2021 10:52:2305/11/2021 10:52:23 STRATEGIC REPORT During the year, the Group acquired RPA provider Automagica and the RPA solution has been integrated onto the Liberty platform, strengthening Netcall’s product offering. The new product, Liberty RPA, offers customers an AI- powered robotic process automation solution capable of deploying Attended, Unattended, and Hybrid Automations, incorporating optical character recognition and handwriting digital recognition, that allows organisations to realise multiple deployment models. New features post acquisition includes RPA Trace, a desktop analytic tool that reports on user activity to determine suitable processes for automation available for export into Process Mining tools. The Liberty platform was enhanced with a new Monitoring Studio, a feature providing on-demand analytics and historical data to analyse application performance. A new native Mobile App was developed and published to Apple and Android delivering enhanced offline capabilities, push notifications and geolocation tracking. A further focus for investment was on continued expansion of the platform’s ecosystem and tighter integration with third-party platforms, including Amazon Chime, Microsoft Teams and Microsoft Dynamics. We have also enhanced our Quality Management module, with new customer survey and screen recording functionality to monitor and improve the quality of service offered to customers, as well as adding shift management, rotas and forecasting to the integrated Workforce Management module to ensure the right level of resources are available in order to meet performance targets. Powered by the Liberty platform, the Group launched a number of capabilities targeted at core sectors, including Tenant Hub which is a suite of solutions tailored to address the specific needs of the housing sector, which helps to streamline operations and improve increasingly complex customer interactions. The result for tenants is improved online access to vital services, including rent statements and repair services, as well as more choice when it comes to engaging – including via Twitter and Facebook Messenger. The functionality of both Citizen Hub and Patient Hub were also enhanced in the period, with new capabilities to help councils effectively manage tasks and book resources. For hospitals, Patient Hub was expanded to deliver test results, including COVID-19 results, and the ability added to allow patients to report their arrival to hospital using an app without having to report to reception, which all deliver additional value to both organisations and customers. Partner base The Group’s network of technology and solution partners with industry knowledge and support capabilities continues to grow with new business delivered via indirect channels having increased to 24% of total new sales bookings. The Group has invested in strengthening the partnership team during the year to support this important route to market. The focus of the partner network on large organisations with global footprints has also yielded opportunities in new geographies outside of the UK, including winning new business in the Benelux region. KEY STATS £5.34m Adjusted EBITDA (2020: £4.41m) £14.5m Cash (2020: £12.7m) 1.49p Adjusted basic earnings per share (2020: 1.01p) Examples of business won or delivered via the partner network in the period include: • An insurance technology partner is building a new underwriting SaaS solution on Liberty Create for sale to its customer base. • A digital consultancy is developing a carbon offset management application for an environmental asset management company. • An emergency notification application for a utility company sold by a multinational telecommunication partner. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 07 30838 Netcall-AR-2021.indd 7 30838 Netcall-AR-2021.indd 7 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:24 05/11/2021 10:52:24 Chairman and Chief Executive’s review Financial Review A key financial metric monitored by the Board is the growth in the ACV base year-on-year (ACV, as at a given date, is the total of the value of each cloud and product support contract, divided by the total number of years of the contract). This reflects the annual value of new business won, together with upsell into the Group’s existing customer base, as it delivers against its land and expand strategy, less any customer contraction or cancellation. It is an important metric for the Group, as it is a leading indicator of future revenue. The Group continues its transition to a digital cloud business with Cloud ACV 25% higher at £9.4m (FY20: £7.5m) with growth in both Customer Engagement and Intelligent Automation solutions of approximately 30% and 26% respectively compared to FY20. The growth in Cloud ACV contributed to a 10% growth in total ACV to £18.5m (FY20: £16.8m). The table below sets out ACV at the three financial year-ends: £’m ACV Cloud services Product support contracts Total FY21 9.4 9.1 18.5 FY20 7.5 9.3 16.8 FY19 6.0 9.7 15.7 Group revenue for the period grew by 8% to £27.2m (FY20: £25.1m). The year- on-year increase was primarily driven by growth in both Intelligent Automation solutions by 20% to £10.8m (FY20: £9.0m), and Customer Engagement solutions by 5% to £15.6m (FY20: £14.9m). The table below sets out revenue by component for the last three financial year- ends: £’m Revenue Cloud services Product support contracts Total Cloud services & Product support contracts Communication services Product Professional services Total Revenue FY21 8.3 9.0 17.3 2.9 2.7 4.3 27.2 FY20 6.6 9.6 16.1 1.9 3.1 4.0 25.1 FY19 5.7 9.3 15.0 1.8 2.3 3.8 22.9 Revenue from Cloud services (subscription and usage fees of our cloud-based offerings) increased by 26% to £8.25m (FY20: £6.55m) reflecting the higher year over year Cloud ACV. Product support contract revenue decreased by 5% to £9.06m (FY20: £9.56m) in line with the Group’s strategy to transition to a cloud business model, resulting in lower product and support contract ACV at the start of the new financial year of £9.3m, compared with the start of the prior financial year £9.7m. Recurring revenue from Cloud service and Product support contracts totalled 64% of revenue (FY20: 64%). Communication services revenue (fees for telephony and messaging services) increased by 50% to £2.90m (FY20: £1.93m) due to higher revenues for callback and messaging services. Product revenue (software license sales with supporting hardware) decreased by 13% to £2.66m (FY20: £3.07m). As previously communicated, this revenue stream continues to change within periods subject to customers’ preferences for buying on-premise or cloud contracts. The trend is, as expected, accelerating toward cloud contracts. Professional services revenue increased by 7% to £4.28m (FY20: £4.01m). The overall demand for our professional services is dependent on: the mix of direct and indirect sales of our solutions, in the latter case the Group’s partners provide the related services directly for the end customer; and whether a customer requires the support of a full application development service or support to enable their own development teams. Gross profit margin improved by 2% to 90% (FY20: 88%) mainly due to higher margin media channels driving revenues within Communication services. Administrative expenses, before depreciation, amortisation, share- based payments and acquisition related items, increased by 7% to £19.1m (FY20: £17.8m) due to higher staff-related expenditure, partially offset by changed working practises resulting in lower travel and expense spending. Consequently, the Group’s adjusted EBITDA increased by 21% to £5.34m (FY20: £4.41m), a margin of 20% of revenue (FY20: 18%). 08 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 8 30838 Netcall-AR-2021.indd 8 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:24 05/11/2021 10:52:24 STRATEGIC REPORT The higher adjusted EBITDA led to increased profit before tax of £0.99m (FY20: £0.50m) with charges for interest on borrowings, share- based payments, depreciation and amortisation charges being broadly level period over period. The Group recorded a tax charge of £11,000 (FY20: £10,000) benefiting from tax relief available from the exercise of share options during the period and additional deductions for R&D expenditure. Basic earnings per share was 0.66 pence (FY20: 0.34 pence) and increased by 48% to 1.49 pence on an adjusted basis (FY20: 1.01 pence). Diluted earnings per share was 0.64 pence (FY20: 0.33 pence) and increased by 47% to 1.43 pence on an adjusted basis (FY20: 0.97 pence). Cash generated from operations was £5.69m (FY20: £9.39m). The Group deferred £2.21m of VAT payments during March and June 2020 due to COVID-19, which was repayable in monthly instalments from March 2021 to January 2022. Adjusting for the effect of the VAT deferral scheme and Oakwood post completion service consideration, cash generated from operations was £6.72m (FY20: £7.18m) a conversion of 126% (FY20: 163%) of adjusted EBITDA. Spending on research and development, including capitalised software development, increased in line with revenues to £3.79m (FY20: £3.59m) of which capitalised software expenditure was £1.57m (FY20: £1.71m). Total capital expenditure was £1.71m (FY20: £1.86m); the balance after capitalised development, being £0.13m (FY20: £0.16m) relating to license-in intangible assets. The Company acquired 100% of the issued share capital of Oakwood Technologies BV in October 2020 for an initial cash consideration of €1.2 million (of which €0.12m is deferred for a year) and a potential further payment of €0.9 million in cash and up to €0.9 million in Netcall shares. The potential further payments are dependent on achieving specified performance targets during the two-year period from completion of the acquisition. In the period, the total cash outflow from the Company in relation to the transaction was £1.27m. See note 14 for further information. To support the acquisition of MatsSoft Limited in 2017, the Company issued a Loan Note totalling £7m. Loan Note interest payments in the period totalled £0.72m (FY20: £0.48m). The Loan Note is unsecured and is repayable in six instalments from 30 September 2022 to 31 March 2025. See note 7 for further information. As a result of these factors, net funds were £6.82m at 30 June 2021 (30 June 2020: £4.82m). The Group deferred £2.21m of VAT payments during March and June 2020 due to COVID-19, which was repayable in monthly instalments from March 2021 to January 2022, resulting in a normalised gross cash position at 30 June 2021 of £13.1m (30 June 2020: £10.5m). Dividend In line with the Company’s dividend policy to pay-out 25% of adjusted earnings per share, the Board is proposing a final dividend for this financial year of 0.37p (FY20: 0.25p). If approved, the final dividend will be paid on 8 February 2022 to shareholders on the register at the close of business on 24 December 2021. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 09 30838 Netcall-AR-2021.indd 9 30838 Netcall-AR-2021.indd 9 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:25 05/11/2021 10:52:25 Business model The Group focuses on the following primary value drivers: Proprietary software: Maintain high margins Deliver operational efficiency: Maintain high margins to allow for investment in the business Complementary product or customer type: Cross-selling Group products and services is important for future growth GROWTH BY ACQUISITION ORGANIC GROWTH Focus on cross-selling: Broadening the use of our platform in our customer base Expand our product suite and cloud offerings: To provide organic growth Grow our customer base and distribution channels: Increasing our market presence and providing future cross- selling opportunities Ability to add value: Opportunity to extract synergies See page 21 for further information. Retaining and attracting high-quality people: To build organisational strength and capabilities 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) 8% change Annual contract value (£m) Gross profit margin (%) 10% change 2pp change 21 20 £27.2m £25.1m 21 20 £18.5m £16.8m 21 20 90% 88% Adjusted EBITDA (£m) 21% change Cash generated from operations before payment of non-recurring transaction costs (£m) -37% change Total equity (£m) 7% change 21 20 £5.34m £4.41m 21 20 £5.91m £9.39m 21 20 £24.6m £22.9m 10 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 10 30838 Netcall-AR-2021.indd 10 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:25 05/11/2021 10:52:25 30838 5 November 2021 10:51 am v9The principal risks facing the Group and considered by the Board are:Netcall plc Annual Report and Accounts for the year ended 30 June 202111netcall.comSTRATEGIC REPORTPrincipal risks and uncertaintiesEconomic Pandemic riskIntellectual property rights (‘IPR’) Product development Loss of key management and staffRisk area and potential impact • The Group’s markets may fall into decline. • Weak economic conditions, including the effect of the COVID-19 pandemic, may impact upon the ability of the Group’s clients to do business.Management of risks • 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. Risk area and potential impact • The Group responded positively to the uncertainty caused by the COVID-19 pandemic and recorded a positive trading performance throughout. The COVID-19 pandemic remains a risk which could cause shortage of staff if they become ill or disruption to the supply of components for our on-premise products.Management of risks • All employees were able to work remotely from home during the pandemic. Due to the digital and physically remote nature of our technology and solutions we are able to maintain high service levels during these periods. We continually monitor our suppliers to ensure the components we require for our on-premise solutions are available.Risk area and potential impact • 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. Management of risks • 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.Risk area and potential impact • 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.Management of risks • The Group continues to monitor the market place for competitor development and maintains a significant investment in research and development.Risk area and potential impact • Could potentially lead to a lack of necessary expertise and continuity. Management of risks • The Group places a significant emphasis on staff retention. Key management and staff are incentivised via bonus plans and share schemes.30838 Netcall-AR-2021.indd 1130838 Netcall-AR-2021.indd 1105/11/2021 10:52:2705/11/2021 10:52:27 30838 5 November 2021 10:51 am v9Project delivery Data security and business continuity Acquisitions Risk area and potential impact • 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.Management of risks • 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. Risk area and potential impact • A security breach or the loss or failure of Netcall systems would impact both on the Group’s operations and those of its clients. This could cause harm to the business or its reputation, resulting in financial loss, loss of customers or revenue.Management of risks • The Group maintains formal data security policies and procedures and a documented business continuity and disaster recovery plan which are tested and regularly reviewed.Risk area and potential impact • The Group may fail to execute its acquisition strategy successfully, retain key acquired personnel, or encounter difficulties in integrating acquired operations.Management of risks • 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.Stock code: NETNetcall plc Annual Report and Accounts for the year ended 30 June 202112Principal risks and uncertainties30838 Netcall-AR-2021.indd 1230838 Netcall-AR-2021.indd 1205/11/2021 10:52:2905/11/2021 10:52:29 STRATEGIC REPORT Environmental statement • such as Patient Hub, which reduces carbon emissions with electronic communications replacing printed and posted materials; • utilising technologies, such as Automatic Speech Recognition (‘ASR’), Optical Character Recognition (‘OCR’), and Computer Vision to improve efficiency and lower the carbon intensity of operations; and, • that are cloud based and leverage cloud operators large-scale efficiency innovations combined with their ongoing carbon reduction strategies. In general, digital transformation by increasing automation and improving stakeholder engagement and communications, makes processes and interactions more efficient and supports reduction of carbon emissions for our customers and their eco-systems. Therefore, by implementing our solutions and delivering our roadmap, Netcall also supports our customers environmental strategies, while at the same time working towards our own environmental targets. Netcall is committed to reducing our environmental impact and enhancing our environmental policy and environmental management systems to establish and measure improvement in this area. The Group is at the start of its journey to measure and improve its impact on the environment and the business is committed to working towards ‘carbon neutral’ status with an ambition to be carbon neutral by the end of 2026. During the financial year, Netcall has measured and is voluntarily reporting its Scope 1 and Scope 2 emissions, which have reduced by 31% to 46 tonnes of carbon dioxide equivalent ‘tCO2e’ (FY20: 67 tCO2e). Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by a reporting company. The Group plans to measure Scope 3 emissions, which cover indirect emissions that occur in a company’s value chain, and establish science- based targets to provide a path to reduce emissions to net-zero in the next financial year. While starting with its operations, Netcall’s strategy expands beyond its business by ensuring the changes implemented flow into the Group’s product strategies and also benefit the organisations and communities in which it operates. For example, today Netcall customers benefit from solutions: • that reduce resource requirements and associated office and transportation costs, such as contact centre agents working from home; netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 13 30838 Netcall-AR-2021.indd 13 30838 Netcall-AR-2021.indd 13 30838 10 November 2021 5:06 pm v9 10/11/2021 17:06:30 10/11/2021 17:06:30 Section 172(1) statement Introduction The Directors are aware of their duty under section 172 of the Companies Act 2006 to act in the way that they consider, in good faith, would be most likely to promote the success of the Group for the benefit of its members as a whole. They consider: • • • • • • the likely consequences of any decision in the long term(1); the interests of the Group’s employees(2); the need to foster the Group’s business relationships with suppliers, customers and others(2); the impact of the Group’s operations on the community and the environment(2); the desirability of the Company maintaining a reputation for high standards of business conduct(3); and the need to act responsibly with members of the Company(4). Our stakeholders To operate effectively it is important to understand the impact upon the stakeholders we interact with most. We have identified our key stakeholders to be: • our customers and suppliers; • our employees; • the wider communities in which we operate; and • our investors. The Board will sometimes engage directly with certain stakeholders. However, most engagement takes place at the Executive level. Where direct engagement is not possible, the Board receive updates from Executives on key areas on a regular basis, for use in its decision-making. Further details For further details of how the Board operates and the way in which it makes decisions, including key activities during the financial year ended 30 June 2021 and Board governance, see: pages 21 to 26 and the Board Committee reports thereafter; and pages 2 to 9 for a summary of developments in the year. It is the Group’s policy to manage and operate worldwide business activities in conformity with applicable laws and regulations, as well as with the highest ethical standards. Both the Group’s Board of Directors and its senior management team are determined to comply fully with the applicable law and regulations, and to maintain the Company’s reputation for integrity and fairness in business dealings with third parties. This Strategic Report was approved by the Board on 5 October 2021 and signed on its behalf by: James Ormondroyd Director 5 October 2021 (1) Refer to Principle 1 of the Corporate governance statement. (2) Refer to Principle 3 of the Corporate governance statement. Also refer to the Environmental statement. (3) Refer to Principle 8 of the Corporate governance statement. (4) Refer to Principle 2 of the Corporate governance statement. 14 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 14 30838 Netcall-AR-2021.indd 14 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:30 05/11/2021 10:52:30 Directors’ report GOVERNANCE 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 considering an overall view of the Group’s performances and its assessment of financial and personal performance. In the year ended 30 June 2021, performance against targets resulted in a bonus award of 90% of salary for Henrik Bang and 90% 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 on page 16. 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 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 2021. Results and dividends The Group’s profit for the year after tax was £0.97m (2020: £0.49m). Subject to shareholder approval at the Annual General Meeting to be held on 16 December 2021, the Board proposes paying a final ordinary dividend of 0.37 pence per share (2020: 0.25 pence per share). The estimated amount payable is £0.55m (2020: £0.36m). 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 £3.79m (2020: £3.59m) comprising £2.22m in the Consolidated income statement (2020: £1.88m) and £1.57m capitalised development expenditure (2020: £1.71m). Political donations and political expenditure In accordance with the Board’s policy, no political donations were made or expenditure incurred during the year (2020: £nil). Post balance sheet events For details of post balance sheet events see note 16 of the consolidated financial statements. Directors The Directors who held office during the year ended 30 June 2021 and up to the date of approval of these financial statements, unless otherwise stated, are as follows: Henrik Bang Chief Executive James Ormondroyd Group Finance Director Michael Jackson Chairman and Non-Executive Director Michael Neville Non-Executive Director Tamer Ozmen Non-Executive Director Biographical details of persons currently serving as directors are set out on page 20. Directors’ remuneration As the Company is quoted on the AIM 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 Group’s needs, individual responsibilities, performance and market practice. The main components of Executive Directors’ remuneration comprise: • basic salary; • performance-related bonus; • contributions to personal pension plan; • other benefits such as car allowances, medical and life assurance; and • share option schemes. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 15 30838 Netcall-AR-2021.indd 15 30838 Netcall-AR-2021.indd 15 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:30 05/11/2021 10:52:30 Directors’ report The service contracts and letters of appointment of the Directors include the following terms: Executive Directors Henrik Bang James Ormondroyd Non-Executive Directors Michael Jackson Michael Neville Tamer Ozmen Date of appointment Notice period 13 February 2004 30 July 2010 12 months 12 months 23 March 2009 30 July 2010 21 November 2019 12 months 12 months 3 months 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 Tamer Ozmen Salary and fees £000 Benefits in kind £000 299 226 57 46 30 658 22 19 – – – 41 Bonus £000 268 189 – – – 457 2021 Total £000 589 434 57 46 30 1,156 The table below sets out the contributions by the Company to Directors’ personal pension schemes during the year: Executive Directors Henrik Bang James Ormondroyd 2021 £000 30 4 34 2020 Total £000 510 371 57 36 18 992 2020 £000 25 9 34 The table below sets out share options granted to Directors and exercised during the year: 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 Exercise price (pence) Number at 1 July 2020 Exercised in year Number 30 June 2021 30.04.17 29.04.24 5.0 6,600,000 (1,894,461) 4,705,539 30.04.17 29.04.24 5.0 4,100,000 (1,343,899) 2,756,101 30.04.17 29.04.24 5.0 672,220 11,372,220 – (3,238,360) 672,220 8,133,860 (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 2023; and, the option holder being in employment during the vesting period. The closing mid-market price of the Company’s shares at 30 June 2021 was 73.0 pence. During the financial year the share price reached a high of 76.5 pence and a low of 35.0 pence. 16 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 16 30838 Netcall-AR-2021.indd 16 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:30 05/11/2021 10:52:30 GOVERNANCE Details of options exercised by Directors during the year are as follows: Director Henrik Bang James Ormondroyd 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 then 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. 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. Corporate governance The Company’s statement on corporate governance can be found in the corporate governance statement on pages 21 to 26 of this Annual Report. Number of shares 1,894,461 1,343,899 3,238,360 Employees The Group encourages employee involvement in the business at all levels with the staff of Netcall being the key to continuing success. Employees participate, where possible, in incentive schemes to share in the success of the Group. 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 dependents, 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. Mid-market share price on date of exercise (pence) 50.0 50.0 50.0 Exercise price (pence) 5.0 5.0 5.0 Gain on exercise £000 852 605 1,457 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 11 days (2020: 13 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. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 17 30838 Netcall-AR-2021.indd 17 30838 Netcall-AR-2021.indd 17 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:30 05/11/2021 10:52:30 Directors’ report Grant Thornton UK LLP, who were reappointed on 17 December 2020, 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 on 16 December 2021 at 10.30 am. Details and an explanation of the resolutions to be proposed are contained in the Notice of Annual General Meeting and its accompanying explanatory notes either sent to shareholders with the Annual Report or available on the Company’s website: netcall.com. By order of the Board James Ormondroyd Director 5 October 2021 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, the share capital of the Company comprised of 149,020,267 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. Auditor The Directors confirm that: • so far as each Director is aware, there is no relevant audit information of which the Company’s auditor is 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 auditor is aware of that information. 18 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 18 30838 Netcall-AR-2021.indd 18 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:30 05/11/2021 10:52:30 GOVERNANCE Statement of Directors’ responsibilities • 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 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. On behalf of the Board James Ormondroyd Director 5 October 2021 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 accounting standards in conformity with the requirements of the Companies Act 2006 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 prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, 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 netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 19 30838 Netcall-AR-2021.indd 19 30838 Netcall-AR-2021.indd 19 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:31 05/11/2021 10:52:31 Directors and advisers Chairman Michael Jackson*^~(71) joined the Board in March 2009. For the past 30 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 including The Sage Group plc where he was Chairman from 1997 until August 2006. Chief Executive Officer Henrik Bang (63) 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. Group Finance Director James Ormondroyd (49) 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 5 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 Directors Michael Neville*^~ (67) 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, corporate restructuring and strategic development, and serves as a Non-Executive Director for a number of companies across a wide spectrum of industry sectors. His background is in the telecommunications and technology and media arena. Tamer Ozmen (59) was appointed to the Netcall Board on 21 November 2019. He is an experienced technology professional with a background in the implementation of digital transformation projects. He has over 20 years’ experience in senior management positions, including CEO of Microsoft Turkey and most recently as head of Microsoft Consultancy Services in the UK. He has also been Group Vice President of Online and Multichannel at Orange S.A. and is a Non-Executive Director of Charles Taylor. * Denotes membership of the Audit sub-committee of the Board. ^ Denotes membership of the Remuneration sub-committee of the Board. ~ Denotes membership of the Nomination sub-committee of the Board. Company registration number: 01812912 Registered office: Directors: Secretary: Bankers: Nominated advisers: Registrars: Solicitors: Auditors: Suite 203, Bedford Heights, Brickhill Drive Bedford, MK41 7PH M Jackson H Bang J Ormondroyd M Neville T Ozmen M Greensmith Lloyds Bank plc Black Horse House, Progression Centre 42 Mark Road Hemel Hempstead HP2 7DW Canaccord Genuity Limited 88 Wood Street London EC2V 7QR Neville Registrars Limited Neville House Steelpark Road Halesowen B62 8HD TaylorWessing LLP 5 New Street Square London EC4A 3TW Grant Thornton UK LLP Chartered Accountants and Registered Auditor 101 Cambridge Science Park Milton Road Cambridge CB4 0FY 20 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 20 30838 Netcall-AR-2021.indd 20 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:31 05/11/2021 10:52:31 Corporate governance statement GOVERNANCE Introduction 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 Corporate Governance Code 2018 (the ‘QCA Code 2018’). The Board chose to apply this code as it believes that it is more suitable for small and mid-size companies. The QCA Code 2018 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 2018. 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 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 Directors 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 results announcements; trading updates; the Annual General Meeting (AGM); and meetings. A range of information is also available to shareholders and the public on our website. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 21 30838 Netcall-AR-2021.indd 21 30838 Netcall-AR-2021.indd 21 30838 5 November 2021 10:53 am v9 10/11/2021 16:16:49 10/11/2021 16:16:49 Corporate governance statement The AGM is the principal forum for dialogue with private shareholders. We encourage all shareholders to attend and take part, subject to any conditions imposed by HM Government during the COVID-19 pandemic and otherwise to ensure the health and safety of our employees and shareholders. 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 investors. 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. 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, conferences, roadshows and informal briefings with management. The Group’s Nominated Adviser arranges the majority of these meetings, following which it provides anonymised feedback from the 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 virtual ‘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. 22 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 22 30838 Netcall-AR-2021.indd 22 30838 5 November 2021 10:53 am v9 10/11/2021 16:16:49 10/11/2021 16:16:49 GOVERNANCE • Financial management: An annual operating budget is prepared by management and reviewed and approved by the Board. Monthly accounts, 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 five directors, of which two are executive and three are non-executives. The Executive Directors work full-time for Netcall. The Chairman and 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. The QCA Code 2018 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 2018 as two non-executives are not deemed to be independent as: • 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; and • 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. Tamer Ozmen provides consulting services to Gresham House Asset Management Ltd (‘Gresham House’) in relation to their investments in private technology companies. His consultancy work does not extend to Gresham House’s investments in publicly listed companies, including Netcall. Through their managed funds, Gresham House is the Company’s largest shareholder. He does not believe his consultancy agreement with Gresham House interferes with his exercise of independent judgment, and, therefore, he considers himself to be an independent director. The Board has three committees: Audit, Remuneration and Nomination. The Board does not comply with the QCA Code 2018’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 Michael Jackson and Michael Neville 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. The QCA Code 2018 recognises that certain of its recommendations may not be suitable for growing companies and your Board considers that its present directors provide a wide range of expertise which benefits the Group and its stakeholders. 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. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 23 30838 Netcall-AR-2021.indd 23 30838 Netcall-AR-2021.indd 23 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:31 05/11/2021 10:52:31 Corporate governance statement Meetings held during the period under review and the attendance of Directors is set out below: Board meetings Possible Attended Audit Committee Possible Attended Remuneration Committee Possible Attended Nomination Committee Attended Possible Executive Directors Henrik Bang James Ormondroyd Non-Executive Directors Michael Jackson Michael Neville Tamer Ozmen 12 12 12 12 12 12 12 12 12 11 – – 3 3 – 3(1) 3(1) 3 3 – – – 5 5 – – – 5 5 – – – – – – – – – – – (1) Attended by invitation as not a member of the Audit Committee. Principle 6 – Ensure that between them the Directors have all necessary up-to-date experience, skills and capabilities All five members of the Board bring relevant sector experience in technology, four members 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, courses 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; Chair 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. For the past 30 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, corporate restructuring and strategic development, and serves as a Non-Executive Director for a number of companies across a wide spectrum of industry sectors. His background is in the telecommunications, technology and media arenas. Tamer Ozmen, Non-Executive Director Term of office: Joined as a Non- Executive Director on 21 November 2019. Background and suitability for the role: Tamer Ozmen is an experienced technology professional with a background in the implementation of digital transformation projects. He has over 20 years’ experience in senior management positions, including CEO of Microsoft Turkey and most recently as head of Microsoft Consultancy Services in the UK. Tamer has also been Group Vice President of Online and Multichannel at Orange S.A. and is a non-executive director of Charles Taylor. 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 the 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 multi-national media and 24 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 24 30838 Netcall-AR-2021.indd 24 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:31 05/11/2021 10:52:31 GOVERNANCE 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 2018 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 sufficient for the Company’s needs. Michael Neville was proposed for re-election and reappointed in 2019 and Michael Jackson and Tamer Ozmen in 2020. Henrik Bang is proposed for re-election at the Company’s Annual General Meeting on 16 December 2021. 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. 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 have regularly been reviewed and adapted as the Group has developed and centres 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) 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 is updated on the findings of these and what actions are 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 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 Michael Jackson and Michael Neville. It is chaired by Michael Neville and meets at least twice per year. An Audit Committee report is set out on page 26. The terms of reference of the Audit Committee are available on the Company’s website. 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 Michael Jackson and Michael Neville. It is chaired by Michael Neville and meets at least once per year. A Remuneration Committee report is set out on page 26. 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 Michael Jackson and Michael Neville. It is chaired by Michael Jackson. The Nomination Committee did not meet formally during the year; however, members of the committee discussed these matters regularly in Board meetings. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 25 30838 Netcall-AR-2021.indd 25 30838 Netcall-AR-2021.indd 25 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:31 05/11/2021 10:52:31 Corporate governance statement 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 • 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; • 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. 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; and • approving changes to the Board structure. 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 three times, and the external auditor and the CEO and CFO were invited to attend these meetings. Consideration was given to the auditor’s pre- and post-audit reports and these provide opportunities to review the accounting policies, internal controls and the financial information contained in both the Annual and Interim Reports. Matters considered included risk of revenue misstatement, management override of controls, going concern and impairment of intangible assets. The committee reviewed the independence, taking into account fees for non-audit services, and performance of the external auditor. Remuneration Committee Report During the period under review the Remuneration Committee met five times and: • 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 long-term incentive plan for certain directors of the Company with the objective retention and incentivising 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 26 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 26 30838 Netcall-AR-2021.indd 26 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:32 05/11/2021 10:52:32 GOVERNANCE Independent Auditor’s report to the members of Netcall plc Opinion Our opinion on the financial statements is unmodified We have audited the financial statements of Netcall plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 30 June 2021, which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated statement of changes in equity, the Consolidated cash flow statement, the Parent Company balance sheet, the Parent Company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006. 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 Disclosure 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 2021 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; 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 opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the 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 concern We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future events or conditions may cause the group or the parent company to cease to continue as a going concern. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. The responsibilities of the directors with respect to going concern are described in the ‘Responsibilities of directors for the financial statements’ section of this report. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 27 30838 Netcall-AR-2021.indd 27 30838 Netcall-AR-2021.indd 27 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:32 05/11/2021 10:52:32 30838 5 November 2021 10:51 am v9Stock code: NETNetcall plc Annual Report and Accounts for the year ended 30 June 202128Independent Auditor’s report to the members of Netcall plcOur approach to the auditKey audit mattersScopingMaterialityOverview of our audit approachOverall materiality: Group: £270,000, which represents 1% of the group’s draft revenue.Parent company: £243,000, which represents 0.55% of the parent company’s draft total assets.Key audit matters were identified as:• the revenue cycle includes fraudulent transactions• intangible assets (goodwill) may be impaired• going concernOur auditor’s report for the year ended 30 June 2020 included the same key audit matters.We performed full scope audit procedures on the financial statements of Netcall plc and on the financial information of Telephonetics Limited, Netcall Technology Limited and Netcall Systems Limited.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. DescriptionAudit reponseDisclosuresOur resultsKAMIn the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit. Key audit matter Significant risk Other risk High Low Potential financial statement impact High Low Extent of management judgement Contract assets and liabilities The revenue cycle includes fraudulent transactions Intangible assets capitalisation Trade receivables Intangible assets (goodwill) may be impaired Management over-ride of controls Going concern Acquisition of Oakwood Share based payments 30838 Netcall-AR-2021.indd 2830838 Netcall-AR-2021.indd 2805/11/2021 10:52:3205/11/2021 10:52:32 GOVERNANCE Key Audit Matter – Group How our scope addressed the matter – Group The revenue cycle includes fraudulent transactions We identified the revenue cycle includes fraudulent transactions as one of the most significant assessed risks of material misstatement due to fraud. The group has recognised revenues of £27.2m (2020: £25.1m) in the year, which includes revenue from Cloud Services, Communication Services, Product Support, Product, and Services. Contracts include software licences, maintenance and hardware performance obligations. These performance obligations and associated revenues are separated and recognised accordingly in accordance with IFRS 15 Revenue from Contracts with Customers. The audit team considers that the significant risk in revenue is around the misallocation of the stand-alone selling prices between performance obligations and recognising revenue attributable to open performance obligations which have not yet been fulfilled. For all revenue streams noted above, the significant risks noted above are considered to be at the level of management override rather than at the transactional level. In responding to the key audit matter, we performed the following audit procedures: • assessed whether the revenue recognition accounting policies adopted were in accordance with the financial reporting framework, including IFRS 15, and tested whether management had accounted for revenue in accordance with the accounting policies; • assessed the application of IFRS 15 for each revenue stream and in particular whether the performance obligations were distinct, whether they should be recognised separately and whether they were recognised at an appropriate stand-alone selling price by reviewing significant contracts and the allocation of pricing between performance obligations; • • • tested the occurrence of revenues by selecting a sample of transactions throughout the year and agreed the revenues to supporting evidence; tested the open performance obligations in relation to project revenue by looking at hours recorded against budget, and by checking that project budgets were appropriate; and tested revenue journals to highlight and corroborate any postings that were outside of our expectations and therefore at a higher risk of being fraudulent. Relevant disclosures in the Annual Report and Accounts The group's accounting policies on revenue recognition are shown in notes 3(f) and 20(e) to the financial statements and related disclosures are included in note 3. Our results Our audit testing did not identify any material misstatements in the revenue recognised during the year which, based on our audit work, has been recognised in accordance with the group’s accounting policies. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 29 30838 Netcall-AR-2021.indd 29 30838 Netcall-AR-2021.indd 29 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:32 05/11/2021 10:52:32 Independent Auditor’s report to the members of Netcall plc Key Audit Matter – Group How our scope addressed the matter – Group Intangible assets (goodwill) may be impaired We identified intangible assets (goodwill) may be impaired as one of the most significant assessed risks of material misstatement due to error. At 30 June 2021, the group had goodwill of £22.8m (2020: £22.8m). In accordance with International Accounting Standard (IAS) 36, ‘Impairment of Assets’, an annual impairment review is required to be performed by management for goodwill to determine whether the carrying value is appropriate. In responding to the key audit matter, we performed the following audit procedures: • assessed whether the impairment accounting policy adopted is in accordance with the financial reporting framework, including IAS 36, and checking whether management have applied it appropriately; • compared the carrying value of the cash generating unit to management’s value in use calculations; • checked the mathematical accuracy of the impairment models; The impairment review is based on comparing the carrying value of identified cash generating units with the recoverable amount (being the higher of value in use and fair value less costs to sell), based on a value in use discounted cash flow model. Management’s assessment of the potential impairment of goodwill 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 risk of impairment of goodwill as a significant risk, which was one of the most significant assessed risks of material misstatement. Relevant disclosures in the Annual Report and Accounts The group's accounting policy on impairment of assets, including goodwill, is shown in note 20(i) and related disclosures are included in note 8(c) to the financial statements. • assessed and challenged management on the appropriateness of the forecast growth rates to historical performance and performed sensitivity analysis; • using an auditor’s expert, assessed and challenged management on the appropriateness of the discount rate applied to future cash flows by calculating an appropriate rate and applying sensitivities; • evaluated the other assumptions included in the impairment models through comparison with historical results, our knowledge of the business and discussions with management; and • assessed the adequacy of related disclosures within the annual report and financial statements. Our results Our audit testing did not identify any material misstatements relating to the impairment of goodwill included on the consolidated balance sheet. 30 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 30 30838 Netcall-AR-2021.indd 30 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:32 05/11/2021 10:52:32 GOVERNANCE Key Audit Matter – Group How our scope addressed the matter – Group Going concern Covid-19 is one of the most significant economic events currently faced by the UK. Covid-19 could adversely impact the future trading performance of the group and as such increases the extent of judgement and estimation uncertainty associated with management’s decision to adopt the going concern basis of accounting in the preparation of the financial statements. As such we identified going concern as a significant risk, which was one of the most significant assessed risks of material misstatement. Relevant disclosures in the Annual Report and Accounts The group’s going concern accounting policy and related disclosures are shown in the going concern note within note 20(a) to the financial statements. There were no key audit matters for the parent company. In responding to the key audit matter, we performed the following audit procedures: • obtained management’s base case forecasts covering the period to December 2022, assessing how these forecasts were compiled by agreeing the opening position and checking the integrity of the model; • assessed the appropriateness of management’s base case forecasts by applying sensitivities to the underlying assumptions, which we also challenged; • assessed the accuracy of management’s forecasting by comparing the reliability of past forecasts to the base case forecast; • obtained management’s reverse stress test scenario prepared to assess the potential impact on the forecasts and the relative likelihood and plausibility of the scenario; and • reviewed the related disclosures within the 2021 annual report and accounts. In our evaluation of the directors’ conclusions, we considered the inherent risks associated with the group’s and the parent company’s business model including effects arising from macro-economic uncertainties such as Brexit and Covid-19, we assessed and challenged the reasonableness of estimates made by the directors and the related disclosures and analysed how those risks might affect the group’s and the parent company’s financial resources or ability to continue operations over the going concern period. Our results Our testing did not identify any material uncertainties relating to events or condition, that individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 31 30838 Netcall-AR-2021.indd 31 30838 Netcall-AR-2021.indd 31 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:32 05/11/2021 10:52:32 Independent Auditor’s report to the members of Netcall plc Our application of materiality We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report. Materiality was determined as follows: Materiality measure Group Parent company Materiality for financial statements as a whole We define materiality as the magnitude of misstatement in the financial statements that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of these financial statements. We use materiality in determining the nature, timing and extent of our audit work. Materiality threshold £270,000 which is 1% of the group’s draft revenue. £243,000 which is 0.55% of the parent company’s draft total assets. Significant judgements made by auditor in determining the materiality In determining materiality, we considered the following factors: • Profitability of the business • Impact of macro-economic factors such as Covid-19 on the business • Expectations of key financial statement users • Industry benchmarking • Prior year measures of materiality Materiality for the current year is higher than the level that we determined for the year ended 30 June 2020 to reflect the increased profitability of the Group, increase in revenue year on year and resilient performance of the business throughout the pandemic. In determining materiality, we considered an asset-based benchmark to be appropriate on the basis that the parent company acts as a holding company for the Group and does not generate its own earnings. The threshold was arrived at as a result of being restricted to 90% of Group materiality, so as not to exceed Group materiality. Materiality for the current year is higher than the level that we determined for the year ended 30 June 2020 which is a reflection of an increased Group materiality threshold. Performance materiality used to drive the extent of our testing We set performance materiality at an amount less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality threshold £202,500 which is 75% of financial statement materiality. £182,250 which is 75% of financial statement materiality. 32 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 32 30838 Netcall-AR-2021.indd 32 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:33 05/11/2021 10:52:33 GOVERNANCE Materiality measure Group Parent company Significant judgements made by auditor in determining the performance materiality In determining performance materiality, we considered the following factors: • Control environment • Any changes in operations or key personnel • Frequency and materiality of errors and control deficiencies identified in previous audits 75% of materiality has been considered as sufficient to address the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. In determining performance materiality, we considered the same factors as those assessed for arriving at Group performance materiality, on the basis that the Group and parent entity are both centrally managed by the same personnel, and share a control environment. Specific materiality We determine specific materiality for one or more particular classes of transactions, account balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Specific materiality We determined a lower level of specific materiality for the following areas: We determined a lower level of specific materiality for the following areas: Communication of misstatements to the audit committee Threshold for communication • directors' remuneration • directors' remuneration • related party transactions • related party transactions We determine a threshold for reporting unadjusted differences to the audit committee. £13,500 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £12,000 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 33 30838 Netcall-AR-2021.indd 33 30838 Netcall-AR-2021.indd 33 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:33 05/11/2021 10:52:33 Independent Auditor’s report to the members of Netcall plc The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements. Overall materiality – Group Overall materiality – Parent company Revenue £27.2m PM £202,500 75% Total assets £46.5m PM £182,250 75% FSM £270,000 1% FSM £243,000 0.55% TFPUM £65,250 25% TFPUM £60,750 25% FSM: Financial statements materiality, PM: Performance materiality, TFPUM: Tolerance for potential uncorrected misstatements An overview of the scope of our audit We performed a risk-based audit that requires an understanding of the group’s and the parent company’s business and in particular matters related to: Understanding the group, its components, and their environments, including group-wide controls • The engagement team obtained an understanding of the group and its environment, including group-wide controls, and assessed the risks of material misstatement at the group level. • The engagement team obtained an understanding of the effect of the group organisational structure on the scope of the audit, identifying that the group financial reporting system is centralised. Identifying significant components Four significant components were identified, and the metrics used to assess their significance were total assets, revenues and profit before taxation. Type of work to be performed on financial information of parent and other components (including how it addressed the key audit matters) • The four significant components in the UK are required to have an individual full-scope audit, these were Netcall plc, Netcall Technology Limited, Netcall Systems Limited and Telephonetics Limited. • Two entities, MatsSoft Limited and Netcall Systems Inc, were not-significant and therefore we performed an audit of one or more account balances, classes of transactions or disclosures of the component (specific-scope audit). • The dormant or insignificant components were tested through analytical procedures as they were neither significant nor material. This included the newly acquired Oakwood Technologies BV, which is based in Belgium. Audit approach Full-scope audit Specific-scope audit Analytical procedures No. of components % coverage total assets % coverage revenue % coverage PBT 4 2 8 99.40 0.34 0.26 97.90 1.96 0.14 98.37 1.63 0.00 34 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 34 30838 Netcall-AR-2021.indd 34 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:33 05/11/2021 10:52:33 GOVERNANCE Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the 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 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. 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 , 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. 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. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 35 30838 Netcall-AR-2021.indd 35 30838 Netcall-AR-2021.indd 35 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:33 05/11/2021 10:52:33 Independent Auditor’s report to the members of Netcall plc 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. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: • We obtained an understanding of the legal and regulatory frameworks that are most applicable to the group and determined the most significant are those that relate to the operational environment, the financial reporting framework (international accounting standards in conformity with the requirements of the Companies Act 2006) and relevant tax compliance regulations. • We understood how the group is complying with legal and regulatory frameworks by making enquiries of management, those responsible for legal and compliance procedures and the company secretary. We corroborated our enquiries through our review of board minutes and papers provided to the Audit Committee. • We enquired of management and the Audit Committee about the group’s policies and procedures relating to the identification, evaluation and compliance with laws and regulations and the detection and response to the risks of fraud and the establishment of internal controls to mitigate risks related to fraud or non-compliance with laws and regulations including the Companies Act. • We enquired of management and the Audit Committee, whether they were aware of any instances of non-compliance with laws and regulations or whether they had any knowledge of actual, suspected or alleged fraud. • The engagement partner assessed that the engagement team collectively had the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations. • We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur, by evaluating management’s incentives and opportunities for manipulation of the financial statements. This included the evaluation of the risk of management override of controls. We determined that the principal risks were in relation to areas of increased management judgement, and the impairment of intangible assets, both of which could be impacted by management bias, as well as the risk of fraud through the use of journal entries that increase revenues. 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. Nick Jones Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Cambridge 5 October 2021 36 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 36 30838 Netcall-AR-2021.indd 36 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:33 05/11/2021 10:52:33 Consolidated income statement for the year ended 30 June 2021 Revenue Cost of sales Gross profit Administrative expenses Other losses Adjusted EBITDA Depreciation Net loss on disposal of property, plant and equipment Amortisation of acquired intangible assets Amortisation of other intangible assets Change in fair value of contingent consideration Post-completion services Share-based payments Operating profit Finance income Finance costs Finance costs – net Profit before tax Tax charge Profit for the year Earnings per share Basic Diluted FINANCIAL STATEMENTS Notes 3 5(a) 2b 8(a), 8(b) 8(c) 8(c) 4(a) 4(b) 18(c) 5(e) 5(e) 6 19(a) 19(a) 2021 £000 27,154 (2,625) 24,529 (22,659) (119) 5,338 (542) (52) (488) (1,391) – (285) (829) 1,751 3 (769) (766) 985 (11) 974 2020 £000 25,114 (2,930) 22,184 (20,926) (24) 4,413 (657) – (483) (1,344) (37) (33) (625) 1,234 38 (775) (737) 497 (10) 487 Pence 0.66 0.64 Pence 0.34 0.33 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 42 to 73 form part of these financial statements. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 37 30838 Netcall-AR-2021.indd 37 30838 Netcall-AR-2021.indd 37 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:33 05/11/2021 10:52:33 Consolidated statement of comprehensive income for the year ended 30 June 2021 Profit for the year Other comprehensive income Items that may be reclassified to profit or loss – Exchange differences arising on translation of foreign operations Total other comprehensive income for the year Total comprehensive income for the year Notes 9(c) 2021 £000 974 35 35 1,009 2020 £000 487 (14) (14) 473 All of the comprehensive income for the year is attributable to the shareholders of Netcall plc. The notes on pages 42 to 73 form part of these financial statements. 38 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 38 30838 Netcall-AR-2021.indd 38 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:33 05/11/2021 10:52:33 Consolidated balance sheet as at 30 June 2021 Assets Non-current assets Property, plant and equipment Right-of-use assets 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 Cash and cash equivalents Total current assets Total assets Liabilities Non-current liabilities Contract liabilities Borrowings Lease liabilities Deferred tax liabilities Total non-current liabilities Current liabilities Trade and other payables Contract liabilities Lease liabilities Total current liabilities Total liabilities Net assets Equity attributable to owners of Netcall plc Share capital Share premium Other equity Other reserves Retained earnings Total equity FINANCIAL STATEMENTS Notes 2021 £000 2020 £000 8(a) 8(b) 8(c) 8(d) 7(c) 8(e) 8(f) 3(c) 7(a) 7(b) 7(d) 3(c) 7(f) 8(b) 8(d) 7(e) 3(c) 8(b) 9(a) 9(a) 9(b) 9(c) 608 711 30,070 648 72 32,109 84 1,563 898 2,635 10 14,520 19,710 51,819 22 6,858 672 881 8,433 6,918 11,691 171 18,780 27,213 24,606 7,534 3,015 4,900 3,840 5,317 24,606 960 970 29,078 482 72 31,562 139 1,392 585 3,957 4 12,710 18,787 50,349 104 6,745 902 842 8,593 6,907 11,724 248 18,879 27,472 22,877 7,312 3,015 4,900 3,996 3,654 22,877 The notes on pages 42 to 73 form part of these financial statements. These financial statements on pages 37 to 73 were approved and authorised for issue by the Board on 5 October 2021 and were signed on its behalf by: James Ormondroyd Director Netcall plc, registered no. 01812912 netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 39 30838 Netcall-AR-2021.indd 39 30838 Netcall-AR-2021.indd 39 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:34 05/11/2021 10:52:34 Consolidated statement of changes in equity for the year ended 30 June 2021 Notes 9(a), 9(b) 9(a) 9(c) 9(c) 13(b) 9(a) 9(c) 6(d) 9(c) 13(b) Balance at 30 June 2019 Issue of ordinary shares as consideration for an acquisition in a business combination Proceeds from share issue Increase in equity reserve in relation to options issued Reclassification following exercise or lapse of options Dividends paid Transactions with owners Profit for the year Other comprehensive income Total comprehensive income for the year Balance at 30 June 2020 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 paid Transactions with owners Profit for the year Other comprehensive income Total comprehensive income for the year Balance at 30 June 2021 Share capital £000 7,259 Share premium £000 3,015 Other equity £000 4,832 Other reserves £000 4,440 Retained earnings £000 2,402 Total £000 21,948 14 39 – – – 53 – – – – – – – – – – 68 – – – – 68 – – – – 622 – – – (1,052) – (430) – 1,052 (287) 765 487 (14) – 82 39 622 – (287) 456 487 (14) – 7,312 222 – 3,015 – – 4,900 – (14) 3,996 – 487 3,654 – 473 22,877 222 – – – – 222 – – – – – – – – – – – – – – – – 729 138 (1,058) – (191) – – – 1,058 (369) 689 974 35 – 729 138 – (369) 720 974 35 – 7,534 – 3,015 – 4,900 35 3,840 974 5,317 1,009 24,606 The notes on pages 42 to 73 form part of these financial statements. 40 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 40 30838 Netcall-AR-2021.indd 40 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:34 05/11/2021 10:52:34 Consolidated cash flow statement for the year ended 30 June 2021 Cash flows from operating activities Profit before income tax Adjustments for: Depreciation and amortisation Loss on disposal of property, plant and equipment Share-based payments Finance costs – net Other non-cash expenses Changes in operating assets and liabilities, net of effects from purchasing of subsidiary undertaking: Decrease in inventories Decrease/(increase) in trade receivables (Increase)/decrease in contract assets (Increase)/decrease in other financial assets at amortised cost Increase in other current assets Increase in trade and other payables (Decrease)/increase in contract liabilities Decrease in provisions Cash generated from operations Analysed as: Cash flow from operations before VAT deferral and post completion service consideration Net effect of VAT deferral scheme Payment of post completion service consideration Interest received Interest paid Income taxes paid Net cash inflow from operating activities Cash flows from investing activities Payment for acquisition of subsidiary, net of cash acquired Payment for property, plant and equipment Payment of software development costs Payment for proprietary software Payment for 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 Interest paid on Loan Notes Lease payments Dividends paid to Company’s shareholders Net cash outflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the financial year Effects of exchange rate on cash and cash equivalents Cash and cash equivalents at end of financial year The notes on pages 42 to 73 form part of these financial statements. FINANCIAL STATEMENTS Notes 14(a) 8(a) 8(c) 14(a) 8(c) 9(a) 8(b) 13(b) 2021 £000 985 2,421 52 829 766 11 54 1,337 (320) (7) (184) (114) (142) – 5,688 6,718 (805) (225) 3 (10) (2) 5,679 – (36) (1,571) (1,049) (97) 1 (2,752) 222 (717) (294) (369) (1,158) 1,769 12,710 41 14,520 2020 £000 497 2,484 – 625 737 1 26 (92) 589 100 (107) 3,334 1,223 (29) 9,388 7,176 2,212 – 38 (6) – 9,420 (1,679) (146) (1,708) – (9) – (3,542) 39 (478) (199) (287) (925) 4,953 7,769 (12) 12,710 netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 41 30838 Netcall-AR-2021.indd 41 30838 Netcall-AR-2021.indd 41 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:34 05/11/2021 10:52:34 Notes to the consolidated financial statements for the year ended 30 June 2021 1 Significant changes in the current reporting period The financial position and performance of the Group was particularly affected by the following events during the reporting period: • The Group acquired 100% of the issued share capital of Oakwood Technologies BV (trading as ‘Automagica’) in October 2020 for an initial cash consideration of €1.20 million (of which €0.12m is deferred for a year) and a potential further payment of €0.9 million in cash and up to €0.9 million in Netcall shares. This resulted in the recognition of £1.20m in acquired software intangible assets and post-completion expenses of £0.29m, and a cash outflow of £1.27m (see note 14). • The Group opted to defer £2.21m of VAT payments in the last financial year that would usually have been paid between 20 March and 30 June 2020 under the coronavirus (‘COVID-19’) VAT deferral scheme. The Group paid £0.81m in the current financial year with the balance £1.41m to be paid by January 2022. This resulted in cash flows from operations and trade and other payables being £0.81m lower (2020: £2.21m higher) than would have been the case without deferral. 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 9. 2 Segment information 2(a) Description of segment and principal activities The Group’s Executive 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 costs, 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 Amortisation of acquired intangible assets Amortisation of other intangible assets Change in fair value of contingent consideration Post completion services Share-based payments Operating profit 2021 £000 5,338 (542) (52) (488) (1,391) – (285) (829) 1,751 2020 £000 4,413 (657) – (483) (1,344) (37) (33) (625) 1,234 2(c) Segment assets and liabilities Segment assets and liabilities are measured in the same way as in the financial statements. The total of non-current assets other than financial instruments and deferred tax assets broken down by location of the assets is set out below: UK Other countries Total 2021 £000 30,237 1,152 31,389 2020 £000 31,008 – 31,008 42 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 42 30838 Netcall-AR-2021.indd 42 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:34 05/11/2021 10:52:34 FINANCIAL STATEMENTS 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 2021 £000 8,254 2,899 9,057 2,660 4,284 27,154 5,559 21,595 2020 £000 6,553 1,929 9,555 3,065 4,012 25,114 4,994 20,120 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 £26.1m (2020: £23.9m), and the total from external customers from other countries is £1.1m (2020: £1.2m). No single customer accounted for more than 10% of the Group’s revenue in the year or the prior 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: Contract assets Loss allowance Total contract assets Contract liabilities – current Contract liabilities – non-current Total contract liabilities 2021 £000 940 (42) 898 11,691 22 11,713 2020 £000 723 (138) 585 11,724 104 11,828 Contract assets have increased by £0.31m due to the utilisation of brought forward loss allowance and as more products and services were delivered ahead of agreed payment schedules. Contract liabilities have decreased by £0.12m primarily due to an increase in advance subscription payments for to new Cloud services offset by lower advanced support contract billings. 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 2021 £000 11,252 – 2020 £000 9,850 – 3(e) Unsatisfied long-term contracts The unsatisfied performance obligations for communication services, product and professional service revenues are 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 2021 £000 15,829 11,491 2020 £000 12,761 10,152 netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 43 30838 Netcall-AR-2021.indd 43 30838 Netcall-AR-2021.indd 43 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:34 05/11/2021 10:52:34 Notes to the consolidated financial statements for the year ended 30 June 2021 3 Revenue from contracts with customers continued 3(f) Accounting policies and significant judgements Revenue is recognised at the transaction price being the amount of consideration to which the Group expects to be entitled 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. • 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, representing unbilled work in progress with substantially the same risk characteristics as trade receivables for the same types of contracts. 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. Change in fair value of contingent consideration Post completion services expense Notes 4(a) 4(b) 2021 £000 – (285) (285) 2020 £000 (37) (33) (70) 4(a) Change in fair value of contingent consideration The purchase agreement of MatsSoft Ltd provided for potential further cash and shares to be paid dependent on achieving specified performance targets over various periods from completion of the acquisition. In 2020, the final amounts earned were determined resulting in a £0.04m being debited to the income statement as a change in estimate of fair value. 44 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 44 30838 Netcall-AR-2021.indd 44 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:35 05/11/2021 10:52:35 FINANCIAL STATEMENTS 4(b) Post completion services expense The former owners of Oakwood Technologies BV (in the comparative year 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 14(a)). 5 Other expense items This note provides a breakdown of items included in ‘other income’, ‘other losses’, ‘finance income and costs’ and an analysis of expenses by nature and employee benefit expenses. 5(a) Other losses Net foreign exchange losses Net loss on disposal of property, plant and equipment Total other losses 5(b) Breakdown of expenses by nature Inventory recognised as an expense Employee benefit expenses Depreciation and amortisation Other expenses Total cost of sales and administrative expenses Notes 8(e) 5(c) 8(a), 8(b), 8(c) Research and development costs of £2.22m have been expensed during the year (2020: £1.88m). 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 – audit-related services – tax advisory services 5(c) Breakdown of employee benefit expenses Wages and salaries Less: internal development costs capitalised in the year Social security costs Share options charge for Directors and employees Pension costs – defined contribution plans 5(d) 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) 2021 £000 (67) (52) (119) 2021 £000 91 17,630 2,421 5,142 25,284 2020 £000 (24) – (24) 2020 £000 243 15,194 2,484 5,935 23,856 2021 £000 2020 £000 26 61 11 7 105 2021 £000 15,541 (1,434) 1,832 829 862 17,630 23 53 8 – 84 2020 £000 13,809 (1,627) 1,599 625 788 15,194 2021 2020 71 141 23 235 68 143 23 234 netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 45 30838 Netcall-AR-2021.indd 45 30838 Netcall-AR-2021.indd 45 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:35 05/11/2021 10:52:35 Notes to the consolidated financial statements for the year ended 30 June 2021 5 Other expense items continued 5(e) Finance income and costs Finance income Interest income from financial assets held for cash management purposes Finance income Finance costs Interest and finance charges paid/payable for financial liabilities at amortised cost Interest paid/payable for lease liabilities (see note 8(b)) Borrowings: unwinding of discount (see note 7(f)) Other payables: unwinding of discount (see note 7(g)) Finance costs expensed Net finance costs 2021 £000 3 3 619 30 113 7 769 (766) 2020 £000 38 38 620 32 113 10 775 (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 (Increase)/decrease in deferred tax assets Increase/(decrease) in deferred tax liabilities Total deferred tax expense Total tax charge 2021 £000 2020 £000 – – – (28) 39 11 11 – – – 19 (9) 10 10 6(b) Significant estimate – tax The Group is principally 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 gross tax losses available for carrying forward against future taxable income of £8.43m (2020: £7.60m). The Group has recognised a deferred tax asset of £0.31m (2020: £0.32m) which is 19% 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 £1.27m (2020: £1.27m) in respect of losses that are capital in nature amounting to £6.68m (2020: £6.68m) or a deferred tax asset of £0.11m (2020: £0.23m) in relation to temporary timing differences due to share-based payment charges of £0.58m (2020: £1.22m). 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: 46 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 46 30838 Netcall-AR-2021.indd 46 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:35 05/11/2021 10:52:35 FINANCIAL STATEMENTS 2021 £000 985 187 150 – (240) (24) 162 49 (409) 30 106 – 11 2020 £000 497 94 133 7 (301) (3) 59 – (42) 17 – 46 10 2021 £000 2020 £000 138 138 – – Profit before tax Tax expense calculated at 19% (2020: 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 – tax losses arising in the period provided as a deferred tax asset – relief for employee share schemes – other Measurement of deferred tax – change in UK corporation tax rate Adjustment in respect of prior year deferred tax Total tax charge 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 • 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 • Lease liabilities Total financial liabilities Notes 2021 £000 2020 £000 7(c) 7(a) 3(c) 7(b) 7(d) 7(e) 7(f) 8(b) 72 72 2,635 898 10 14,520 18,135 4,747 6,858 843 12,448 3,957 585 4 12,710 17,328 3,708 6,745 1,150 11,603 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. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 47 30838 Netcall-AR-2021.indd 47 30838 Netcall-AR-2021.indd 47 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:35 05/11/2021 10:52:35 Notes to the consolidated financial statements for the year ended 30 June 2021 7 Financial assets and liabilities continued 7(a) Trade receivables Current assets Trade receivables Loss allowance (see note 12(c)) 2021 £000 2,744 (109) 2,635 2020 £000 4,075 (118) 3,957 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 2021 £000 10 10 2020 £000 4 4 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. Equity investments at fair value through other comprehensive income Non-current assets Unlisted equity Macranet Ltd 2021 £000 2020 £000 72 72 48 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 48 30838 Netcall-AR-2021.indd 48 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:35 05/11/2021 10:52:35 FINANCIAL STATEMENTS The investment in Macranet Ltd is denominated in Sterling (£). It is a provider of social media engagement solutions and 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 there is no change in the fair value of the investment in the year (2020: £nil). 7(d) Cash and cash equivalents Cash at bank and in hand Cash and cash equivalents 2021 £000 14,520 14,520 2020 £000 12,710 12,710 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 2021 £000 152 2,171 4,595 6,918 2020 £000 260 3,199 3,448 6,907 Trade payables are unsecured and are usually paid within 30 days of recognition. Other payables include the fair value of acquisition consideration liabilities of £0.16m (2020: £nil), 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. Payroll tax and other statutory liabilities includes £1.41m (2020: £2.21m) for VAT payments that would usually have been paid between 20 March and 30 June 2020 under the coronavirus (‘COVID-19’) VAT deferral scheme. 7(f) Borrowings Unsecured Loan Notes Total borrowings 2021 Current £000 2021 Non-current £000 – – 6,858 6,858 2021 Total £000 6,858 6,858 2020 Current £000 2020 Non-current £000 – – 6,745 6,745 2020 Total £000 6,745 6,745 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. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 49 30838 Netcall-AR-2021.indd 49 30838 Netcall-AR-2021.indd 49 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:35 05/11/2021 10:52:35 Notes to the consolidated financial statements for the year ended 30 June 2021 7 Financial assets and liabilities continued 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 difference between the principal value of the Loan Note and the initial fair value is being charged to the income statement over a five-year period. 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 2021 £000 7,000 (584) 6,416 329 113 442 6,858 Details of the Group’s exposure to risks arising from borrowings are set out in note 12. 7(g) Other payables – acquisition consideration 2021 Current £000 161 Acquisition consideration 2021 Non-current £000 – 2021 Total £000 161 2020 Current £000 – 2020 Non-current £000 – Movements in contingent consideration liability during the year are set out below: Opening balance Acquisition of Oakwood Technologies BV (see note 14(a)) Charged/(credited) to profit or loss: – post-completion services expense – share-based payment charge – unwinding of discount – change in fair value of contingent consideration (note 4(a)) – effect of exchange rate Amounts paid during the year: – cash – shares Closing balance 2021 £000 – 99 285 – 7 – (5) (225) – 161 2020 £000 7,000 (584) 6,416 216 113 329 6,745 2020 Total £000 – 2020 £000 1,680 – 33 1 10 37 – (1,679) (82) – 50 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 50 30838 Netcall-AR-2021.indd 50 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:35 05/11/2021 10:52:35 FINANCIAL STATEMENTS 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)) − leases (note 8(b)) − intangible assets (note 8(c)) − deferred tax balances (note 8(d)) − inventories (note 8(e)) − other current assets (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 2019 Additions Disposals At 30 June 2020 Additions Disposals At 30 June 2021 Accumulated depreciation At 30 June 2019 Depreciation charge Disposals At 30 June 2020 Depreciation charge Disposals At 30 June 2021 Net book amount At 30 June 2019 At 30 June 2020 At 30 June 2021 Furniture, fittings and equipment £000 Computer equipment £000 994 14 – 1,008 – (477) 531 268 190 – 458 135 (425) 168 726 550 363 1,684 132 (49) 1,767 36 – 1,803 1,200 206 (49) 1,357 201 – 1,558 484 410 245 Total £000 2,678 146 (49) 2,775 36 (477) 2,334 1,468 396 (49) 1,815 336 (425) 1,726 1,210 960 608 Depreciation expense of £0.34m (2020: £0.40m) 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 • Furniture, fittings and equipment 3–7 years 3–7 years See note 20(n) for the other accounting policies relevant to property, plant and equipment. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 51 30838 Netcall-AR-2021.indd 51 30838 Netcall-AR-2021.indd 51 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:36 05/11/2021 10:52:36 Notes to the consolidated financial statements for the year ended 30 June 2021 8 Non-financial assets and liabilities continued 8(b) Leases This note provides information for leases where the Group is a lessee. Amounts recognised in the balance sheet Right-of-use assets Buildings Lease liabilities Current Non-current Additions to the right-of-use assets during the year were £nil (2020: £0.42m). Amounts recognised in profit of loss Depreciation charge right-of-use assets – Buildings Interest expense (including in finance cost) Expense relating to short-term leases (included in ‘administrative expenses’) Expense relating to leases of low-value assets that are not shown above as short-term leases (included in ‘administrative expenses’) The total cash outflow for leases in the year was £0.29m (2020: £0.20m). 2021 £000 711 711 171 672 843 2021 £000 206 30 – – 2020 £000 970 970 248 902 1,150 2020 £000 261 32 – – The Group’s leasing activities and how these are accounted for The Group leases various offices. Rental contracts are typically made for fixed periods of three to seven years. Lease terms are negotiated on an individual basis and contain a range of different terms and conditions. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost comprising the following: • the amount of the initial measurement of lease liability; • any lease payments made at or before the commencement date less any lease incentives received; • any initial direct costs; and • restoration costs. Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture. Critical judgement in determining the lease term Extension and termination options are included in a number of property leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension 52 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 52 30838 Netcall-AR-2021.indd 52 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:36 05/11/2021 10:52:36 FINANCIAL STATEMENTS and termination options held are exercisable only by the Group and not by the respective lessor. In determining the lease term, management considers the facts and circumstances that create an economic incentive to exercise an extension option, or not to exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Factors to consider include: whether there are any significant penalties to terminate (or not extend) or leasehold improvements which are expected to have a significant remaining value; historical lease durations and the costs and business disruption required to replace the leased asset. As at 30 June 2021, potential future cash outflows of £0.35m (undiscounted) have been included in the lease liability because it is reasonably certain that the leases will be extended (2020: £0.35m). The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee. 8(c) Intangible assets Customer contracts and relationships £000 Brand names £000 Acquired software £000 Cost At 30 June 2019 Additions At 30 June 2020 Additions At 30 June 2021 Accumulated amortisation At 30 June 2019 Amortisation charge At 30 June 2020 Amortisation charge At 30 June 2021 Net book amount At 30 June 2019 At 30 June 2020 At 30 June 2021 4,448 – 4,448 – 4,448 4,144 43 4,187 30 4,217 304 261 231 266 – 266 – 266 192 68 260 6 266 74 6 – 5,515 – 5,515 1,203 6,718 2,929 372 3,301 452 3,753 2,586 2,214 2,965 Internally generated software £000 Trademarks and licenses £000 8,056 1,708 9,764 1,571 11,335 4,865 1,155 6,020 1,304 7,324 3,191 3,744 4,011 1,184 9 1,193 97 1,290 908 189 1,097 87 1,184 276 96 106 Goodwill £000 22,757 – 22,757 – 22,757 – – – – – 22,757 22,757 22,757 Total £000 42,226 1,717 43,943 2,871 46,814 13,038 1,827 14,865 1,879 16,744 29,188 29,078 30,070 Amortisation of £1.88m (2020: £1.83m) 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 18 months 4–15 years • Customer contracts and relationships 7–10 years • Internally generated software • Trademarks and licenses 4–10 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. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 53 30838 Netcall-AR-2021.indd 53 30838 Netcall-AR-2021.indd 53 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:36 05/11/2021 10:52:36 Notes to the consolidated financial statements for the year ended 30 June 2021 8 Non-financial assets and liabilities continued Significant estimate – internally generated software capitalisation and impairment During the year, the Group capitalised £1.57m (2020: £1.71m) 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 £4.01m (2020: £3.74m). 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 2021 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 3,196 Carrying value £000 25,953 Value-in-use £000 54,762 Excess value-in-use £000 28,809 Sensitivity % 111% 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 two years ending 30 June 2023, extended for another three years to 30 June 2026 with average growth rates and a terminal value based on the perpetuity of cash generated with a 1.9% 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 were discounted at a pre-tax adjusted discount rate of 10% (2020: 10%). The pre- tax discount rates are based on the Group’s weighted average cost of capital. 8(d) Deferred tax balances Deferred tax assets The balance comprises temporary differences attributable to: Tax losses Share-based payments Other 2021 £000 308 312 28 648 2020 £000 321 118 43 482 54 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 54 30838 Netcall-AR-2021.indd 54 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:36 05/11/2021 10:52:36 Tax losses £000 366 (45) – 321 (13) – 308 Share-based payments £000 98 20 – 118 56 138 312 Other temporary differences £000 37 6 – 43 (15) – 28 The movement in deferred tax assets during the year was: Deferred tax assets At 30 June 2019 (Charged)/credited to the income statement Charged to equity At 30 June 2020 (Charged)/credited to the income statement Credited to equity At 30 June 2021 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: Accelerated tax depreciation £000 78 (23) 55 (31) 24 Acquired intangibles £000 360 (58) 302 1 303 Deferred tax liabilities At 30 June 2019 (Credited)/charged to the income statement At 30 June 2020 (Credited)/charged to the income statement At 30 June 2021 8(e) Inventories Current assets Goods for resale FINANCIAL STATEMENTS Total £000 501 (19) – 482 28 138 648 2020 £000 302 485 55 842 Total £000 851 (9) 842 39 881 2021 £000 303 554 24 881 Internally generated software assets £000 413 72 485 69 554 2021 £000 2020 £000 84 139 The cost of individual items is 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 £0.09m (2020: £0.24m) of which write downs of inventories to net realisable value amounted to £nil (2020: £nil). These were recognised as an expense during the year and included in ‘cost of sales’. 8(f) Other current assets Prepayments 2021 £000 1,563 1,563 2020 £000 1,392 1,392 netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 55 30838 Netcall-AR-2021.indd 55 30838 Netcall-AR-2021.indd 55 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:36 05/11/2021 10:52:36 Notes to the consolidated financial statements for the year ended 30 June 2021 9 Equity 9(a) Share capital and premium At 30 June 2019 Acquisition of subsidiary(1) Employee share schemes issue (note 18(a)) At 30 June 2020 Employee share schemes issue (note 18(a)) At 30 June 2021 Number of shares 145,176,283 279,986 792,895 146,249,164 4,436,946 150,686,110 Ordinary shares £000 7,259 14 39 7,312 222 7,534 Share premium £000 3,015 – – 3,015 – 3,015 Total £000 10,274 14 39 10,327 222 10,549 (1) On 2 October 2019, the Company issued 279,986 new ordinary shares to the vendors of MatsSoft Limited under the contingent consideration arrangement (see note 4(a)). The fair value of the shares issued amounted to £82,000 (29.5 pence per share). Pursuant to this acquisition, under Section 612 of the Companies Act 2006 the share-issue qualified for merger relief. Therefore, no share premium is accounted for in relation to shares issued in consideration of the acquisition. Instead, the difference between the nominal value of shares issued and the fair value of the shares issued, £68,000, is credited to the merger reserve on consolidation. Share capital Share capital represents the nominal value of equity shares and comprises ordinary shares with a par value of five 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 (2020: nil). The total number of ordinary shares held in Treasury at the end of the year was 1,869,181 (2020: 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 2019 Additions (see note 9(a)) At 30 June 2020 and 30 June 2021 Merger reserve £000 4,644 68 4,712 Capital reserve £000 188 – 188 Total £000 4,832 68 4,900 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. 56 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 56 30838 Netcall-AR-2021.indd 56 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:36 05/11/2021 10:52:36 FINANCIAL STATEMENTS 9(c) Other reserves 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 after the table. At 30 June 2019 Increase in equity reserve in relation to options issued Reclassification following exercise or lapse of options Exchange differences arising on translation of foreign operations At 30 June 2020 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 At 30 June 2021 Treasury shares £000 (419) – – Share option reserve £000 5,097 622 (1,052) Foreign currency translation £000 (22) – – Financial assets at FVOCI £000 (216) – – – (419) – – – – (419) – 4,667 729 138 (1,058) – 4,476 (14) (36) – – – 35 (1) – (216) – – – – (216) Total £000 4,440 622 (1,052) (14) 3,996 729 138 (1,058) 35 3,840 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 reconciliation This section sets out an analysis of net funds and the movements in net funds for each year presented. 10(a) Net Funds Cash and cash equivalents Borrowings – fixed interest Lease liabilities Net funds 2021 £000 14,520 (6,858) (843) 6,819 2020 £000 12,710 (6,745) (1,150) 4,815 netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 57 30838 Netcall-AR-2021.indd 57 30838 Netcall-AR-2021.indd 57 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:37 05/11/2021 10:52:37 Notes to the consolidated financial statements for the year ended 30 June 2021 10 Net Funds reconciliation continued 10(b) Movements in Net Funds At 1 July 2019 Cash flows New leases Unwinding of discount (note 7(f)) Foreign exchange adjustments Other changes At 30 June 2020 Cash flows Unwinding of discount (note 7(f)) Foreign exchange adjustments Other changes At 30 June 2021 Cash and cash equivalents £000 7,769 4,953 – – (12) – 12,710 1,769 – 41 – 14,520 Borrowings £000 (6,632) – – (113) – – (6,745) – (113) – – (6,858) Lease liabilities £000 (904) 199 (418) (32) – 5 (1,150) 294 (30) – 43 (843) Total £000 233 5,152 (418) (145) (12) 5 4,815 2,063 (143) 41 43 6,819 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 • Recognition of deferred tax assets for carried forward tax losses – note 6(b) • Estimation of useful life of intangible assets – note 8(c) • Estimated impairment of internally generated software assets – note 8(c) • Estimated recoverable value of goodwill – note 8(c) • 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 • Estimation of right-of-use assets – note 8(b) 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. 58 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 58 30838 Netcall-AR-2021.indd 58 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:37 05/11/2021 10:52:37 FINANCIAL STATEMENTS 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 foreign currency risk and interest rate risk), credit risk and liquidity risk. 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 2021 Trade receivables Contract assets Other financial assets at amortised cost Cash and cash equivalents Trade and other payables (excluding statutory liabilities) At 30 June 2020 Trade receivables Contract assets Other financial assets at amortised cost Cash and cash equivalents Trade and other payables (excluding statutory liabilities) US Dollar £000 108 142 – 47 (82) 215 49 – – 70 (48) 71 Euro £000 37 26 9 31 (372) (269) 31 1 – 8 (36) 4 Total £000 145 168 9 78 (454) (54) 80 1 – 78 (84) 75 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 0.02% (2020: 0.5%). A 1% movement in interest rates would impact upon equity and net profit by approximately £106,000 (2020: £61,000). 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. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 59 30838 Netcall-AR-2021.indd 59 30838 Netcall-AR-2021.indd 59 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:37 05/11/2021 10:52:37 Notes to the consolidated financial statements for the year ended 30 June 2021 12 Financial risk management continued 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. 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 2021 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 for both trade receivables and contract assets is: Expected loss rate Gross carrying amount – trade receivables Gross carrying amount – contract assets Loss allowance 2021 £000 4.1% 2,744 940 151 2020 £000 5.3% 4,075 723 256 The closing loss allowances for trade receivables and contract assets as at 30 June 2021 reconcile to the opening balance as follows: At 1 July Increase in loss allowance recognised in profit or loss during the year Receivables written off during the year as uncollectible Unused amounts reversed At 30 June Contract assets Trade receivables 2021 £000 138 58 – (154) 42 2020 £000 29 266 – (157) 138 2021 £000 118 64 – (73) 109 2020 £000 82 140 – (104) 118 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. 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 September 2022 and cash and cash equivalents are thought to be at acceptable levels. 60 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 60 30838 Netcall-AR-2021.indd 60 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:37 05/11/2021 10:52:37 FINANCIAL STATEMENTS 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 2021 Trade and other payables(1) Borrowings Lease liabilities At 30 June 2020 Trade and other payables(1) Borrowings Lease liabilities (1) Excluding statutory liabilities. 4,721 – 97 4,818 3,708 – 147 3,855 – – 97 97 – – 137 137 29 2,333 195 2,557 – – 255 255 – 4,667 517 5,184 – 7,000 560 7,560 – – – – – – 152 152 4,750 7,000 906 12,656 3,708 7,000 1,251 11,959 4,747 6,858 843 12,448 3,708 6,745 1,150 11,603 13 Capital management 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 Equity attributable to owners of the Parent Company Net capital 2021 £000 6,819 24,606 17,787 2020 £000 4,815 22,877 18,062 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. 13(b) Dividends Year to June 2021 Final ordinary dividend for the year to June 2020 Paid Pence per share 9/2/21 0.25p Year to June 2020 Final ordinary dividend for the year to June 2019 5/2/20 0.20p Cash flow statement £000 Statement of changes in equity £000 Balance sheet £000 369 369 287 287 369 369 287 287 – – – – It is proposed that this year’s final ordinary dividend of 0.37 pence per share will be paid to shareholders on 8 February 2022. Netcall plc shares will trade ex-dividend from 23 December 2021 and the record date will be 24 December 2021. The estimated amount payable is £0.55m. 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. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 61 30838 Netcall-AR-2021.indd 61 30838 Netcall-AR-2021.indd 61 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:37 05/11/2021 10:52:37 Notes to the consolidated financial statements for the year ended 30 June 2021 14 Purchase of proprietary software 14(a) Acquisition of Oakwood Technologies BV’s software On 12 October 2020 the Company acquired 100% of the issued share capital of Oakwood Technologies BV (trading as ‘Automagica’), an AI powered Robotic Process Automation software provider. The Company assessed that substantially all of the fair value of gross assets acquired was concentrated in Automagica’s software. Therefore, it elected to account for the transaction as an acquisition of assets under the amendments to IFRS 3 ‘Business Combinations’ issued by IASB in October 2018. As such, the consideration together with the direct acquisition- related expenses (less any tangible or financial assets assumed) has been attributed to the acquired software. The fair value of consideration was £1.20m comprising: Cash consideration – initial payment Deferred cash consideration Acquisition-related expenses £000 987 99 111 1,197 The consideration for the transaction comprised: • cash consideration of €1.08m paid on completion in October 2020; • deferred cash consideration of an undiscounted amount of €0.12m payable in October 2021; and • contingent consideration of up to €0.90m in cash and up to €0.90m in Netcall shares payable dependent on specified performance targets during the two-year period from completion of the acquisition. As the contingent payments are reliant on the on-going provision of services to the business by the previous shareholders then: the cash amounts earned will be expensed in the income statement as rendered; and the share element will be charged to the income statement based on the fair value of shares that are ultimately expected to vest, in line with the requirements of IFRS 2 ‘Share- based payments’. The total contingent consideration expensed as post-completion services in the period was £285,000. The assets and liabilities recognised as a result of the acquisition are as follows: Intangible assets: proprietary software Trade receivables Other current assets Cash & cash equivalents Trade & other payables Contract liabilities Current tax liabilities Net assets acquired The cash outflow as a result of the transaction is as follows: Cash consideration – initial payment Less: cash acquired Acquisition-related expenses Net cash outflow – investing activities Cash consideration – contingent consideration Net cash outflow – operating activities Total cash outflow £000 1,203 24 1 13 (10) (32) (2) 1,197 £000 987 (13) 75 1,049 225 225 1,274 62 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 62 30838 Netcall-AR-2021.indd 62 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:37 05/11/2021 10:52:37 FINANCIAL STATEMENTS 15 Interests in other entities Company name Netcall Technology Limited (formerly Netcall Telecom Limited) Netcall Systems Limited (formerly MatsSoft Limited) MatsSoft Limited (formerly MatsSoft Holdings Limited) Netcall Systems, Inc. (formerly MatsSoft, Inc.) Oakwood Technologies B.V. Telephonetics Limited Serengeti Systems Limited Datadialogs Limited Netcall Telecom, Inc. Zelliant Limited (formerly Netcall Telecom Europe Limited) Netcall UK Limited Q-Max Systems Limited Voice Integrated Products Limited Country of incorporation Nature of business Proportion of ordinary shares held by Parent Company Proportion of ordinary shares held by the Group UK(1) Software & services 0% 100% UK(1) UK(1) USA(2) Belgium(3) UK(1) UK(1) UK(1) USA(1) UK(1) UK(1) UK(1) UK(1) Software & services Intermediate holding company Software & services Software & services Intermediate holding company Dormant company Dormant company Dormant company Dormant company Dormant company Dormant company Dormant company 100% 0% 0% 100% 100% 100% 0% 100% 100% 100% 100% 0% 0% 100% 100% 0% 0% 0% 100% 0% 0% 0% 0% 100% (1) The registered office is Suite 203, Bedford Heights, Brickhill Drive, Bedford, UK, MK41 7PH. (2) The registered office is 500 Sugar Mill Road, Suite 260A, Atlanta, Georgia 30350-3939, USA. (3) The registered office is Havenlaan 86C bus 204, 1000 Brussel, Belgium. 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. 16 Post balance sheet events 16(a) Dividend The Board recommended a final dividend for the year ended 30 June 2021 on 5 October 2021. See note 13(b) for details. 16(b) Issue of shares On 12 July 2021, the Company issued and allotted 203,338 new ordinary shares following the exercise of shares options by employees of the Group. 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 2021 £000 1,312 34 452 1,798 2020 £000 1,154 34 2 1,190 netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 63 30838 Netcall-AR-2021.indd 63 30838 Netcall-AR-2021.indd 63 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:37 05/11/2021 10:52:37 Notes to the consolidated financial statements for the year ended 30 June 2021 17 Related party transactions continued 17(c) Directors Aggregate emoluments Company contributions to money purchase pension schemes Total 2021 £000 1,156 34 1,190 2020 £000 992 34 1,026 Details of individual Director’s emoluments are set out on page 16 of the Directors’ report. The highest paid Director was paid £589,000 (2020: £510,000) and gained £852,000 on the exercise of share options in the year (2020: £114,000). Personal pension contributions paid to the highest paid Director were £30,000 (2020: £25,000). The Directors received dividend payments as follows: Executive Directors Henrik Bang(1) James Ormondroyd(2) Non-Executive Directors Michael Jackson(3) Michael Neville 2021 £000 2020 £000 15 6 5 2 10 3 3 1 (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 five 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 five 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 five 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. Initially, the options had a contractual option term of seven years. In November 2020, the option term was extended to ten years. Once vested, up to half of the options awarded may be exercised three years after grant and the other half, five years after grant. See the following notes for more detail regarding the current year modification of these options. 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. 64 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 64 30838 Netcall-AR-2021.indd 64 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:38 05/11/2021 10:52:38 FINANCIAL STATEMENTS • • • In August 2017, the Company granted a number of Unapproved Share Options (‘Unapproved 2’). These options are granted at an exercise price of five pence. Options are conditional on certain vesting criteria, including achievement of the Netcall Systems Limited (formerly: MatsSoft Ltd) 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. In July and November 2019, the Company granted a number of both EMI and Unapproved share options (‘LTIP4’). Options are granted at an exercise price of five pence. The vesting period is from the date of grant to 30 June 2023 and the Options are conditional on certain vesting criteria including: achievement of the Company’s ordinary share price up to £1.20 in the period from the date of grant up to June 2023 and the option holder being in employment at the date the option is exercised. Once vested up to one-third of the options awarded may be exercised from and after July 2021 and the remaining vested awards may be exercised one half from each of July 2022 and July 2023; 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. 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 2021 Weighted average exercise price in pence per share 5.0 – 5.0 5.0 5.0 2021 Options (thousand) 22,658 – (4,437) (106) 18,115 2020 Weighted average exercise price in pence per share 5.0 5.0 5.0 5.0 5.0 2020 Options (thousand) 18,731 8,406 (793) (3,686) 22,658 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 June 2014 June 2014 March 2015 November 2015 November 2015 October 2016 August 2017 November 2017 December 2018 July 2019 November 2019 Expiry date July 2021 July 2022 December 2023 April 2024 April 2024 March 2022 April 2022 November 2022 October 2023 August 2027 November 2024 December 2025 June 2024 June 2024 Scheme LTIP1 LTIP1 LTIP2 LTIP3 LTIP3 LTIP3 LTIP3 Unapproved Unapproved Unapproved 2 Unapproved 3 Unapproved 3 LTIP4 LTIP4 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 5.0 5.0 5.0 5.0 5.0 Options (thousands) 2021 – – 293 8,134 147 299 226 48 28 173 183 285 5,536 2,763 18,115 2020 173 334 529 11,372 147 299 319 48 33 462 251 285 5,643 2,763 22,658 netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 65 30838 Netcall-AR-2021.indd 65 30838 Netcall-AR-2021.indd 65 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:38 05/11/2021 10:52:38 Notes to the consolidated financial statements for the year ended 30 June 2021 18 Share-based payments continued At 30 June 2021, out of the 18,114,758 outstanding options (2020: 22,658,196 options), 1,285,106 options (2020: 5,557,865) were exercisable. The weighted average exercise price for options exercisable at the year-end was 4.7 pence (2020: 4.9 pence). Options exercised in the year resulted in 4,436,946 shares (2020: 792,895) being issued at a weighted average price of 5.0 pence each (2020: 5.0 pence). The related average weighted share price at the time of exercise was 55.3 pence per share (2020: 33.2 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 option modification In November 2020, the Company agreed to modify the terms of the Long-Term Incentive Plan (‘LTIP3’) granted in April 2014. The Company extended the vesting measurement date by two years to 30 April 2023 and the expiry date of the above LTIP3 options by a further three years to 29 April 2024. All other provisions under the above LTIP3 options remain unchanged. The incremental fair value granted as a result of this modification was £1.57m. The weighted average incremental fair value of the options modified was determined using a combination of the Monte Carlo and binomial option valuation models and was 11.4 pence per option. The significant inputs into the model were mid- market share price of 50.0 pence at the grant date; exercise price of five pence; volatility of 50%; an expected option life of 2.4 years; and an annual risk-free interest rate of 0.03%. The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over the last four years. In April 2021, the Company agreed to modify the terms of the Long-Term Incentive Plan (‘LTIP3’) granted in June 2014. The Company extended the expiry date of the above LTIP3 options by a further three years to 29 April 2024. All other provisions under the above LTIP3 options remain unchanged. No incremental fair value was granted as a result of this modification. 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. 18(c) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the year as part of employee benefit expense were as follows: Employee share options Post-completion services Notes 18(a) 7(g) 2021 £000 829 – 829 2020 £000 624 1 625 19 Earnings per share 19(a) Basic and diluted 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) 2021 974 146,675 0.66 2020 487 143,588 0.364 66 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 66 30838 Netcall-AR-2021.indd 66 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:38 05/11/2021 10:52:38 FINANCIAL STATEMENTS 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 (thousands) Weighted average number of potential ordinary shares in issue (thousands) Diluted earnings per share (pence) 2021 146,675 6,416 153,091 0.64 2020 143,588 5,839 149,427 0.33 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 on-going 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 Change in fair value of contingent consideration Share-based payments Post-completion services Amortisation of acquired intangible assets Unwinding of discount – contingent consideration & 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 2021 £000 974 – 829 285 488 120 (503) 2,193 2021 Pence 1.49 1.43 2020 £000 487 37 625 33 483 123 (332) 1,456 2020 Pence 1.01 0.97 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 accounting standards in conformity with the requirements of the Companies Act 2006. 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 Board has carried out a going concern review and concluded that the Group has adequate cash to continue in operational existence for the foreseeable future. To support this the Directors have prepared cash flow forecasts for a period in excess of 12 months from the date of approving the financial statements. When preparing the cash flow forecasts the Directors have reviewed a number of scenarios, including the severe yet plausible downside scenario, with respect to levels of new business and client retention. In all scenarios, the Directors were able to conclude that the Group has adequate cash to continue in operational existence for the foreseeable future. Standards and interpretations not yet applied by the Group Certain new standards and interpretations have been published that are not mandatory for 30 June 2021 reporting periods and have not been adopted early. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 67 30838 Netcall-AR-2021.indd 67 30838 Netcall-AR-2021.indd 67 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:38 05/11/2021 10:52:38 Notes to the consolidated financial statements for the year ended 30 June 2021 20 Summary of significant accounting policies continued 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. 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 Executive 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(f). 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. 68 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 68 30838 Netcall-AR-2021.indd 68 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:38 05/11/2021 10:52:38 FINANCIAL STATEMENTS 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. 20(g) Leases Leases are recognised as a right-of-use asset with a corresponding liability at the date at which the lease asset is available for use by the Group. See note 8(b) for further information about the Group’s accounting for leases. 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. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 69 30838 Netcall-AR-2021.indd 69 30838 Netcall-AR-2021.indd 69 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:38 05/11/2021 10:52:38 Notes to the consolidated financial statements for the year ended 30 June 2021 20 Summary of significant accounting policies continued 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. 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 12. 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 the transaction price as determined in accordance with IFRS 15 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(e) for further information. 70 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 70 30838 Netcall-AR-2021.indd 70 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:38 05/11/2021 10:52:38 FINANCIAL STATEMENTS 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 20(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. 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(c). 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(c). netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 71 30838 Netcall-AR-2021.indd 71 30838 Netcall-AR-2021.indd 71 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:38 05/11/2021 10:52:38 Notes to the consolidated financial statements for the year ended 30 June 2021 20 Summary of significant accounting policies continued 20(p) Trade payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the 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. 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 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. Where the Group is obliged to pay employer’s National Insurance contributions on the difference between the market value of the underlying shares and their exercise price when the options are exercised. A liability is measured using the value of the Company’s shares at the balance sheet date and charged to the income statement over the vesting period of the share options. 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. 72 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 72 30838 Netcall-AR-2021.indd 72 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:39 05/11/2021 10:52:39 FINANCIAL STATEMENTS 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. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 73 30838 Netcall-AR-2021.indd 73 30838 Netcall-AR-2021.indd 73 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:39 05/11/2021 10:52:39 Parent Company balance sheet as at 30 June 2021 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 at 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 Total non-current liabilities Current liabilities Trade and other payables Total current liabilities Total liabilities Total equity and liabilities Notes 2021 £000 2020 £000 E F G L H M N O I K 482 40,392 72 308 41,254 1,410 3,811 5,221 46,475 7,534 3,015 2,911 3,703 21,312 38,475 6,858 6,858 1,142 1,142 8,000 46,475 659 38,857 72 321 39,909 2,412 2,236 4,648 44,557 7,312 3,015 2,911 4,032 19,402 36,672 6,745 6,745 1,140 1,140 7,885 44,557 The notes on pages 76 to 80 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 £1.22m (2020: £2.09m). These financial statements on pages 74 to 80 were approved and authorised for issue by the Board on 5 October 2021 and were signed on its behalf by: James Ormondroyd Director Netcall plc, Registered no. 01812912 74 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 74 30838 Netcall-AR-2021.indd 74 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:39 05/11/2021 10:52:39 Parent Company statement of changes in equity for the year ended 30 June 2021 FINANCIAL STATEMENTS Balance at 30 June 2019 Increase in equity reserve in relation to options issued Reclassification following exercise or lapse of options Issue of ordinary shares as consideration for an acquisition in a business combination 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 2020 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 2021 Share capital £000 7,259 Share premium £000 3,015 Other equity £000 2,843 Other reserves £000 4,462 Retained earnings £000 16,543 Total £000 34,122 – – 14 39 – 53 – – – – – – – – – – – – 68 – – 68 – – – 7,312 – 3,015 – 2,911 – – 222 – 222 – – – – – – – – – – – – – – – – 622 – 622 (1,052) 1,052 – 82 39 (287) 456 2,094 – – – (287) 765 2,094 – 2,094 19,402 2,094 36,672 – 1,058 – (369) 689 1,221 – 729 – 222 (369) 582 1,221 – – – – (430) – – – 4,032 729 (1,058) – – (329) – – – 7,534 – 3,015 – 2,911 – 3,703 1,221 21,312 1,221 38,475 The notes on pages 76 to 80 form part of these financial statements. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 75 30838 Netcall-AR-2021.indd 75 30838 Netcall-AR-2021.indd 75 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:39 05/11/2021 10:52:39 Notes to the Parent Company financial statements for the year ended 30 June 2021 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 international accounting standards. 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 20(a) 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 of 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 pages 67 to 73 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 either at a point in time or over time, when (or as) the Company satisfies its performance obligations. (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 (2020: 2). The only employees of the Company are the Executive Directors. Directors’ remuneration has been disclosed within the Directors’ report on page 16. 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(b) of the consolidated financial statements. D Profit for the financial year The Company made a profit for the financial year of £1.22m (2020: £2.09m). 76 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 76 30838 Netcall-AR-2021.indd 76 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:39 05/11/2021 10:52:39 FINANCIAL STATEMENTS E Intangible assets Cost At 30 June 2019 Additions At 30 June 2020 Additions At 30 June 2021 Accumulated amortisation At 30 June 2019 Amortisation charge At 30 June 2020 Amortisation charge At 30 June 2021 Net book amount At 30 June 2019 At 30 June 2020 At 30 June 2021 Acquired software £000 Trademarks and licenses £000 2,223 – 2,223 – 2,223 1,445 148 1,593 148 1,741 778 630 482 179 – 179 – 179 135 15 150 29 179 44 29 – F Investments in subsidiaries Cost & Net book amount At 30 June 2019 Additions – share incentive charges to subsidiaries At 30 June 2020 Additions – share incentive charges to subsidiaries Additions – acquisition of Oakwood Technologies BV (see note 14(a)) At 30 June 2021 The Company’s subsidiaries at the year-end are set out in note 15 of the consolidated financial statements. All of the investments are unlisted. G Other investments Other investments are equity investments at fair value through other comprehensive income: Macranet Ltd 2021 Current £000 – 2021 Non-current £000 72 2021 Total £000 72 2020 Current £000 – 2020 Non-current £000 72 Details of the equity investment in Macranet Ltd are set out in note 7(c). H Trade and other receivables Amounts owed from Group undertakings(1) Prepayments and accrued income All amounts are due within one year. (1) Amounts due to Group undertakings are unsecured, interest free and are repayable on demand. 2021 £000 1,209 201 1,410 Total £000 2,402 – 2,402 – 2,402 1,580 163 1,743 177 1,920 822 659 482 Total £000 38,240 617 38,857 338 1,197 40,392 2020 Total £000 72 2020 £000 2,247 165 2,412 netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 77 30838 Netcall-AR-2021.indd 77 30838 Netcall-AR-2021.indd 77 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:39 05/11/2021 10:52:39 Notes to the Parent Company financial statements for the year ended 30 June 2021 I Borrowings Unsecured Loan Notes Total borrowings 2021 Current £000 2021 Non-current £000 – – 6,858 6,858 2021 Total £000 6,858 6,858 2020 Current £000 2020 Non-current £000 – – 6,745 6,745 2020 Total £000 6,745 6,745 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. 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 2021 £000 7,000 (584) 6,416 320 122 442 6,858 J Other payables – acquisition consideration Acquisition consideration 2021 Current £000 161 161 2021 Non-current £000 – – 2021 Total £000 161 161 2020 Current £000 – – 2020 Non-current £000 – – 2020 £000 7,000 (584) 6,416 216 113 329 6,745 2020 Total £000 – – See note 7(g) for information about the acquisition consideration liability and its estimate. The current balance of £0.16m (2020: £nil) is included within ‘Trade and other payables – Other liabilities’. 78 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 78 30838 Netcall-AR-2021.indd 78 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:39 05/11/2021 10:52:39 FINANCIAL STATEMENTS Movements during the year are set out below: Opening balance Acquisition of Oakwood Technologies BV (see note 14(a)) Charged/(credited) to profit or loss: – post-completion services expense – share-based payment charge – unwinding of discount – change in fair value of acquisition consideration – effect of exchange rate Amounts paid during the year – cash Amounts paid during the year – shares Closing balance K Trade and other payables Amounts owed to Group undertakings(1) Trade payables Social security and other taxes Other liabilities Accruals (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 comprise: Tax losses Opening balance Charged/(credited) to profit or loss Closing balance 2021 £000 – 99 285 – 7 – (5) (225) – 161 2021 £000 15 20 25 164 918 1,142 2021 £000 308 321 (13) 308 2020 £000 1,680 – 33 1 10 37 – (1,679) (82) – 2020 £000 – – 153 142 845 1,140 2020 £000 321 244 77 321 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 £1.27m (2020: £1.27m) in respect of losses that are capital in nature amounting to £6.68m (2020: £6.68m) or £nil (2020: £0.20m) in relation to timing differences due to share-based payment charges of £nil (2020: £1.03m). M Share capital Allocated, called up and fully paid Ordinary shares of 5p each 2021 shares 2021 £000 2020 shares 2020 £000 148,816,929 7,534 146,249,164 7,312 Details of the Company’s issued share capital and share options are detailed in notes 9(a) and 18 of the consolidated financial statements. netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 79 30838 Netcall-AR-2021.indd 79 30838 Netcall-AR-2021.indd 79 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:40 05/11/2021 10:52:40 N Other equity At 30 June 2019 Additions At 30 June 2020 and 30 June 2021 Merger reserve £000 2,655 68 2,723 Capital reserve £000 188 – 188 Total £000 2,843 68 2,911 Details of the additions to the Merger reserve are detailed in note 9(b) of the consolidated financial statements. O Other reserves At 30 June 2019 Increase in equity reserve in relation to options issued Reclassification following exercise or lapse of options At 30 June 2020 Increase in equity reserve in relation to options issued Reclassification following exercise or lapse of options At 30 June 2021 Share options reserve £000 5,097 622 (1,052) 4,667 729 (1,058) 4,338 Financial assets at fair value at FVOCI £000 (216) – – (216) – – (216) Treasury shares £000 (419) – – (419) – – (419) Total £000 4,462 622 (1,052) 4,032 729 (1,058) 3,703 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 consolidated 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 and shares issued pursuant to share option schemes. R Ultimate controlling party The Directors have assessed that there is no ultimate controlling party. 80 Netcall plc Annual Report and Accounts for the year ended 30 June 2021 Stock code: NET 30838 Netcall-AR-2021.indd 80 30838 Netcall-AR-2021.indd 80 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:40 05/11/2021 10:52:40 FINANCIAL STATEMENTS netcall.com Netcall plc Annual Report and Accounts for the year ended 30 June 2021 30838 Netcall-AR-2021.indd 81 30838 Netcall-AR-2021.indd 81 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:40 05/11/2021 10:52:40 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 d e d 3 0 J u n e 2 0 2 1 Netcall plc Suite 203, Bedford Heights, Brickhill Drive Bedford, UK MK41 7PH t: 0330 333 6100 e: ir@netcall.com w: netcall.com 30838 Netcall-AR-2021.indd 3 30838 Netcall-AR-2021.indd 3 30838 5 November 2021 10:51 am v9 05/11/2021 10:52:14 05/11/2021 10:52:14