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2023 Report® Annual Report & Accounts year ending 31 March 2017 Company Registration Number 01892751 Contents Strategic report What we do Headlines Statement by the Chairman Statement by the Chief Executive Officer Board of Directors Strategic report Corporate governance Corporate governance Directors’ report Directors’ remuneration report Statement of Directors’ responsibilities Independent Auditor’s Report Financial statements Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated balance sheet Consolidated cash flow statement Company statement of changes in equity Company balance sheet Company cash flow Notes (forming part of the accounts) 2 3 4 8 10 11 18 21 26 31 32 34 35 36 37 38 39 40 41 What we do D4t4 Solutions is ALL ABOUT THE DATA. We are energetically focused on solutions that enable you to get the most from your data – from collection through to management and analytics, D4t4 Solutions provides comprehensive products and services that drive value from your information assets. D4t4 Solutions has constantly evolved to embrace the importance of data in delivering benefit to a business. We have developed pioneering technology that pushes the boundaries of accuracy and completeness in data collection, while further augmenting our data expertise by collaborating with industry-leading Partners that specialise in data management and analysis. Our drive to continually innovate, both in the development of our own technology and in the resourceful delivery of partner solutions, places us at the leading-edge of how data is used by business. 22 S t r a t e g c i r e p o r t C o r p o r a t e g o v e r n a n c e i F n a n c a i l s t a t e m e n t s Headlines Revenue (£m) 2017 2016 GP margin (%) 17.67 2017 55.82 18.61 2016 49.52 2015* 12.90 2015* 36.37 Down by £0.94m Up by 6.3% Adjusted profit before tax ** (£m) Adjusted diluted EPS ** (pence) 2017 2016 4.22 2017 9.97 3.50 2016 8.24 2015* 1.22 2015* 3.86 Up by £0.72m Up by 1.73p Profit before tax (£m) Diluted EPS (pence) 2017 2016 4.24 2017 10.02 3.22 2016 7.64 2015* 0.65 2015* 1.92 Up by £1.02m Up by 2.38p * 2015 (15 months) ** Before amortisation of intangibles, share based payments charges and foreign exchange gains as per note 13 on page 50. 33 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Statement by the Chairman The Board remains confident in achieving the current market expectations for the financial year 2017/2018 and in the long-term prospects for the Group. Dear Shareholder Welcome to our first Annual Report under our new company identity. Last year at the AGM in July 2016 shareholders approved the name changeover from IS Solutions Plc to D4t4 Solutions Plc (D4T4) and having planned the process we successfully completed the rebranding of the Group. The new name better reflects the business environment we operate within and we have been delighted by the very positive response from our customers, the investing community, our business partners and our colleagues around the business. Today we acknowledge our Company as one that has transitioned to an international business that is totally driven by data, and in delivering value for our clients from their data, continues to bring rewards. Business intelligence and Analytics remains one of the fastest growth areas in the global IT sector therefore, with our combination of technical “know-how” and business skills we continue to attract more new clients who require services to help with their need to find value in both historical and new customer data. Our Celebrus Technologies software business, which we acquired in 2015, grew strongly throughout the course of the financial year under review; it is pleasing to report that it now represents 28% of Group revenue, up from 18% in the previous year. This strong improvement, combined with our Analytics and Services offerings has enabled D4t4 to increase its footprint in key sectors, particularly the finance, retail, telecommunications and the airline business sectors in both domestic and international markets. Going forward, our focus will remain on the collection, management and analysis of data thereby assisting our clients to derive considerable value from their customer data. Summary review of the year ended 31 March 2017 D4t4 has had another successful financial year. Our business has delivered profit before tax of £4.24 million (2016: £3.22m), driven from a 6.3% increase in gross profit margin (GP) to 55.82% which was ahead of market expectations (2016: 49.52%). The Company remains strongly cash generative and this resulted in cash reserves up from £5.01m in 2016 to £6.29 million at the end of the year under review. The last twelve months to March 2017 has seen the exciting ongoing evolution of our business into the data and analytics market space with a focus on growing our Celebrus software revenues. We are delighted therefore to see this strategy already paying off evidenced by the year on year growth of 48.8% growth in Celebrus sales. We have been delighted to win a number of significant major contracts with both new and existing customers; we have also invested in our partner-based sales strategy which has resulted in a number of new partner signings. Additionally, we have extended our partner and pre-sales teams, particularly in the USA and EMEA. 4 Our Projects business delivered sales in the year of £9.47 million, (2016: £10.67m). This result reflects two factors; first the American presidential elections caused nervousness within our American client base, with both existing and new clients wanting to see what the outcome of the election would mean to them before committing to new major projects. We are able to report that these concerns appear to be easing and confidence is returning, and those delayed decisions now appear to be moving forward. The second factor was the reduction in projects from one of our major Japanese clients who, due to the liquidation of part of their American business, moderated its overall group spending. Finally, Recurring Revenues from our managed private cloud and software licence maintenance services business delivered income of £4.49 million (2016: £4.97m). This decrease was due to the discontinued operations from one of our partners resulting in the termination of several of our older style business contracts. During the last year the data and analytics portion of our Recurring revenues business has continued to grow. We expect this area of our business to return to overall growth during the financial year ending March 2018. During the last twelve months we have seen a shift in the mix of sales within the Group, with a growth in higher margin licence software sales making a major contribution to the overall profitability of D4t4. Licence new sales have increased due to expansion of our salesforce and continued growth in partners. This, combined with the continued development of our business to the more profitable Analytics projects and associated Recurring revenues has assisted in delivering the overall strong Group profit growth. Financials Revenue Licence sales Projects Recurring income Gross profit GP margin Profit before tax Adjusted profit before tax* Basic EPS Diluted EPS Adjusted diluted EPS Dividend for the period Strong cash generation - gross cash position Year on year 2017 2016 growth £3.71m £9.47m £4.49m £17.67m £2.97m £10.67m £4.97m £18.61m £9.86m £9.21m 55.82% £4.24m £4.22m 10.49p 10.02p 9.97p 2.25p £6.29m 49.52% £3.22m £3.50m 8.17p 7.64p 8.24p 2.00p £5.01m +24.9% -11.2% -9.7% -5.0% +7.1% +6.3% +31.7% +20.6% +28.4% +31.2% +21.0% +12.5% +25.8% * before amortisation of intangibles, share based payments charges and foreign exchange gains as per note 13 on page 50. Gross profit in the period was £9.86 million (2016: £9.21m) whilst profit before tax was £4.24m against £3.22m in 2016. Administration costs were £1.83m (2016: £1.99m). Therefore, reported profit from operations is £4.29m (2016: £3.29m) and profit for the year is £3.90m (2016: £2.94m) after tax. This includes a foreign exchange gain for the year of £0.36m (2016: £0.09m) Debtors grew from £2.76m to £4.27m due to timing of contracts. Inventories held at client premises totalled £0.34m (2016: £nil) to provide reduction in leadtime and faster provision of service. 5 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Statement by the Chairman (Continued) Cash and cash equivalents at 31st March 2017 stood at £6.29m (2016: £5.01m), the increase is due to conversion of current year profits. Total net assets at the end of the year were £17.55m compared to £14.65m in March 2016. The company also has an overdraft facility of £0.25m renewable in July 2017. Adjusted fully diluted earnings per share grew 21.0% to 9.97 pence (2016: 8.24p), unadjusted diluted EPS was 10.02 pence (2016: 7.64 pence) up some 31.2%. Dividend The Board is recommending a final dividend of 1.7p. Subject to Shareholder approval at the Annual General Meeting which is to be held on 27th July 2017, the final dividend will be paid on 18th August 2017 to Shareholders on the Register at the close of business on 14th July 2017. The Ordinary shares become ex-dividend on 13th July 2017. As we have previously indicated the Company remains committed to a progressive dividend policy whilst balancing its investments for future growth. It is the Board’s intention to declare future dividends based on the overall performance, with appropriate cover in the range of 3-4 times. The Board remains confident in the future of the business and believes that it has a clear strategy in place to develop the opportunities that will deliver sustainable growth. Board changes In September 2016 we welcomed Mark Boxall to the Main Board. Mark joined D4t4 in November 2015. Mark has over 20 years of experience of the IT industry. He has considerable operational, sales and financial experience having been both board director and senior manager at technology consultancies and product based technology companies such as rbase, Morse, PTC and Siemens. Mark has had a major impact on the business with his work on the successful integration of Celebrus into D4t4. In December 2016 we welcomed Matthew Tod to the Main Board. Matthew joined D4t4 in April 2016, to head up our new Data Insight practice. He has over 25 years experience in digital technologies, focused on customer analytics; prior to joining us he helped build PwC’s analytics and digital transformation strategy capabilities within retail and consumer sectors. Matthew is already making a contribution to the business and with our analytics practice which is successfully working with clients to enable them to gain tangible competitive advantage from their data assets. At the last AGM Peter English and Michael Tinling retired from the Board both having been involved with the company since its formation. On behalf of all stakeholders, the Board thanks Peter and Michael for their contribution and wise counsel over the years and wishes them many years of happy retirement. 6 Matthew Tod Chief Data Officer Mark Boxall Chief Operating Officer People During the year the Group employed 124 staff in its operations located in India, EMEA and the USA. The Board would like to welcome all new colleagues to the business and to thank everyone for their contribution to another successful year in a working environment that has undergone major transformation and change. Throughout this time our colleagues have demonstrated outstanding efforts and commitment to ensure that we continue to deliver a high level of customer satisfaction for both our Product and Service offerings. As we move on, I look forward to witnessing their ongoing development and contribution as we strive to deliver the ambitions of our “All about the Data” message across the globe. Current trading and outlook There will always be macroeconomic factors that no business can fully mitigate against including currency volatility and more recently the possible wider potential implications of BREXIT. We remain confident in the Group’s strategy; our underlying business is performing well and delivering against our key KPIs. In addition, the investment and growth in our Indian development and support facility has continued apace; this together with the expansion of our US office and the renewed confidence from our US client base provides us with a platform for further growth and we are well-positioned to exploit opportunities in our key markets and sectors. In conclusion, delivery against our Group’s strategy remains on course and, this combined with the current revenue visibility, order book and pipeline of opportunities all bode well for the future. As a result the Board remains confident in achieving the current market expectations for the financial year 2017/2018 and in the long-term prospects for the Group. We hope to see you at the AGM in July; and in addition we will keep you abreast of our developments throughout the year. Peter Simmonds Chairman 26 June 2017 7 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Statement by the Chief Executive Officer We are confident in our ability to deliver quality Data Management and Data Analytics related solutions to our clients whilst we remain very enthusiastic about the opportunity to become recognised as the leader in the Data collection marketplace The geographical reach and business diversity that our partners bring to us is key to our future growth. We are confident in our ability to deliver sustained profitable growth for the Group and long-term value for shareholders. Dear Shareholder At the beginning of the year being reported upon I took over the role of CEO. At that time I presented to you our “All about the Data” and “Data Solutions for all” messages, I also explained our business refocus and the rebranding of the company. Jump forward 12 months and I am delighted to once again report a further year of very positive progress aligned with the strategic plan set out by the Board and the rebranding implementation programme launched in April 2016. In 2016, we stepped up our investment in both business development and product development, and at the same time improved gross margins and earnings. The Group has also added notable clients across its markets both locally and internationally including eight banks/financial institutions, a telecoms provider, two international retailers and two business airlines. All about the data Our “All about the Data” message has been well received by our staff, our clients and business partners. This concept has clearly assisted in the marketing of our services, delivering what is recognised as a much clearer defined message about what we do well as a Company. We are happy and fortunate that so many of our new (and long serving) clients are agreeable to give testament to our key strengths, services and technical capabilities in that they are willing to either talk one on one with prospective clients or stand up in front of audiences at industry events and explain the benefits of using D4t4’s technology and services. Objectives and strategy As stated last year we have been in the process of extending our Celebrus software products in terms of functionality and by doing so this has enabled the software to be used in other industry verticals. We continue to deliver on our strategy of empowering our clients to gain significant value from their customer data and through this to deliver major uplifts in terms of their revenues and profitability. We are very encouraged to see more and more opportunities to combine our Products and Service offerings to create innovative ways for our clients who require solutions to deal with their data mountains and show them how to modernise and monetise that data. 8 We also offer a low risk service to clients who do not necessarily want to use a public cloud offering and who require public / private and hybrid cloud alternatives and more recently we have seen an increase in demand for our remote managed, on premise, appliance based versions or “data centre in a box”. We provide Data Migration services as an integral part of our Service offering and continually find this to be a differentiator from other software companies. Notably all our services are governed by our ISO27001/2013 compliant data security platform and where required our Payment Card Industry (PCI DSS) compliant security platform. We continue to extend our reach via our existing and new business partnerships and more recently we were pleased to welcome the likes of Microsoft and Corios into our partner programme. We strongly support the view that the geographical reach and business diversity that our partners bring to us is key to our future growth. Outlook and opportunities Over the last year we have made tremendous strides and achieved so much across the business. Our rebranding has given us a fillip and our strategy is delivering and on track. Furthermore we have ambitious plans to address this fast-growing market we operate within through delivering exciting and innovative product and services that meet customer demand and returns for the business. We are confident in our ability to deliver quality Data Management and Data Analytics related solutions to our clients whilst we remain very enthusiastic about the opportunity to become recognised as the leader in the Data collection marketplace through our valuable asset of Celebrus Technologies which has afforded many new opportunities since acquiring it back in 2015. With our current activities and pipeline of opportunity mixed with the return in business confidence within our North American customer base post the US elections we are confident in our ability to deliver sustained profitable growth for the Group and long-term value for shareholders. I hope that you enjoy reading about our progress in this Annual Report and I look forward to keeping you updated on our business throughout the rest of this year. Peter Kear Chief Executive Officer 26 June 2017 9 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Board of Directors Peter Kear Chief Executive Officer Peter co-founded the company in 1985 and became CEO in 2016, having been responsible until then for both the sales and business development aspects of the company. His position as CEO involves overall responsibility for the management of the Group’s activities and he works closely with the other executive directors on the determination of the Group’s overall strategy. Carmel Warren Chief Financial Officer Following the acquisition of Celebrus in 2015, Carmel became CFO. Carmel is a fellow of the Institute of Chartered Accountants in England and Wales. She has held senior positions at EY, ExxonMobil and Brightside Group Plc prior to joining Celebrus in 2007 as a board director. Jim Dodkins Chief Technical Officer Jim is responsible for the Company’s strategic direction in technology, specialising in solution architecture for D4t4 Solutions and its clients. Prior to joining D4t4 Solutions he worked for Logica plc in various roles, where he gained wide industry experience and later managed the division responsible for projects in the Broadcast and Media sector. Mark Boxall Chief Operating Officer Mark has considerable operational, sales and financial experience having been both board director and senior manager at technology consultancies and product based technology companies such as rbase, Morse, PTC and Siemens, and most recently Dell EMC. Matthew Tod Chief Data Officer Prior to joining D4t4 Solutions, Matthew had established himself as a digital data expert within the key sectors of retail, e-commerce, mail- order, media, consumer goods and insurance. His company, Logan Tod & Co. was aquired by PwC in 2012 and he became a partner within PwC’s Customer Consulting Group. Peter Simmonds Non-executive Chairman John Lythall Non-executive Director Roger McDowell Non-executive Director Peter was CEO of dotDigital Group plc for eight years and a major contributor to their success prior to stepping down into the role of non- executive director. John co-founded the company in 1985 and was Managing Director of D4t4 Solutions from 1985 to 2016 before moving to a non- executive director position. Widely experienced Chairman, Non-executive Director and board committee member. Roger holds directorships in a number of companies. 10 Strategic report Our marketplace D4t4 Solutions operates within the fast-growing data and analytics market. This market encompasses ‘big data’, artificial intelligence, machine learning and business intelligence and has been estimated to be worth US$130 billion by the independent analyst IDC, with a projected growth of 11.7% annually until 2020 when the market is projected to be worth US$203 billion. The specific area of focus for D4t4 is data and analytics related to consumers; the collection of data on how consumers interact with digital channels, the management and analysis of the data and the implementation of cost effective solutions to assist companies get real value from their data assets. D4t4 Solutions is a small company within the context of this rapidly evolving marketplace, however the niche the company occupies is a very viable area for strong growth from a small base. Four key trends Open source technology, in the form of tools like Hadoop and Apache Spark, have even greater momentum than in prior years. However, in almost every case a core open source technology solution is complemented with paid for technology. D4t4 Solutions is fully aware of these key trends and takes them into account when devising strategy and tactics to deliver growth. All these developments are being harnessed by the business on a day to day basis to drive growth. Our Company vision, values & objectives D4t4 aims to become the leading independent technology company in the field of customer data collection and related solutions, delivering annual profit growth and capital appreciation to shareholders. These objectives will be achieved through our core values of innovation, trust, collaboration and security and by enhancing the required core capabilities of data collection, data management, data analysis and delivering data solutions. The market for data technologies and services is evolving very rapidly with many changes. There are Our strategy four key trends in the market that D4t4 Solutions is To deliver the vision, our strategy will be to monitoring closely: Increasing focus on gaining competitive advantage from data is being seen in every industrial sector. There are now more examples of organisations getting real advantage from data and this is stimulating the market. Artificial intelligence has advanced and is accelerate growth of our own software revenues, currently primarily derived from our data collection software product Celebrus which operates in fast- growing competitive market segments; increasing Celebrus revenues creates high margin sales in the short term as well as building a longer-term recurring revenue stream. entering the mainstream of business use. We will seek to balance software revenues with This trend fuels the need for high quality data income generated from developing and deploying and data solutions that aggregate disparate complementary ‘big data’ solutions that combine sources of data. the services, software and hardware needed to Cloud growth continues at pace, and more help our clients get strategic advantage from their enterprises, in more countries, are trusting the data. This business, whilst less predictable, is cloud with their data. This trend means that profitable, can help facilitate the sales of software software vendors working with consumer data and also generate significant recurring revenues need to be able to offer both on-premises and from the ongoing management of solutions. cloud based solutions. 11 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements OUR BUSINESS MODEL r o p e r t y P e o ple ® C o r e c a p a bilities Partne r s Intellectu al p y t i r u c e S 12 D4t4 Solutions business model is based upon five interdependent elements: People Partners People are at the heart of the business; they Our route to market, to sell our software and understand the markets we operate in, create solutions, is through partnerships with third party innovative solutions, write product code, drive organisations, including SAS Institute, Dell EMC, sales and deliver solutions. D4t4 Solutions seeks Teradata, Microsoft and Adobe. The solutions we to attract and retain the best talent in our market in deliver primarily contain components from SAS order to continue to drive the business forward. Institute and Dell EMC and now our own software, Intellectual property To deliver the strategy the business will continue to invest in developing intellectual property. Competitive advantage is maintained through Celebrus. We do joint sales and marketing activities with our partners to generate the majority of our sales. Security this continual investment in the core capabilities of Data security is vitally important to our clients. our software product, developing solution Regulations, such as the European General Data ‘know-how’, applying for additional legal protection Protection Regulation, and the nature of the for our intellectual property and the development of customer data D4t4 Solutions handles means a network of partners who rely on the technology secure process and facilities that enable ISO27001 and PCI (Payment Card Industry) compliance are needed. Our software also must be tested to the highest levels to ensure it is secure. for their own business. Core capabilities Our people and intellectual property combine to create four core capabilities that underpin the success of the business: i. Data Collection software (Celebrus) and skills ii. Data Management facilities and skills iii. Data Analytics capabilities and solutions iv. Data Solutions that are on premise or in the cloud and combine hardware, software and services 13 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Strategic report (Continued) Our business in action Our data collection software running on in excess of 25,000 websites In excess of 1 billion user sessions collected every month Clients in 21countries EXAMPLE CLIENT 5 Petabytes of data stored (approx 11.5 million files) 23 Terabytes (TB) of RAM 120 TB of cache storage 500 processor cores 14 Risks and uncertainties Apart from the normal economic, commercial and political risks facing any UK based business the major risks and uncertainties to the Group are: Loss of a major client or sales partner Loss of a relationship with a major supplier The development of new technologies which may adversely impact the Company’s proprietary software Loss of key people Breach of the systems security Exchange rate fluctuations Regulation on the collection of data that reduces the size of the market or creates an adverse trend To mitigate these risks and uncertainties: The business has specific relationship management systems in place for both clients and partners. The Company continually scans the market for potential technology threats and has a development process in place to ensure its own technology continues to evolve to meet client needs Key individuals are identified and succession plans put in place. The Group undertakes research and development into various technologies on an ongoing basis with various suppliers A comprehensive set of controls such as identified in our Information Managememt Security System (ISMS) which is compliant with ISO27001 and subject to regular external audit and certification has been implemented As the Group undertakes an increasing amount of business outside the UK (usually priced in US$) it becomes more exposed to exchange rate fluctuations. This led to a review of pricing policies and closer monitoring of credit terms for external businesses in the early part of last year. The Board manages the Group’s capital, reserves, borrowings and cash to ensure that the business continues to operate as a profitable going concern. There are no externally imposed capital requirements. Our Key Performance Indicators (KPIs) The Group’s financial KPIs are revenue, cash, gross profit margin, profit before tax and earnings per share and growth in software sales. Revenue Cash Gross profit margin Profit before tax Earnings per share adjusted diluted Earnings per share diluted Earnings per share basic Celebrus year-on-year growth 2017 £17.67m £6.29m 55.82% £4.24m 9.97p 10.02p 10.49p 48.80% 2016 £18.61m £5.01m 49.52% £3.22m 8.24p 7.64p 8.17p - In 2016/17, five of the six KPIs recorded improvement, with the sixth reflecting revenue which, as previously reported, was adversely affected by a lengthening of data solutions sales cycle: this was due primarily to the unexpected election result in North America which caused a number of client initiatives to be put on hold for a few months. These initiatives are now back underway, and they are expected to bear fruit in the first six months of the financial year ending March 2018. 15 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Strategic report (Continued) Business review The performance of the business has been covered in the Chairman’s statement (Page 4) and the Chief Executive Officer’s statement (Page 8). Outlook The evolution of our business over the last two years has been significant, however there remains more to be done to complete the transformation of D4t4’s business model and to further enhance the Celebrus software offering. We have acquired a strong balance of skills and experience across the management team to lead and drive the business to the next stage in its development. Based on our new focus the Company is well positioned to achieve solid growth powered by its own technology that is aligned to fast growing markets. Therefore, the Board remain confident in its strategy, our future prospects and expectations for the Group’s full year performance. Peter Kear Chief Executive Officer 26 June 2017 16 CORPORATE GOVERNANCE 18 Corporate governance 21 Directors’ report 26 Directors’ remuneration report 31 Statement of Directors’ responsibilities 32 Independent Auditor’s report Audit Committee The Audit Committee comprises three non- executive Directors of the Company, Peter Simmonds, Roger McDowell and John Lythall (effective 1 April 2016). The committee is chaired by Peter Simmonds and met twice during the year under review. It operates under formal terms of reference, which are available on request from the Company Secretary or at the AGM. The committee provides a forum for reporting by the Group’s auditors. By invitation, the meetings are also attended by the CEO and CFO of the Company. The Audit Committee is responsible for reviewing a wide range of financial matters including ensuring that the financial performance of the Group is adequately measured and controlled, correctly represented, reported to and understood by the Board. The Audit Committee advises the Board on the appointment of external auditors and on their remuneration, both for audit and non-audit work, and discusses the nature and scope of their audit. The Audit Committee meets the auditors at least once a year without any executive Directors present. The Audit Committee includes one financially qualified member as recognised by the Consultative Committee of Accountancy Bodies. All Audit Committee members are expected to be financially literate. Following the above, the Audit Committee has recommended to the Board that RSM UK Audit LLP is re-appointed. Corporate governance The Directors recognise and value the importance of high standards of corporate governance and observe the requirements of the Quoted Companies Alliance Guidelines to the extent that they are considered reasonably practicable in the light of the Company’s size, stage of development and resources. The Board also ensures that proper procedures are adhered to with regard to the preparation and approval of the Company’s annual and half yearly financial statements. For the year under review the Board considered that the Company is not of sufficient size to warrant a Risk Management Committee. A statement of the Directors’ responsibilities in respect of the accounts is set out on page 31. Below is a brief description of the role of the Board and its committees, followed by a statement regarding the Group’s system of internal controls and procedures, Board reviews, auditor independence, risk management, investor relations and financial reporting. The Board The Board comprises three non-executive Directors and five executive Directors and is responsible to shareholders for the proper management of the Group. The non-executive directors are Peter Simmonds (who is chairman of the Board and senior independent director), John Lythall, and Roger McDowell. The terms and conditions of engagement of the three non- executive Directors are available on request from the Company Secretary or at the AGM. The Board met 12 times in the year under review, reviewing trading performance, setting and monitoring strategy, and examining major capital expenditure and acquisition opportunities. A procedures manual for Directors and senior managers has been adopted which reserves decisions on specific matters to the Board, which include strategic matters and approval of annual plans or variations there to. All Directors have access to the advice and services of the Company Secretary. 18 Remuneration Committee The remuneration Committee comprises three non-executive Directors, Peter Simmonds, Roger McDowell and John Lythall (effective 21 April 2016) and is chaired by Peter Simmonds. The Committee met two times in the year under review and operates under formal terms of reference, which are available on request from the Company Secretary or at the AGM. It is responsible for reviewing and determining the policy of the Group on executive remuneration including specific remuneration packages for each of the executive members of the Board, pension rights and compensation payments. The Committee is also responsible for monitoring compliance with the implementation by the Company of the legal requirements and, so far as is reasonably practical, recommendations and guidelines relating to Directors’ remuneration. The Board’s report to shareholders on how Directors are remunerated together with details of the individual Directors’ remuneration packages is to be found on pages 26-30. Nominations Committee The nominations Committee comprises two non- executive Directors, Peter Simmonds and Roger McDowell and Peter Kear, CEO and is chaired by Peter Simmonds. The Committee met once in the year under review. Under its terms of reference the Committee will be responsible for regularly reviewing the structure, size and composition of the Board; giving full consideration to succession planning for directors and senior executives and keeping under review the leadership needs of the organisation. The Committee will identify and nominate, for approval by the Board, candidates to fill vacancies as and when they arise. As part of this process the Committee will be responsible for overseeing an open and transparent process for identifying suitable candidates. Internal controls The Directors are responsible for the Group’s system of internal control and for reviewing its effectiveness which, by its nature, can only provide reasonable and not absolute assurance against material misstatement or loss regarding: i. ii. the safeguarding of assets against unauthorised use or disposition; and the maintenance of proper accounting records and the reliability of financial information used with the business or for publication. The Board has reviewed the effectiveness of the Group’s internal control systems from the period 1 April 2016 to the date of approval of these financial statements. The Board reviews the effectiveness of its control assessment system on a regular basis. Given the current size of the Group, the Directors consider that an internal audit function would not be appropriate. However this matter is kept under review. The Board has established procedures which are designed to provide effective internal control for the Group and these include: Control Environment and Procedure The Directors have in place an organisational structure with clearly defined levels of responsibility and delegation of authority. Group policies and procedures are set out in formal procedure manuals which are held by all operating companies. These include annual budgets, detailed review and appraisal procedures, designated levels of authority and levels for board approval. In particular, there are clearly defined guidelines for the review and approval of capital expenditure projects and, where appropriate, due diligence work will be carried out when a business is to be acquired. 19 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Corporate governance (Continued) It is Board policy that executive Directors receive suitable training for their position, which is considered as part of the appraisal process. worthiness of clients and, although the Company has a strong balance sheet, on cash flow. Investor Relations Investor relations are managed mainly through the Annual General Meeting of the Company and on an ad hoc basis through enquiry from investors of the Directors of the Company. The Company encourages two-way communications with both its institutional and private shareholders and responds quickly to all queries received. The executive Directors hold regular meetings with major shareholders, and provide feedback of these meetings to the rest of the Board, including non- executive Directors, to inform them of the views of the major shareholders. Financial Reporting The Group has a comprehensive system of financial reporting. There is a detailed budgeting system in place which includes the plan of the operating Company being approved by the executive Directors whilst the Board approves the overall Group budget. On a monthly basis, actual results are reported against budget and any significant adverse variances examined and remedial action taken. Revised forecasts for the year are prepared each quarter. Rolling quarterly cash forecasts are prepared on a monthly basis. On behalf of the Board Michael Tinling LLb, Company Secretary 26 June 2017 The Directors and operating Company management meet on a regular basis to communicate the Group’s commitment to professionalism and competence. A formal whistle-blowing policy is in place and is communicated to employees via an employee manual. Board Review The Board annually reviews the effectiveness of itself, its committees and the individual Directors in the following manner: (i) The Role of the committees is considered by the executive Directors without the presence of the non-executive Directors. (ii) The Chairman and CEO examine the contribution and effectiveness of the individual Directors with regard to their line role and contribution at Board meetings. (iii) The whole Board examines its purpose and effectiveness with regard to identified key areas. (iv) The whole Board considers its structure, size and composition with particular regard to the skills, knowledge and experience of its members and otherwise as advised by the Nominations Committee. Auditor Independence The Board has considered the issue of external auditor independence and is satisfied that independence has been maintained. Audit Committee approval is required before the external auditor may perform any non-audit work. Risk Management The Directors and operating Company management have a clear responsibility for identifying risks facing each of the businesses and for putting in place procedures to mitigate and monitor risks. Risks are formally assessed during the annual budget process, which is monitored by the Board, and the ongoing Group strategy process. There has been (and continues to be) particular focus on credit 20 Directors’ report The Directors present their annual report and the audited financial statements for the year ended 31 March 2017, which should be read in conjunction with the Strategic Report on pages 11 to 16. The Corporate Governance Statement set out on pages 18 to 20 forms part of this report. related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are described in the Main Board Terms of Reference, copies of which are available on request, and the Corporate Governance Statement on page 18. Incorporation D4t4 Solutions Plc is a company incorporated in the United Kingdom under the Companies Act 1985. The company changed its name from I S Solutions plc to its current name by special resolution passed on 20th July 2016. Dividends The Directors recommend a final dividend of 1.7p (2016: 1.5p) per ordinary share to be paid on 18 August 2017 to ordinary shareholders on the register on 14 July 2017. Future outlook The Groups future outlook and opportunities are referred to in the Chief Executive Officer report on page 9. Capital structure Details of the authorised and issued share capital, together with details of the movements in the Company’s issued share capital during the year are shown in note 22. The Company has one class of ordinary shares which carry no right to fixed income. Each share (other than shares held in treasury) carries the right to one vote at general meetings of the Company. There are no specific restrictions on the size of a 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 on voting rights. Details of employee share schemes are set out in note 26. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid. With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the Companies Acts and Under its Articles of Association, the Company has authority to issue 50,000,000 ordinary shares. There are a number of agreements that take effect, alter or terminate upon a change of control of the Company following such as commercial contracts, bank loan agreements, property lease arrangements and employees’ share plans. None of these are considered to be significant in terms of their likely impact on the business of the Group as a whole. Furthermore, the Directors are not aware of any agreements between the Company and its Directors or employees that provide for compensation for loss of office or employment that occurs because of a takeover bid. Going Concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out above and the risks and uncertainties summarised below. The Group and Company has sufficient financial resources to cover budgeted future cash-flows and also has contracts in place with a number of customers and suppliers across different geographic areas and industries. As a consequence of these factors, the Directors believe that the Group is well placed to manage its business risks successfully. Having reviewed the future plans and projections for the business, the Directors believe that the Group and Company and its subsidiary undertakings have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. In accordance with the Companies Act s414c(11) information in relation to the business and risks is shown in the Strategic Report. Financials risks and policies Refer to note 28. 21 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Directors’ report (Continued) Supplier Payment Policy It is the Company’s policy to pay all claims from suppliers according to agreed terms of payment upon receipt of a valid invoice which is materially correct. The Company does not follow a code on standard payment practice. At 31 March 2017 the Company had 65 days (2016: 67 days) of outstanding liabilities to creditors. Directors and Directors’ Interests The Directors who held office during the year and to the date of signing, unless otherwise stated, were as follows: PJ Kear JL Dodkins CE Warren MG Boxall (appointed 26 September 2016) ML Tod (appointed 21 December 2016) PA Simmonds J Lythall RS McDowell MLS Tinling (retired 20 July 2016) PD English (retired 20 July 2016) At the AGM, MG Boxall (appointed as director by the Board of Directors on 26th September 2016) and ML Tod (appointed as director by the Board of Directors on 21st December 2016) will offer themselves for re- appointment in accordance with the Articles. The Directors who held office at the end of the financial year had the following interests in the ordinary shares of the Company as recorded in the register of Directors’ share and debenture interests. PJ Kear JL Dodkins CE Warren Class of shares Interest at Interest at 31 March 2017 1 April 2016 * Ordinary 2p Ordinary 2p Ordinary 2p 1,340,752 1,340,752 490,266 455,266 129,275 nil MG Boxall (appointed 26 Sept 2016) Ordinary 2p 10,000 10,000 ML Tod (appointed 21 Dec 2016) Ordinary 2p nil nil PA Simmonds J Lythall RS McDowell Ordinary 2p Ordinary 2p Ordinary 2p 251,500 141,500 1,848,960 2,278,960 1,350,000 2,350,000 * or date of appointment if later 22 During the year the Directors received dividends on their shares at the same rate as any other shareholder. Details of share options can be found on page 30. During 2015 the directors made loans to the company to facilitate the acquisition of SpeedTrap Holdings ltd. These have now been repaid except for the J Lythall loan £119,360 (2016: £119,360) which is in the name of his spouse, Mrs P Lythall. The loan continues to earn interest at the rate of 3% above Base (and cannot be repaid without HSBC bank’s permission). Substantial Holdings As far as the Directors are aware, as at 20 June 2017, the only holdings of 3% or more of the Company’s issued share capital are the following: Hargreave Hale, Stockbrokers River & Mercantile Asset Management Hargreaves Lansdown, Stockbrokers Beaufort Securities J Lythall Esq Herald Investment Management Number of ordinary shares % 6,032,440 15.89 2,417,313 6.37 1,837,936 4.84 1,700,400 4.48 1,610,000 4.24 1,395,000 3.68 HALB Nominees Limited (including 1,350,000 held by RS McDowell Esq) 1,395,000 3.68 P Kear Esq M Ward Esq BarclayShare Nominees Limited 1,340,752 3.53 1,283,532 3.38 1,245,065 3.28 Acquisition of the company’s own shares At the end of the year, the Directors had authority, under the shareholders’ resolution of 20 July 2016, to purchase through the market up to 3,656,840 of the Company’s shares at a maximum price of 105% of the average middle market price for the five business days immediately preceding the date of purchase and a minimum price of 2p per share. This authority expires at the AGM to be held on 27th July 2017. 140,450 shares were purchased in the year ending 31 March 2017. Own shares are ordinary 2p shares purchased in order to satisfy outstanding option obligations. Sales from own shares are the shares issued to option holders on exercise of their options. The maximun number of own shares held in the year was 125,063 (2016: 266,584). 23 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Directors’ report (Continued) The following purchases and sales of own shares (shares held in treasury) have been made: Share price at point of transaction in pence Number of own shares % Share capital Balance of own shares (shares held in treasury) at 1 April 2015 137,452 Sale of own shares (20/04/15) Sale of own shares (20/04/15) Purchase of own shares (4/12/15) Sale of own shares (7/12/15) Purchase of own shares (18/12/15) Purchase of own shares (7/1/16) Purchase of own shares (14/3/16) Sale of own shares (24/3/16) Sale of own shares (24/3/16) Balance of own shares (shares held in treasury) at 31 March 2016 Purchase of own shares (27/6/16) Purchase of own shares (9/9/16) Sale of own shares (15/9/16) Purchase of own shares (23/9/16) Sale of own shares (26/9/16) Sale of own shares (7/12/16) Purchase of own shares (17/1/17) Sale of own shares (22/3/17) Balance of own shares (shares held in treasury) at 31 March 2017 (30,000) (11,786) 110,000 (105,000) 73,772 22,146 70,000 (248,638) (3,333) 14,613 85,450 25,000 (73,258) 20,000 (70,000) (1,000) 10,000 (7,406) 3,399 56.00 56.00 100.00 106.50 101.50 97.92 120.00 136.00 122.00 116.59 123.50 137.00 136.87 136.50 180.00 172.00 156.70 0.39% 0.08% 0.03% 0.30% 0.03% 0.20% 0.06% 0.19% 0.68% 0.01% 0.04% 0.23% 0.07% 0.20% 0.05% 0.19% 0.00% 0.03% 0.02% 0.01% Employees The Group has a policy of offering equal opportunities to employees at all levels in respect of the conditions of work. Throughout the Group it is the Board’s intention to provide employment opportunities and training for disabled people and to care for employees who become disabled having regard to aptitude and abilities. Regular consultation and meetings, formal or otherwise, are held with all levels of employees to discuss problems and opportunities. Information on matters of concern to employees is presented in house. The company operates share option schemes which are open to all employees. The three current Schemes are the IS Solutions Employee Share Options ‘A’ Scheme, the IS Solutions Employee Share Options ‘B’ Scheme and the IS Solutions EMI Share Options Scheme. Treasury Policy The Group’s operations are funded by cash reserves. The Group has taken a mortgage to fund the purchase of its land and building. The policy of the Group is to ensure that all cash balances earn a market rate of interest. Bank relationships are maintained to ensure that sufficient cash and unutilised facilities are available to the Group. 24 Research and Development The group has continued to attach a high priority to research and development throughout the year aimed at the development of new products and maintaining the technological excellence of existing products. Financial Instruments The Group’s financial risk management objectives and policies are discussued on page 57 within note 28 to the accounts. Branch operations The group has branch operations located in Chennai, India. Political and Charitable Contributions The Group made no political contributions or charitable donations during the year (2016: £nil). The Company holds Directors and Officers Liability insurance. Disclosure of Information to the Auditor In the case of each of the persons who are Directors of the Company at the date when this report was approved: so far as each of the Directors are aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the Company’s auditor is unaware; and each of the Directors has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information (as defined) and to establish that the Company’s auditor is aware of that information This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. Auditor In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of RSM UK Audit LLP as the auditor of the Company is to be proposed at the forthcoming Annual General Meeting. By order of the Board PJ Kear Director Windmill House, 91-93 Windmill Road, Sunbury-on-Thames, TW16 7EF 26 June 2017 25 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements determined by the Board within limits set out in the Articles of Association. There are four main elements of the remuneration package for executive directors and senior management: Basic annual salary (including directors’ fees) and benefits; Annual bonus payments; Share option incentives; and Pension arrangements. The Company’s policy is that a substantial proportion of the potential remuneration of the executive directors should be performance related. Executive directors are entitled to accept appointments outside the Company providing that the Chairman’s permission is sought and fees in excess of £20,000 from all such appointments are accounted for to the Company. Basic salary An executive director’s salary is determined by the Committee in March of each year and when an individual changes position or responsibility. In deciding appropriate levels, the Committee considers the Company as a whole and relies on objective research which gives up-to-date information on a comparable group of companies. In addition to basic salary, the executive directors receive certain benefits-in-kind, principally a car (or car allowance) and private medical insurance. Directors’ remuneration report Introduction This report has been reviewed by the Company’s remuneration Committee and approved by the Board. Remuneration committee The remuneration Committee comprises three non-executive Directors, Peter Simmonds, Roger McDowell and John Lythall (effective 21 April 2016) and is chaired by Peter Simmonds. The Committee’s terms of reference also require it to meet not less than once each year. It is responsible for reviewing and determining the policy of the Company on executive remuneration including specific remuneration packages for each of the executive members of the Board, pension rights and compensation payments. The Committee is also responsible for monitoring compliance with the implementation by the Company, of the legal requirements, and (so far as reasonably practical) recommendations and guidelines relating to Directors’ remuneration. None of the Committee has any personal financial interest (other than as shareholders or as noted in the Directors’ Report), conflicts of interests arising from cross-directorships or day-to-day involvement in running the business. The Committee makes recommendations to the board. No Director plays a part in any discussion about his or her own remuneration. In determining the executive Directors’ remuneration for the year, the Committee consulted Mr Peter Kear, CEO. Remuneration policy Executive remuneration packages are prudently designed to attract, motivate and retain Directors of the high calibre needed to maintain the Company’s position as a market leader and to reward them for enhancing value to shareholders. The performance measurement of the executive Directors and key members of senior management, and the determination of their annual remuneration package are undertaken by the Committee. The remuneration of the non-executive Directors is 26 and conditions of any entitlement of an executive Director to share options. Pension arrangements Executive Directors are members of the Company pension scheme. The scheme is a Money Purchase Scheme with a linked Life assurance scheme. Other than basic salary, no payments to Directors are pensionable. To the extent that contributions to the Company scheme are restricted by HMRC limits, the Company contributes 6% of the Director’s salary providing the Director contributes a minimum of 4% of his salary by way of salary sacrifice. There are no unfunded pension promises or similar arrangements for Directors. There were 5 Directors in the scheme in 2017 (2016: 4). Annual bonus payments The Committee establishes the objectives that must be met for each financial year if a cash bonus is to be paid. In setting the general bonus pool parameters, the Committee takes cognisance of current economic factors and the performance of the Company versus its peers. The bonus scheme for 2017/2018 is set out below. Bonus payments totalling £247,000 were provided for in 2017 (2016: £689,000). If the Company’s profit before tax and amortisation of acquired intangible assets (‘pre-tax profits’) for the current financial year (2017/2018) show an increase of 15% over the pre-tax profits for 2016/2017, then the sum of £80,000 will be paid into a directors’ bonus pool plus £3,000 for each additional percentage point of such increase achieved over 15% up to 25% and £4,500 for each percentage point of such increase achieved over 25% up to a maximum profit before tax of £10.5m. Pre tax profits for each financial year are calculated after deduction of bonus. The actual distribution of the pool between the directors and subsequent payment of these bonuses must be signed off by the Committee and is subject to amendment in the event of any material acquisitions or disposals occurring during the year. Also, for exceptional performance created by one off events the committee may award one off payments in recognition. Share options The executive Directors also have options granted to them under the terms of the Company’s Share Option Schemes which are open to all employees. Information on these schemes can be found in the Directors report under the ‘Employees’ section. The Company’s policy is to grant options to executive Directors at the discretion of the Committee taking into account individual performance. It is the Company’s policy to phase the granting of share options rather than to award them in a single large block to any individual. The Company does not operate any long-term incentive schemes other than the share option schemes described above. No significant amendments are proposed to be made to the terms 27 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Directors’ remuneration report (Continued) D4t4 Share Price FTSE AIM All-Share FTSE SmalCap Index 200 150 100 50 0 1 April 12 - 31 March 13 1 April 13 - 31 March 14 1 April 14 - 31 March 15 1 April 15 - 31 March 16 1 April 16 - 31 March 17 Performance graph The above graph shows the Company’s share price performance compared with the performance of the FTSE AIM All-Share and FTSE SmallCap Index (GBP). The FTSE Aim All-Share and FTSE SmallCap Index (GBP) have been selected for this comparison because it is the Board’s opinion that they give a true comparison to its peers. Directors’ contracts It is the Company’s policy that executive Directors should have contracts with an indefinite term providing for a maximum of one year’s notice. Executive Directors PJ Kear and JL Dodkins have Directors’ service agreements which can be terminated on twelve months’ notice. These agreements were dated 29 August 1997. CE Warren also has a service agreement which can be terminated on 3 months’ notice dated 1 June 2007. MG Boxall and ML Tod have service agreements which can be terminated on 4 weeks notice dated 1 November 2015 and 4 April 2016 respectively. Non-executive Directors PA Simmonds, R McDowell and J Lythall each have an agreement for 12 months which expire on 26 July 2018. The fees of the non-executive Directors are determined and confirmed by the full board excluding (in each case) the non- executive Director concerned. In the event of early termination, all the Directors’ contracts provide for compensation up to a maximum of basic salary plus benefits for the notice period. 28 2016 £000 1,233 35 1,268 2017 £000 964 31 995 51 1,046 Aggregate Directors’ remuneration The total amounts for Directors’ remuneration were as follows: Emoluments (Fees / basic salary, benefits and annual bonus) Money purchase pension contributions Total excluding gains on share options Share based payments Total Three (2016: one) directors exercised options during the year with gains on exercise of share options during 26 1,294 the year totalling £320k (2016: £93k) Director emoluments (Audited) The directors are considered key management personnel and their remuneration is as follows: Fees/Basic Pension Benefits salary Contributions £000 £000 £000 Annual bonus £000 Total 2017 £000 Total 2016 £000 Executives PJ Kear JL Dodkins CE Warren MG Boxall (appointed 26/9/2016) ML Tod (appointed 21/12/2016)) Non-Executives PA Simmonds J Lythall RS McDowell PD English (retired 20/7/2016) MLS Tinling (retired 20/7/2016) BA Clark (retired 30/7/2015) 139 116 96 57 33 30 78 15 5 5 - GS Shingles (retired 23/01/16) Total - 574 8 7 11 3 2 - - - - - - - 31 15 13 2 4 1 - 8 - - - - - 43 44 35 33 95 40 - - - - - - - 247 206 171 142 159 76 30 86 15 5 5 - - 895 368 348 87 - - 29 373 15 15 15 5 13 1,268 Pension costs represent contributions made by the Company for 5 directors (2016: 4) to money purchase pension schemes. No directors (2016: Nil) are covered by defined benefit schemes. J Lythall retired as an executive director on 31 March 2016 and became a non executive director on 1 April 2016. His remuneration includes fees for consulting services to the company. 29 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Directors share options Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors. Details of options for directors who served during the year are as follows: Number Lapsed Granted Exercised Number at Option price at 31.3.16 during year during year during year 31.3.17 Expiry Exercisable date from PJ Kear 35,000 400,000 JL Dodkins 400,000 35,000 CE Warren 64,637 * * * * * 10,773 17,955 17,955 17,955 53,864 150,000 MG Boxall 300,000 ML Tod PA Simmonds ** - - J Lythall 70,000 400,000 RS McDowell ** PD English ** MLS Tinling ** - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 250,000 - - - - - - - - - 35,000 18.5p 07/01/2020 07/01/2013 400,000 51.0p 31/07/2025 31/07/2018 400,000 51.0p 31/07/2025 31/07/2018 35,000 64,637 10,773 17,955 17,955 17,955 - 18.5p 07/01/2020 07/01/2013 - 27.85p 05/11/2017 24/06/2015 - 27.85p 02/07/2018 24/06/2015 - 27.85p 31/12/2018 24/06/2015 - 27.85p 26/11/2019 24/06/2015 - 27.85p 01/06/2020 24/06/2015 - - - - - 53,864 27.85p 24/05/2024 24/06/2015 150,000 90.5p 22/01/2026 22/01/2017 300,000 75.0p 02/11/2025 02/11/2016 250,000 113.0p 26/06/2026 26/06/2017 - - - - 70,000 - 22.25p 11/11/2017 11/11/2010 - - - - 400,000 51.0p 31/07/2025 31/07/2018 - - - - - - - - - - - - * During the year ended 31/3/2016, 183,139 EMI options were granted to CE Warren which replaced the options held in Speed-Trap Holdings Ltd on its acquisition, on a pro rata basis. ** PA Simmonds, RS McDowell, PD English and MLS Tinling did not hold any share options during the year. The market price of the shares at 31 March 2017 was 139.5p (155.0p at 31 March 2016) and the range in the period under review was 113.0p to 195.0p. There have been no variations to the terms and conditions or performance criteria for share options during the financial year. Approval This report was approved by the Board of directors on 26 June 2017 and signed on its behalf by: Peter Kear Chief Executive Officer 30 Statement of Directors’ responsibilities for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and the company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and 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 group and the company and hence for taking reasonable steps for the prevention responsible for safeguarding the assets of the group and 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 D4t4 Solutions website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By order of the Board Peter Kear Chief Executive Officer 26 June 2017 The directors are responsible for preparing the Strategic Report and the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and company financial statements for each financial year. The directors are requied by the aim rules of the London Stock Exchange to prepare group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and also elected under Company Law to prepare the company financial statements in accordance with IFRS as adopted by the EU. The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the group and the company and the financial performance of the group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. 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 of the group and the company and of the profit or loss of the group for that period. In preparing the group and company financial statements, the directors are required to: a. select suitable accounting policies and then apply them consistently; b. make judgements and accounting estimates that are reasonable and prudent; c. state whether they have been prepared in accordance with IFRSs adopted by the EU; d. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and the company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and 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 group and the company and hence 31 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Independent Auditor’s report to the members of D4t4 Solutions Plc We have nothing to report in respect of the following matters where 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. Respective responsibilities of directors and auditor As more fully explained in the Directors’ Responsibilities Statement set out on page 31, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. 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. David Clark (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants 25 Farringdon Street London, EC4A 4AB 26 June 2017 Opinion on financial statements We have audited the group and parent company financial statements (“the financial statements”) on pages 34 to 60. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. 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 31 March 2017 and of the group’s profit for the year then ended; the group’s financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company’s financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at http://www.frc.org.uk/ auditscopeukprivate Opinion on other matter prescribed by the Companies Act 2006 In our opinion 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, based on the work undertaken in the course of our audit, the Strategic report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and parent company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report. 32 FINANCIAL STATEMENTS 34 Consolidated statement of comprehensive income 35 Consolidated statement of changes in equity 36 Consolidated balance sheet 37 Consolidated cash flow statement 38 Company statement of changes in equity 39 Company balance sheet 40 Company cash flow statement 41 Notes (forming part of the accounts) Consolidated statement of comprehensive income for the year ended 31 March 2017 Continuing operations Revenue Cost of sales Gross profit Distribution costs Administration expenses Other operating income Profit from operations Investment income Finance costs Profit before tax Tax Profit for the year attributable to owners of the parent Other comprehensive income: Items that will not be reclassified to profit or loss Gains on property revaluation Total comprehensive income for the period attributable to equity holders of the parent Earnings per share Notes 2017 £’000 4 17,670 5 6 6 10 (7,806) 9,864 (3,797) (1,834) 55 4,288 1 (46) 4,243 (340) 3,903 47 3,950 Basic Diluted 13 10.49p 10.02p 2016 £’000 18,609 (9,395) 9,214 (3,958) (1,985) 22 3,293 1 (76) 3,218 (278) 2,940 48 2,988 8.17p 7.64p 34 Consolidated statement of changes in equity attributable to Owners of the Parent for the year ended 31 March 2017 Notes Balance at 1 April 2015 Dividends paid Purchase of own shares Sale of own shares Issue of contingent shares Share-based payments Transaction with owners Profit for the year Other comprehensive income Total comprehensive income Deferred tax on outstanding share options Amortisation Balance at 1 April 2016 Dividends paid Purchase of own shares Sale of own shares Issue of contingent shares Share-based payments Transaction with owners 12 23 23 25 26 Profit for the year Other comprehensive income Total comprehensive income Rate change on deferred tax Deferred tax on outstanding share options Balance at 31 March 2017 11 Share capital premium 6,570 Share Revaluation Own Equity Retained Total reserve earnings £’000 3,057 11,863 reserve shares (80) 1,380 228 708 - - - 24 - 24 - - - - - - - 548 - 548 - - - - - 732 - 7,118 1 - 10 16 - 27 - - - - 20 - 205 384 - 609 - - - - - 759 - 7,727 - - - - - - - 48 48 - - 276 - - - - - - - 47 47 - - 323 - (291) 348 - - 57 - - - - - (23) - (175) 192 - - 17 - - - - - - (40) (606) - (646) - - - 206 - 940 6 - (121) (400) - (515) - - - (380) - (257) - 38 (599) (380) (291) 51 (34) 38 (616) 2,940 2,940 - 48 2,940 2,988 155 361 49 49 5,602 14,645 (780) - (298) - 86 (992) (753) (175) (12) - 86 (854) 3,903 3,903 - 47 3,903 3,950 (45) 30 (15) - (6) (138) 242 (39) (177) 8,504 17,549 35 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Consolidated balance sheet as at 31 March 2017 Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Current assets Trade and other receivables Inventories Cash and cash equivalents Total assets Current liabilities Trade and other payables Borrowings Non-current liabilities Borrowings Deferred tax liabilities Total liabilities Net assets Equity Share capital Share premium account Revaluation reserve Own shares Equity reserve Retained earnings Attributable to equity holders of the parent Notes 14 15 16 11 18 19 20 21 21 11 22 2017 £’000 8,696 1,507 2,595 230 13,028 4,269 341 6,290 10,900 23,928 (4,922) (421) (5,343) (780) (256) (1,036) (6,379) 17,549 759 7,727 323 (6) 242 8,504 17,549 2016 £’000 8,696 1,754 2,615 792 13,857 2,757 - 5,007 7,764 21,621 (5,045) (397) (5,442) (1,183) (351) (1,534) (6,976) 14,645 732 7,118 276 (23) 940 5,602 14,645 These financial statements of D4t4 Solutions Plc, registered number 01892751, were approved by the Board of Directors and authorised for issue on 26 June 2017 and were signed on its behalf by P Kear, Director 36 Consolidated cash flow statement for the year ended 31 March 2017 Operating activities Profit for the year Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Finance income Finance expense Share-based payments Gain on sale of property, plant and equipment Exchange gains on cash and cash equivalents Income tax expense Operating cash flows before movements in working capital (Increase) / Decrease in receivables Increase in inventories (Decrease) / Increase in payables Cash derived from operations Income taxes paid Net cash from operating activities Investing activities Interest received Purchase of property, plant and equipment Net cash used in investing activities Financing activities Dividends paid Repayment of borrowings Interest paid Payments to finance lease creditors Purchase of own shares Sale of own shares Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at start of year Exchange gains on cash and cash equivalents Cash and cash equivalents at end of year 2017 £’000 3,903 221 247 (1) 46 86 (1) (305) 340 4,536 (1,512) (341) (123) 2,560 (26) 2,534 1 (162) (161) (753) (403) (46) (8) (400) 215 (1,395) 978 5,007 305 6,290 2016 £’000 2,940 178 260 (1) 76 38 - - 278 3,769 2,032 - 618 6,419 (69) 6,350 1 (332) (331) (380) (411) (76) - (240) - (1,107) 4,912 95 - 5,007 37 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Company statement of changes in equity attributable to Owners of the Parent for the year ended 31 March 2017 Share capital premium 6,570 Share Revaluation Own Equity Retained Total reserve earnings £’000 2,865 11,671 reserve shares (80) 1,380 708 228 - - - 24 - 24 - - - - - - - 548 - 548 - - - - - 732 - 7,118 1 - 10 16 - 27 - - - - 20 - 205 384 - 609 - - - - - 759 - 7,727 - - - - - - - 48 48 - - 276 - - - - - - - 47 47 - - 323 - (291) 348 - - 57 - - - - - (23) - (175) 192 - - 17 - - - - - - (40) (606) - (646) - - - 206 - 940 6 - (121) (400) - (515) - - - (380) - (257) - 38 (599) (380) (291) 51 (34) 38 (616) 3,122 3,122 - 48 3,122 3,170 155 361 49 49 5,592 14,635 (780) - (297) - 86 (991) (753) (175) (11) - 86 (853) 4,071 4,071 - 47 4,071 4,118 (45) 30 (15) - (6) (138) 242 (39) (177) 8,663 17,708 Notes Balance at 1 April 2015 Dividends paid Purchase of own shares Sale of own shares Issue of contingent shares Share-based payments Transactions with owners Profit for the year Other comprehensive income Total comprehensive income Deferred tax on outstanding share options Amortisation Balance at 1 April 2016 Dividends paid Purchase of own shares Sale of own shares Issue of contingent shares Share-based payments Transactions with owners 12 23 23 25 26 Profit for the year Other comprehensive income Total comprehensive income Rate change on deferred tax Deferred tax on outstanding share options Balance at 31 March 2017 11 38 Company balance sheet as at 31 March 2017 Non-current assets Goodwill Other intangible assets Property, plant and equipment Investment in subsidiaries Deferred tax assets Current assets Trade and other receivables Inventories Cash and cash equivalents Total assets Current liabilities Trade and other payables Borrowings Non-current liabilities Borrowings Deferred tax liabilities Total liabilities Net assets Equity Share capital Share premium account Revaluation reserve Own shares Equity reserve Retained earnings Attributable to the equity holders of the company The Company’s profit for the year was £4.1m (2016: £3.1m) Notes 14 15 16 17 11 18 19 20 21 21 11 22 2017 £’000 8,696 1,507 2,595 273 230 13,301 4,581 341 6,290 11,212 24,513 (5,348) (421) (5,769) (780) (256) (1,036) (6,805) 17,708 759 7,727 323 (6) 242 8,663 17,708 These financial statements of D4t4 Solutions Plc, registered number 01892751, were approved by the Board of Directors and authorised for issue on 26 June 2017 and were signed on its behalf by P Kear, Director 2016 £’000 8,696 1,754 2,615 273 792 14,130 2,939 - 5,007 7,946 22,076 (5,502) (405) (5,907) (1,183) (351) (1,534) (7,441) 14,635 732 7,118 276 (23) 940 5,592 14,645 39 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Company cash flow statement for the year ended 31 March 2017 Operating activities Profit for the year Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Finance income Finance expense Share-based payments Gain on sale of property, plant and equipment Exchange gains on cash and cash equivalents Income tax expense Operating cash flows before movements in working capital (Increase) / decrease in receivables Increase in inventories (Decrease) / increase in payables Cash absorbed in operations Income taxes paid Net cash derived from operating activities Investing activities Interest received Purchase of property, plant and equipment Net cash used in investing activities Financing activities Dividends paid Repayment of borrowings Interest paid Payments to finance lease credit ors Purchase of own shares Sale of own shares Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at start of year Exchange gains on cash and cash equivalents Cash and cash equivalents at end of year 2017 £’000 4,071 221 247 (1) 46 86 (1) (305) 340 4,704 (1,641) (341) (162) 2,560 (26) 2,534 1 (162) (161) (753) (403) (46) (8) (400) 215 (1,395) 978 5,007 305 6,290 2016 £’000 3,122 178 260 (1) 76 38 - - 278 3,951 1,850 - 618 6,419 (69) 6,350 1 (332) (331) (380) (411) (76) - (240) - (1,107) 4,912 95 - 5,007 40 Notes to the financial statements 1. General information D4t4 Solutions Plc is a public company incorporated and domiciled in England and Wales and quoted on the AIM Market. The address of its registered office, registered number and principal place of business is disclosed on the inside cover of the financial statements. On 20 July 2016 the company changed it’s name from IS Solutions Plc to D4t4 Solutions Plc 2. Significant accounting policies Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention except for the revaluation of land and buildings. The presentation and functional currency of the financial statements is British Pounds and amounts are rounded to the nearest thousand pounds. Going concern The Group and Company’s business activities, together with the factors likely to affect its future development, performance and position and the risks and uncertainties are presented in the Strategic Report on pages 11-16. The Group and Company have sufficient financial resources to cover budgeted future cashflows, together with contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the Directors believe that the Group and Company are well placed to manage their business risks successfully despite the current uncertain economic outlook. Having reviewed the future plans and projections for the business, the Directors believe that the Company and its group undertakings have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Adoption of new and revised standards Standards, amendments and interpretations effective in the period to 31 March 2016: IAS 1 Presentation of financial statements IAS 16 Disclosure initiative - Acceptable & IAS 38 methods of depreciation and amortisation IAS 27 Separate financial statements - Equity method The adoption of these Standards has had no material impact on the results for the year ended 31 March 2017. Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group: IFRS 9 Financial Instruments IFRS 15 Revenue from contracts with customers IFRS 16 Leases IAS 7 Disclosure initiative IFRS 2 Share-based payment IFRS 15 is based on the principle that revenue is recognised when control of a good or service transfers to a customer, so the notion of control replaces the existing notion of risk and reward. D4t4 Solutions is currently reviewing the revenue in relation to its contracts with customers to determine which, if any, will be impacted by IFRS 15. It is not yet in a position to conclude whether the implementation will have a material impact on its revenues. The introduction of IFRS 15 is likely to result in some internal process changes across the Group. The directors anticipate that the adoption of the other Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. Basis of consolidation The group accounts consolidate the accounts of D4t4 Solutions Plc and all its subsidiary undertakings using the acquisition method. These accounts are made up to 31 March 2017. In the company’s accounts, investments in subsidiary undertakings are stated at cost less provisions for impairment. All intra-group transactions and balances are eliminated on consolidation. In accordance with Section 408 of the Companies Act 2006 D4t4 Solutions Plc is exempt from the requirement to present its own income statement and related notes that form a part of these approved financial statements. The profit of the parent is disclosed in the Company balance sheet and statement of changes in equity for the year. 41 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Notes to the financial statements (Continued) Property, plant and equipment The carrying value of these assets is stated at cost or valuation, less accumulated depreciation and any impairment loss. Freehold land is not depreciated. The estimated lives of assets are reviewed annually by the Board and freehold land and buildings are professionally valued periodically. The carrying values are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount the lives and values are adjusted as necessary. future cash flows in respect of revenue streams related to the investment. Other intangible assets IPR On acquisition IPR has been capitalised based upon an estimate of the costs involved in creation of that IPR. Trade name On the acquisition of a business, the future value of the trade name of that business is estimated and capitalised. The fair value is amortised over 10 years. The group makes provision for depreciation so that the cost less estimated residual value of each asset is written off by equal instalments over its estimated useful economic life as follows Impairment of intangibles is reviewed annually in with reference to future cash flows from the specific cash generating units to which the intangible has been allocated. Buildings - up to 35 years Inventory policy Leasehold improvements - up to 10 years Fixtures and equipment - up to 4 years Motor vehicles - up to 5 years Acquisitions On the acquisition of a business net fair values are attributed to the identifiable assets and liabilities acquired. Where the cost of acquisition exceeds this net fair value, the difference is treated as purchased goodwill and capitalised in the Group balance sheet in the year of acquisition. If a subsidiary’s assets are subsequently hived up into the parent then the corresponding amount of goodwill is capitalised in the Company balance sheet too. Inventories are stated at the lower of cost or market value. The valuation method for each item of inventory remains consistent from one accounting period to the next. Research and development costs Expenditure on research is recognised as an expense in the period in which it is incurred. Development costs are capitalised only when an internally-generated intangible asset can be identified which will generate future revenue streams and whose cost can be measured reliably. These costs are written off on a straight line basis over the expected life of the revenue stream. Other development costs are recognised as an expense in the period in which they are incurred. Goodwill Foreign currencies Capitalised goodwill is shown in the balance sheet. Its carrying value is subject to annual review and any impairment is recognised immediately as a loss which cannot subsequently be reversed. Goodwill arising on acquisitions made before the date of transition to IFRS has been retained at the previous UK GAAP amount subject to being tested annually for impairment. Goodwill has arisen from the acquisition of businesses. Investments in subsidiaries The carrying value of investments is stated at cost less any provision for impairment. This value is reviewed annually by the Board with respect to Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Transactions of foreign operations are translated using the average rate of exchange for the year. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account. Profit from operations Profit from operations is stated before investment income, finance costs and other gains and losses. 42 Operating leases Rentals payable under operating leases are recognised as a cost on a straight line basis over the life of the lease. Similarly rental income arising from operating leases is credited to income on a straight-line basis over the period of those leases. Dividends Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. Share-based payments Periodically the Group offers share options (at the prevailing market price) to all employees. The Group has conformed with the requirements of IFRS2 “Share Based Payment” for share options issued after 7 November 2002 and unvested at 1 January 2012. Those options are measured at fair value (using the Black-Scholes model and management’s best estimates) and are expensed on a straight-line basis over their vesting period. Options vest only when the Remuneration committee is satisfied that the vesting criteria have been met, and are settled subsequently by equity shares in the parent company. Treasury shares From time to time the Company purchases its own shares for the purpose of satisfying the future exercising of outstanding share options. These shares are held in treasury and are shown as a reduction in the company’s reserves. Pension costs The group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the group in an independently administered fund. The amount charged against profits represents the contributions payable to the scheme in respect of the accounting period. Taxation Current tax (UK and foreign) is calculated on the profit for the year (adjusted for appropriate reliefs, allowances, non-deductible expenses and timing differences) using the appropriate tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised in respect of all material temporary differences in the treatment of certain items for taxation and accounting purposes which have arisen but have not reversed by the balance sheet date. It is recognised at the expected prevailing rate at the time of reversal, and is recognised as an asset only to the extent that it is probable that taxable profits will be available to utilise it. It is reviewed annually. The impact of discounting is not considered material. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable from the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value added tax, rebates and discounts and after the elimination of intercompany transactions within the Group. The Group recognises revenue when the amount of revenue can be reliably measured and it is probable that the future economic benefits will flow to the entity. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is classified as being derived from Licence sales; Project work; and Recurring revenues Products and licences revenues are recognised upon delivery. Services revenues are recognised as work is completed. Hosting and support revenues are recognised on a time basis. Financial Instruments Financial assets and liabilities are recognised on the balance sheet when the Group or Company becomes a party to the contractual provisions of the instrument. Trade and other receivables do not carry interest and are stated at their cost reduced by an appropriate allowance for irrecoverable amounts. A provision is made against a trade receivable only when there is objective evidence that the Group may not be able to recover the entire amount due 43 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Notes to the financial statements (Continued) Critical judgements in applying the Group’s accounting policies Goodwill and other intangibles The ongoing valuation of goodwill for the purposes of determining impairment requires the evaluation of future cash flows from the cash generating units to which the goodwill has been allocated. Note 14 shows the carrying values of the components of goodwill. Revenue recognition The management regularly reviews the application of its policy on revenue recognition in line with the accounting policies stated in Note 2. Large Contracts We have undertaken a number of significant contracts during the year to 31 March 2017, which included software, hardware, professional services and ongoing maintenance and support. Revenue recognition has been applied in line with IAS 18 and the accounting policies stated in note 2. under the original terms of the invoice. The carrying amount of the receivable is reduced through the use of a provisional for doubtful debts account. Impaired debts are derecognised when they are assessed as uncollectable. Trade and other payables are not interest bearing and are stated at cost. Cash and cash equivalents comprise cash in hand and deposits repayable in less than three months, less overdrafts payable on demand. Borrowings Interest-bearing bank loans are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are amortised over the period in the statement of comprehensive income using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Borrowing costs Borrowing costs are recognised as an expense in the period in which they arise. Company accounts The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that act these have been prepared in accordance with International Financial Reporting Standards. The principal accounting policies adopted are the same as those set out above in respect of the Group. As permitted in section 408 of that act the company has elected not to present its own statement of comprehensive income for the year. 3. Critical accounting judgements and key sources of estimation uncertainty In applying the accounting polices described in note 2. the directors are required to make judgements about, and estimates of the carrying values of assets and liabilities where for reasons of uncertainty these may differ from their book values. These judgements are reviewed on an ongoing basis. 44 4. Revenue Analysis of revenue Continuing operations Sale of goods Rendering of services 5. Other operating income Analysis of other operating income Operating lease receipts (see note 27) 6. Investment income and finance costs and other gains and losses Analysis of investment income Bank interest received Analysis of finance costs Mortgage interest paid Loan interest Directors Loan Interest Other Group 2017 £’000 3,716 13,954 17,670 2016 £’000 2,974 15,635 18,609 Group 2017 £’000 55 55 2016 £’000 22 22 Group 2017 £’000 2016 £’000 1 (9) (29) (7) (1) (46) 1 (12) (40) (14) (10) (76) 7. Business and geographical segments The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and assess their performance. The information presented to the Chief Executive for the purpose of resource allocation and assessment of segment performance is focused on the type of product sold. The principal activity of the Group is split into three categories of product and services sold: - Licence sales - Project work - Recurring revenues. 45 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Notes to the financial statements (Continued) No allocation of other income and costs to these categories is made because the Directors consider that any such allocation would be arbitrary. Any allocation of assets and liabilities to these categories would also be arbitrary. The reporting below is consistent with that provided to the Chief Executive. Continuing operations 2017 Licence Project Recurring Total External sales Adjustment for agency basis Reported revenue sales £’000 3,716 - 3,716 work £’000 9,467 - 9,467 revenues £’000 4,825 (338) 4,487 Segment result (gross profit) 3,179 4,339 2,346 Other operating costs and income Investing and financing activities Profit before tax Major customers (over 10% of revenue) Customer 1 Customer 2 Continuing operations 2016 External sales Adjustment for agency basis Reported revenue Segment result (gross profit) Other operating costs and income Investing and financing activities Profit before tax Major customers (over 10% of revenue) - 7,935 1,144 - 1,867 700 Licence sales £’000 2,974 - 2,974 Project work £’000 10,666 - 10,666 Recurring revenues £’000 5,443 (474) 4,969 2,076 4,584 2,554 £’000 18,008 (338) 17,670 9,864 (5,576) (45) 4,243 9,802 1,844 Total £’000 19,083 (474) 18,609 9,214 (5,921) (75) 3,218 Customer 1 - 7,935 1,867 9,802 The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 2. Non-current assets are wholly attributable to the company’s country of domicile. Geographical segments United Kingdom Europe United States of America Others 2017 £’000 2,012 4,021 10,947 690 17,670 2016 £’000 4,875 2,335 11,014 385 18,609 The geographical revenue segment is determined by the domicile of the external customer Non-current assets are wholly attributable to the company’s country of domicile. 46 8. Profit from operations Profit from operations has been arrived at after charging/(crediting): Research and development costs Net foreign exchange gain Depreciation of property, plant & equipment Loss on disposal of property, plant & equipment Amortisation of intangible assets (see note 15) Staff costs (see note 9) Auditors’ remuneration for audit services (Group and Company, the Company fee is not separately quantifiable) Auditors’ remuneration for tax compliance Auditors’ remuneration for tax advisory services Auditors’ remuneration for other services Operating lease payments 9. Staff costs The average number of employees (including directors) during the period was: Production and support Distribution Administration Their aggregate remuneration comprised: Salaries Social security costs Pension costs 2017 £’000 469 (357) 221 1 247 2016 £’000 386 (95) 178 - 260 7,295 7,547 39 3 10 22 34 51 - 35 7 29 Group and company 2017 Number 2016 Number 88 27 9 124 £’000 6,358 679 344 7,381 81 23 9 113 £’000 6,508 689 350 7,547 Details of Directors’ remuneration required by the Companies Act are set out in the audited information included in the Directors’ remuneration report on page 29. For the purposes of IAS 24 “Related Party Disclosures” these figures also equate to the salary disclosures required of the key management personnel. Other related party transactions involving directors, including dividends and director’s loans, are disclosed in the Directors’ report on pages 21 and 25. The company has taken the IAS24 exemption from disclosing transactions with wholly owned subsidiaries. 47 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Notes to the financial statements (Continued) 10. Tax Current UK tax Foreign tax Less: double taxation relief Deferred tax Under provision in prior years Corporation tax The charge for the year can be reconciled to the reported profit as follows: Profit before tax UK corporation tax at 20% (2016: 20%) Research and development credit Relief for exercising of share options Difference between writing-down allowances and depreciation Amortisation of intangibles Other non-deductible expenses Effect of higher rates in other jurisdictions Shared based payments Under provision in prior years Utilisation of tax losses Tax charge as above 2017 £’000 - 65 (25) 40 300 - 340 4,243 849 (122) (214) - 42 14 40 17 - (286) 340 2016 £’000 - - - - 270 8 278 3,218 644 (100) (85) (20) 52 43 - - 8 (264) 278 48 11. Deferred tax Other timing difference Equity Share based payments reserve Group £’000 Balance at 1 April 2015 Recognised within the Statement of Changes in Equity 7 - Charge to income statement 33 40 Balance at 1 April 2016 Change to opening balance Recognised within the Statement of Changes in Equity - - - Change to income statement (34) 6 Balance at 31 March 2017 Company Balance at 1 April 2015 Recognised within the Statement of Changes in Equity 7 - Charge to income statement 33 40 Balance at 1 April 2016 Change to opening balance Recognised within the Statement of Changes in Equity - - - Change to income statement (34) 6 Balance at 31 March 2017 £’000 91 £’000 - 206 - 297 (45) (138) (183) - 114 155 - 155 (23) (39) (62) 17 110 Tax losses £’000 600 264 (564) 300 - - - (300) - Intangibles Total £’000 (400) £’000 298 49 - (351) 53 - 53 42 (256) 674 (531) 441 (15) (177) (192) (275) (26) 91 - 600 (400) 298 206 - 297 (45) (138) (183) - 114 155 - 155 (23) (39) (62) 17 110 264 (564) 300 - - - (300) - 49 - (351) 53 - 53 42 (256) 674 (531) 441 (15) (177) (192) (275) (26) 12. Dividends Amounts recognised as distributions to equity holders Final dividend for the period ended 31 March 2016 of 1.50p (2015: 0.56p) Interim dividend for the year ended 31 March 2017 of 0.55p (31 March 2016: 0.50p) Proposed final dividend for the year ended 31 March 2017 of 1.7p 2017 £’000 574 206 780 2016 £’000 198 182 380 The proposed final dividend is subject to shareholders’ approval at the AGM and has not been included as a liability in these financial statements. 49 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Notes to the financial statements (Continued) 13. Earnings per share Basic Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the basic weighted average number of ordinary shares in issue during the year. Profit attributable to equity holders of the Company Pence per share 10.49p 2017 £’000 Pence per share 2016 £’000 3,903 8.17p 2,940 Diluted Diluted earnings per share amounts are calculated by dividing the profit for the year attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. 2017 Number 37,193,118 1,767,183 38,960,301 2016 Number 35,993,206 2,512,249 38,505,455 Basic weighted average of shares in issue Effect of dilutive share options Weighted average for the purpose of diluted earnings per share Adjusted Adjusted diluted earnings per share is defined as profit for the year adjusted for amortisation, share based payments and foreign exchange gains/losses divided by the diluted weighted average number of ordinary shares of the Company. 2017 2016 Pence per share 10.02 0.63 (0.92) 0.22 0.02 9.97 £’000 3,903 257 (357) 86 5 3,894 Pence per share 7.64 0.64 0.00 0.10 (0.14) 8.24 £’000 2,940 246 - 38 (51) 3,173 Group Company 2017 £’000 10,952 2016 £’000 10,952 2017 £’000 10,608 2,256 8,696 2,256 8,696 1,912 8,696 100 918 7,678 8,696 100 918 7,678 8,696 100 918 7,678 8,696 2016 £’000 10,608 1,912 8,696 100 918 7,678 8,696 Profit for the year Amortisation Foreign exchange gains/losses Share based payments Tax on non-statutory adjustments Adjusted earnings 14. Goodwill Cost of goodwill Balance at 1 April and 31 March Accumulated impairment charges Balance at 1 April and 31 March Carrying amount at year end Allocation of goodwill AXL customers Chapter26 customers Speed-Trap customers Balance at 31 March 50 The carrying amount of goodwill represents the balance of the original cost of goodwill attached to the subsidiary companies on acquisition. The Group is required to test this value at least annually for impairment. The extant customers of the subsidiaries (all of whom are now customers of the parent company) continue to form identifiable cash generating units (CGUs). For AXL and Chapter 26, all the CGUs are within the United Kingdom, while for Speedtrap the CGUs are spread globally. The recoverable amounts of the cash generating units are determined from the value in use calculations. The Group prepares profit forecasts derived from the most recent budgets and forecasts approved by the Board. Growth rates for Speed-Trap and Chapter 26 have been set at 10% and 14% respectively while no growth is assumed within AXL. These rates have been used to extrapolate cash flow projections beyond the most recent budgets for a period of five years. A discount rate of 10%, in line with the industry average has been used to discount the forecast profits over the next five years. The calculation of value in use is most sensitive to the discount rate and management’s assumption that the majority of these revenues are recurring on an annual basis. Management believes that no reasonable potential change in any of the above key assumptions would cause the carrying value to exceed its recoverable amount. 15. Other intangible assets Group & company Cost Balance at 1 April 2015 and 31 March 2016 Balance at 1 April 2016 and 31 March 2017 Accumulated amortisation Balance at 1 April 2015 Amortisation Balance at 1 April 2016 Amortisation Balance at 31 March 2017 Carrying amount Balance at 1 April 2016 Balance at 31 March 2017 Internally generated IPR IPR £’000 £’000 Trade name £’000 Total £’000 56 56 42 14 56 - 56 - - 1,858 142 2,056 1,858 142 2,056 - 232 232 233 445 - 14 14 14 28 42 260 302 247 549 1,626 1,393 128 114 1,754 1,507 The amortisation charge for the year is booked to administration expenses The remaining amortisation period for the Purchased IPR is 6 years and the Trade name is 8 years. The internally generated IPR has been fully amortised. 51 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Notes to the financial statements (Continued) 16. Property, plant & equipment Group and Company Cost or valuation Balance at 1 April 2015 Additions Balance at 1 April 2016 Additions Disposals Balance at 31 March 2017 Depreciation Balance at 1 April 2015 Depreciation charge Revaluation Balance at 1 April 2016 Depreciation charge Revaluation Eliminated on disposals Balance at 31 March 2017 Carrying amount Balance at 31 March 2016 Balance at 31 March 2017 Allocation of depreciation charge Cost of sales Distribution costs Administration expenses Charge for period Land & buildings Fixtures & equipment £’000 £’000 Motor vehicles £’000 2,200 - 2,200 - - 2,200 - 47 (47) - 48 (48) - - 2,200 2,200 516 287 803 120 - 923 338 108 - 446 148 - - 594 357 329 55 45 100 42 (36) 106 19 23 - 42 25 - (27) 40 58 66 2017 £’000 62 104 55 221 Total £’000 2,771 332 3,103 162 (36) 3,229 357 178 (47) 488 221 (48) (27) 634 2,615 2,595 2016 £’000 53 71 54 178 Included in land & buildings (valued in 2015 by Cook Steed Associates Ltd - independent valuer) is freehold land at £800,000 (2016: £800,000) which is not subject to depreciation. The land and buildings original purchase cost was £2,224,000. Following the valuation in 2015, the Directors of the Group have revalued the land and buildings this year in accordance with market conditions. Freehold land and buildings with carrying values as noted above have been pledged to secure borrowings of the Group (see the borrowings note 21). 52 17. Investment in subsidiaries Cost of investment Balance at 1 April and 31 March 2017 Accumulated provision for impairment Balance at 1 April 2016 and 31 March 2017 Carrying amount at year / period end Country of Incorporation Trading Status IS Solutions Ltd (formerly Celebrus Ltd)† Celebrus Technologies Inc.*‡ Celebrus Technologies Ltd*† Chapter26 Ltd† D4t4 Solutions Inc.§ Internet Service Solutions Ltd† Internet Systems Solutions Ltd† Internet Site Solutions Ltd† Magiq Ltd*† Speed-Trap Holdings Ltd† England & Wales USA England & Wales England & Wales USA England & Wales England & Wales England & Wales England & Wales England & Wales Dormant Trading Dormant Dormant Trading Dormant Dormant Dormant Dormant Dormant Company 2017 £’000 273 2016 £’000 273 - 273 - 273 Proposition of ownership of ordinary shares 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% * Owned by Speed-Trap holdings † Registered address - Windmill House, 91-93 Windmill Road, Sunbury-on-Thames, TW16 7EF, UK ‡ Registered address - 38 Kaybe Court, San Jose, California 95139, USA § Registered address - 327 Hillsborough Street, Raleigh, North Carolina 27603-1725, USA The trading companies above engage in the same business as D4t4 Solutions Plc. 53 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Notes to the financial statements (Continued) 18. Trade and other receivables Trade receivables Other taxes receivable Amounts due from Group undertakings Other debtors Prepayments and accrued income Trade receivables Ageing of past due but not impaired receivables Overdue 1 month Overdue 2 months Overdue 3 months and more Group Company 2017 £’000 3,659 - - 35 575 4,269 2017 £’000 159 174 22 355 2016 £’000 2,070 131 - 80 476 2,757 2016 £’000 580 187 274 1,041 2017 £’000 3,659 - 317 30 575 4,581 2017 £’000 159 174 22 355 2016 £’000 2,070 131 182 80 476 2,939 2016 £’000 580 187 274 1,041 The Board considers that the recoverable value of the trade receivables, after considering any credit risk, does not differ materially from their carrying value. In particular those amounts past due are assessed to be fully recoverable and are not considered to be impaired. The average credit period taken on sales of goods and services was 67 days (2016: 61 days). In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the Directors believe that no further credit provision is required. 19. Inventories Finished goods and goods for resale 20. Trade and other payables Trade payables Loans from directors Amounts owed to Group undertakings Other taxes and social security Other creditors Accruals and deferred income 54 Group & Company 2017 £’000 341 341 2016 £’000 - - Group Company 2017 £’000 999 119 - 294 127 3,383 4,922 2016 £’000 2,578 185 - 198 49 2,035 5,045 2017 £’000 538 119 1,042 292 72 3,285 5,348 2016 £’000 2,578 185 465 198 49 2,035 5,510 Trade payables comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 65 days (2016: 67 days). Their carrying value approximates to their fair value. 21. Borrowings Obligations under finance lease and hire purchase agreements Bank loans and mortgages (see Borrowings below) Group Company 2017 £’000 24 1,177 1,201 2016 £’000 32 1,580 1,612 2017 £’000 24 1,177 1,201 2016 £’000 32 1,580 1,612 Borrowings (Group and Company) Finance Leases Bank loans and mortgage Balance at 1 April 2016 Taken out in period Repaid during the period Balance at 31 March 2017 Repayable within one year Repayable within one to two years Repayable within two to five years 2017 £’000 2016 £’000 32 - (8) 24 8 16 - - 40 (8) 32 8 24 - 2017 £’000 1,580 - (403) 1,177 413 426 338 2016 £’000 1,991 - (411) 1,580 397 413 770 The balance of £1,177k at the year end comprises of a loan of £876k (2016: £1,170k) and a mortgage of £301k (2016: £410k), upon which there is no security. The mortgage is attracting interest at the rate of 2.10% over base rate and the loan at 2.50% over base rate. Both the mortgage and loan will be fully settled by 31 March 2020. 22. Share capital Share capital Shares £’000 2017 Share premium £’000 Share 2016 Share capital premium Shares £’000 £’000 Ordinary shares of 2p each Authorised 50,000,000 1,000 50,000,000 1,000 Issued and fully paid up Balance at 1 April 2016 36,583,020 Issued during year 1,371,298 Balance at 31 March 2016 37,954,318 732 27 759 7,118 530 7,648 35,421,578 1,161,442 36,583,020 708 24 732 6,570 548 7,118 The Company issued 1,371,298 (2016: 1,161,442) Ordinary shares during the period at a price of 40.65p (2016: 49.2p) increasing the share premium account by £609k (2016: £548k) 23 Own shares (shares held in treasury) At the year end the company held 3,399 (2016: 14,613) ordinary shares in Treasury, with fair value of £4,742 (2016: £22,650). Details of purchases and sales are shown on page 24. 55 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Notes to the financial statements (Continued) 24. Revaluation reserve This represents the gains on revaluation of the property in line with market valuations. The property was last professionally revalued in 2015. 25. Contingent shares and equity reserve The accrual for future transfer of own shares includes £Nil (2016: £400,000) worth of shares contingent upon no warranty claims being made, plus £128,318 (2016: £246,000) which represents the fair value of the current Speed Trap issued options per note 26 less the cash received to exercise those options. In addition the deferred tax asset on these options totals £114,770 (2016: £297,000). 26. Share-based payments The Company has a share option scheme for all employees of the Group. Options are granted at the closing price on the previous day and have a vesting period of three years. If the options are not exercised within ten years of the grant date, or if employee leaves before their options vest then those options are forfeited. 2017 Weighted av. exercise price 2016 Weighted No. of share av. exercise price options No. of share options Balance at 1 April Granted during the year 3,688,117 49.42p 684,000 320,000 117.00p 2,130,851 Speed Trap issued during the year - - 1,355,579 Forfeited during the year Exercised during the year Balance at 31 March 2017 (72,000) 82.17p - (839,245) 3,096,872 27.40p 61.56p (482,313) 3,688,117 28.67p 65.55p 27.85p - 23.00p 49.42p Exercisable at year / period end 1,396,305 45.73p 1,557,266 27.34p The weighted average share price at the exercise date of the exercised shares was £1.57 (2016: £1.11). The weighted average contractual life of the outstanding options was 7 years (2016: 7 years), exercisable in the range 18.5p to 136.0p. The Group recognised £86k of expense related to equity-settled share-based payments in the year (2016: £38k) The fair value of options granted during the year is determined by applying the Black-Scholes model. The expense is apportioned over the vesting period of the option and is based on the number which are expected to vest and the fair value of those options at the date of grant. The inputs into the Black-Scholes model are as follows: 26 June 16 250,000 113.00p 113.00p 3 0.10% 20.00% 10.00% 3.62p 5 Sept 16 17 Oct 16 40,000 124.00p 124.00p 3 0.50% 20.00% 10.30% 3.74p 30,000 136.00p 136.00p 3 0.26% 20.00% 10.30% 4.23p Number of options granted Share price at date of grant Exercise price Option life in years Risk-free rate Expected volatility Expected dividend yield Fair value of options 56 Expected volatility was determined by calculating the historical volatility of the Group’s share price for the 5 year period prior to the date of grant of the share option. The Expected life used in the model is based on management’s best estimate. The Group did not enter into any share-based payment transactions with parties other than employees during the current or previous period. 27. Operating lease arrangements (Group and Company) As lessee There are no outstanding non-cancelled leases (2016: nil) Lease payments recognised as an expense during the year Lease payments are for rental of premises in India As lessor There are no outstanding non-cancelled leases (2016: nil) 2017 £’000 34 2016 £’000 29 Lease receipts recognised as income during the year 55 22 Lease receipts are for fixed-term sub-lets of parts of the parent company’s premises bearing no contractual right of renewal or extension. 28. Financial instruments General objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the executive team. The Board receives monthly reports from the executives through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. Capital management policy Management considers capital to be the carrying amount of equity. The Group manages its capital to ensure it operations are adequately provided for, while maximising the return to shareholders through effective management of its resources. The principal financial risks faced by the Group are liquidity risk, interest rate risk and foreign exchange rate risk. The Directors review and agree policies for managing each of these risks. These policies remain unchanged from previous years. The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern and so provide returns for shareholders. The Group meets its objectives by aiming to achieve growth which will generate regular and increasing returns to shareholders. The Group manages the capital structure and makes changes in light of changes in economic conditions. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders. Capital risk management The Group and Company’s capital structure comprises issued share capital, reserves and borrowings as disclosed in notes 21 & 22, along with cash and cash equivalents. These are managed by the Board to ensure that the Group and Company continues as a profitable going concern. There are no externally imposted capital requirements. 57 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Notes to the financial statements (Continued) Gearing ratio (at end of year) Debt Cash and cash equivalents Net cash Categories of financial instruments Financial Assets at Amortised Cost Cash and bank balances Loans and receivables Financial Liabilities at Amortised Cost Trade and other payables Borrowings Foreign currency risk management The Group’s foreign currency exposure arises from: Group Company 2017 £’000 (1,177) 6,290 5,113 2017 £’000 6,290 3,694 2,000 1,177 2016 £’000 (1,580) 5,007 3,427 2016 £’000 5,007 2,150 3,337 1,580 2017 £’000 (1,177) 6,290 5,113 2017 £’000 6,290 4,006 2,427 1,177 2016 £’000 (1,580) 5,007 3,427 2016 £’000 5,007 2,332 3,802 1,580 Transactions (sales/purchases) denominated in foreign currencies; and Monetary items (mainly cash and receivables) denominated in foreign currencies The exposure to transactional foreign exchange risk is monitored and managed at a Group level. The carrying amounts of the Group’s assets and liabilities denominated in foreign currencies was as follows: US Dollars Euros Liabilities Assets 2017 £’000 353 98 2016 £’000 2,027 76 2017 £’000 4,041 156 2016 £’000 3,291 85 The following table shows the effect of £ strengthening by 5% against foreign currencies, with all other variables held constant, on the Group’s result for the year. 5% represents management’s assessment of the reasonably possible change in exchange rates. At 31 March 2017 Impact on profit for the year At 31 March 2016 Impact on profit for the year $ £’000 € £’000 (155) (60) (3) - Total £’000 (158) (60) The following table shows the effect of £ weakening by 5% against foreign currencies, with all other variables held constant, on the Group’s result for the year. 58 At 31 March 2017 Impact on profit for the year At 31 March 2016 Impact on profit for the year Credit risk management $ £’000 € £’000 171 67 3 - Total £’000 174 67 The Group uses credit reference agencies to determine and monitor the credit limits of new and existing customers. At the end of the year one customer owed a total of £2,315,000 (2016: three customers owed £1,242,000). No other customers owed more than 10% of the outstanding total. No provision for doubtful debts has been made (2016: nil). Liquidity risk management The Board manages liquidity risk by maintaining adequate reserves of cash and banking facilities to cover day-to-day trading. The Group’s policy is to pay creditors in full as and when they become due,which for all practical purposes is at latest by the end of the month following the invoice date. The Board believes that there is little liquidity risk since the Group has adequate cash balances to satisfy its creditors. Long-term borrowings are secured by way of a mortgage on the freehold property and their repayment schedule is shown in note 21. Maturity analysis of financial liabilities In less than one year: Borrowings Trade payables Loans from directors Amounts owed to Group undertakings Other creditors Accruals In more than one year: Borrowings Interest rate risk management Group Company 2017 £’000 449 999 119 - 127 755 2,449 2016 £’000 449 2,578 185 - 49 526 3,787 2017 £’000 449 538 119 1,042 72 657 2,877 2016 £’000 449 2,578 185 465 49 526 4,252 798 798 1,255 1,255 798 798 1,225 1,225 The Group’s exposure to changes in interest rate risk primarily relates to interest bearing financial liabilities. The loan bears interest at the rate of 2.50% over base rate and the mortgage at 2.10% over base rate. The Board of Directors monitor movements in interest rates and have not prepared sensitivity analysis in relation to interest rates as they do not believe that any reasonable variance would have a material impact on the Group. 59 D4t4 Solutions Plc Annual Report & Accounts 2017Strategic reportCorporate governanceFinancial statements Notes to the financial statements (Continued) Financial facilities Secured bank overdraft facility (unused) Fair value measurement 2017 £’000 250 2016 £’000 500 Financial instruments that are measured subsequent to initial recognition at fair value, are grouped into Levels 1 to 3 based on the degree to which the fair value is observable: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The freehold land & buildings are observable at level 3. 60 i i i o d u t S n g s e D n o i t a c n u m m o C s n o i t u o S 4 t 4 D e h t l y b d e c u d o r p & d e n g s e D i UK Registered Office (and principal place of business) Windmill House 91-93 Windmill Road Sunbury-on-Thames Middlesex TW16 7EF Tel: +44 (0) 1932 893333 Fax: +44 (0) 1932 893433 E-Mail: moreinfo@d4t4solutions.com Web: www.d4t4solutions.com
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