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2023 Report® Annual Report & Accounts year ending 31 March 2020 Company Registration Number 01892751 Delivering our strategy To remain the technology leaders in both enterprise real time digital data collection and customer data management solutions. Customer Data Platform page 26 Customer Data Management page 30 Strategic Report 01 Headlines 02 Statement by the Chairman 06 Statement by the Chief Executive Officer 10 Statement by the Chief Financial Officer 12 Customer success story 14 Powering Digital Transformation 20 Mission and strategy 22 Our challenges 24 Business model 26 Our Intellectual Property 32 Growth plan 34 Key performance indicators 36 Principal risks and uncertainties 39 Corporate social responsibility and sustainability Corporate governance 40 Board of Directors 42 Chairman’s introduction to governance 43 Statement of corporate governance 53 Audit Committee report 54 Nomination Committee report 55 Remuneration Committee report 56 Directors’ Remuneration report 61 Directors’ report 64 Statement of Directors’ responsibilities Financial statements 65 Independent auditors report 69 Consolidated income statement 70 Consolidated statement of changes in equity 71 Consolidated statement of financial position 72 Consolidated cash flow statement 73 Company statement of changes in equity 74 Company statement of financial position 75 Company cash flow statement 76 Notes to the financial statements 100 Corporate information Headlines Revenue (£m) 2020 2019 2018 2017 ARR (£m) 2020 21.75 9.55 25.24 2019 7.57 18.43 2018 6.46 17.67 2017 4.75 Down by £3.49m Up by 26.2% Adjusted profit before tax * (£m) Gross profit margin (%) 2020 2019 2018 2017 5.05 2020 60.75 6.02 2019 4.07 4.22 2018 2017 56.69 56.66 55.82 Down by £0.97m Up by 4.06% * Before amortisation of intangibles, share based payment charges, foreign exchange gains/(losses) and one-off restructuring costs as per note 13 1 Statement by the Chairman Peter Simmonds Chairman 2019/20 Performance have closed on the existing perpetual licence basis were deferred The year ended 31 March 2020 was a year of excellent progress into 2020/21 as a result of multiple stakeholders in client and against our key strategic objectives which are: partner organisations needing to review and approve new recurring 1. To increase revenues from our Celebrus software family of revenue based contractual terms. products which include both our CDP (Customer Data One of the perhaps lesser known aspects of transitioning large Platform) and our CDM (Customer Data Management) hybrid complex deals to a recurring revenue basis is the sometimes cloud platform with a focus on growing high margin recurring unforeseen complexities of redrafting contracts, aligning goals revenue from our enterprise class clients. 2. To transition the business to a term-based recurring revenue with strategic partners and ensuring risk and reward remains as intended during contract variations over a multi-year term. model as the long-term value created from recurring During the year significant progress has been made in deepening revenue is generally significantly greater than one-off, and expanding our relationships with strategic partners and the perpetual contracts. Board is optimistic the results of this will be seen in the growth of I am particularly pleased to report that revenues of a recurring nature grew from 29% to 45% of Group revenues and that the forward-looking measure of Annual Recurring Revenues (ARR) grew by 26.2%. These were achieved despite the considerable disruption from Covid-19 during the last few weeks of our financial year. In the short term there is a well known consequence of transitioning from perpetual to recurring licence models in that revenues recognised in the year are lower, hence the reported revenues fell from £25.2m to £21.7m in the period. The Group’s Executive Directors were working extremely hard during the second half of the year to close recurring revenue based contracts and the Board is confident that had the majority of these new contracts closed on a perpetual licence basis then there would have been significant top line revenue growth in the year. introductions during 2020/21. Raised awareness of our CDP software (Celebrus) amongst the technical analyst communities One of our goals for 2019/20 was to raise awareness of our CDP software (Celebrus) amongst the technical analyst communities and I am pleased to report a growing level of coverage from organisations such as Forrester as well as an appreciation by CIOs in organisations with a mature and sophisticated data strategy Although it is close to impossible to put an exact figure on the of the value that can be derived from the real time (instant) data impact in the year, several large contracts that probably would capture capabilities of the product. 2 Covid-19 As a new Board member with “fresh eyes” I asked Monika to run In common with so many businesses, we closed our offices. the Board effectiveness process this year. I am pleased to report All staff were able to work from home with little to no impact on that overall this process identified no major shortcomings and a customer service, data security or productivity. few areas where the Board could improve its overall effectiveness On behalf of the Board, I am grateful to our global workforce for the manner in which they have responded to these challenges. I would like to take this opportunity to thank all of the staff for their hard work and commitment – it is thanks to you that the business has made such good progress throughout the year and particularly during the last few months. The Board reviewed the impact on all roles across the business. Although a small number of roles were identified as being not required during the office closures, the Board took the view that it would not claim on the taxpayer funded furlough scheme as the which are now being implemented. Deepening and expanding our relationships with strategic partners business was able to bear this small cost without recourse to the Dividend public purse. Board Appointments In October 2019 we appointed Charles Irvine as CFO and, following successful completion of his probationary period, Charlie was formally appointed to the Board on 30 April 2020. I am delighted to welcome Charlie and thank him for his contributions so far. We were also delighted to strengthen the Non-Executive team with the appointment of Monika Biddulph in December 2019. Monika was a member of the leadership team at Arm Holdings and brings The Board has carried out a detailed review of the Group’s dividend policy. Historically there has been a balance between a progressive dividend and the requirement to invest in growth. This year we had two additional factors to consider, the short-term reduction in profitability as we transition to a recurring revenue model and the need to preserve cash because of the uncertainties surrounding Covid-19. Taking account of all these factors the Board has recommended (subject to shareholder approval) a final dividend of 1.9p per share (2019: 2.3p). significant experience from the International Technology Sector. A progressive dividend policy will be reinstated once the transition Monika chairs the Nomination Committee and is a member of the to recurring revenues has progressed sufficiently that revenues are Audit Committee and the Remuneration Committee. again moving upwards. 3 Annual Report & Accounts 2020Strategic report Outlook At this early stage of the year and with the long term impact of the pandemic on the global economy not yet fully known, it is difficult to assess the impact on the Group’s financial performance for the current financial year. However, our high level of customer retention and increasing recurring revenue visibility are expected to mitigate any material impact. Our customers are experiencing a wide range of challenges. Due to the increase in online transactions, the majority of clients in the financial community are more than ever involved in improving customer experience by treating their customers individually or in detecting and preventing fraud and evaluating credit risk to an even greater degree. Our consumer sector customers are experiencing a very mixed set of results. The one certainty is that digital transformation remains at the forefront of most people’s minds and our products and services play firmly in that area. We are seeing a continued increase in our recurring revenue visibility. The pipeline of major new contracts remains strong and a high proportion of these new deals, which are likely to be of a recurring revenue nature, are expected to be signed in the 2020/21 financial year. Contracts are not being cancelled albeit that some are being deferred or slower to close and we are continuing to win new contracts. Despite Covid-19, we remained focused on our transition from perpetual / capex sales to recurring revenue sales. This year will be key to that transition. Notably the Group has strong cash reserves and no debt. Taking these factors into account, including some very positive initiatives with our existing strategic partners and the excellent progress with product development, the Board remains upbeat about the future prospects for the business through 2020/21 and beyond. 2020 has started promisingly and in line with the Board’s expectations, with strong levels of both existing and new client activity. Peter Simmonds Chairman 29 June 2020 4 “Digital transformation remains at the forefront of most people’s minds, and our products and services play firmly in that area” Peter Simmonds Chairman 5 Annual Report & Accounts 2020Strategic report Statement by the Chief Executive Officer Peter Kear Chief Executive Officer Strategy and position Sales overview During the year we took the strategic decision to switch from an Throughout the year we announced the successful closure of a unpredictable perpetual licence (capital expenditure) based sales number of new global customer contracts in the UK, mainland model to a predominantly term / recurring revenue model. This Europe, the Pacific Rim and North America into sectors ranging shift will provide us with increased forward visibility and quality of from financial services to telecommunications and consumer future revenues. organisations. 2019/20 was a year of change and we successfully At the same time we are focused on increasing revenues from our Celebrus software family of products. We remain a leader in both real time digital data collection and customer data management and our products and services are used by many of the world’s largest financial services and consumer organisations. We have continued to capitalise on our technology leadership position and grow our presence in those target sectors, while at the same time managed to convert a high proportion of net new sales to term / recurring style revenue contracts. These new client contracts were evenly spread across Europe, Asia and North America. We also extended our relationship with many of our existing clients globally with sales of increased capacity, geographic extensions, additional digital collection channels and multiple third party integration adapters. exploring new industry areas where our technology can provide Sales for the year were £21.75m (2019: £25.24m), the change similar value and business advantage. due in main to the move from perpetual / capital sales to term / Our solutions provide our customers with confidence in the depth and quality of their data, safe in the knowledge that they can collect all relevant data from every customer interaction across all annual recurring contracts. Sales of our Celebrus product family of software and services now make up 80% of total Group revenue (2019: 71%). digital channels in real time. As a result of the change in product mix we were able to improve Our technology ensures that digital channel data can be easily combined with any other customer data that exists in their environment – enabling customer analytics, optimised customer experiences and more accurate targeted marketing, all in real time. our gross profit margin levels to 60.7% (2019: 56.7%). This was through a combination of our own software (own IP), our hybrid cloud Customer Data Management platform and our delivery services with the associated increase in our term / recurring revenues. This resulted in an adjusted pre-tax profit for the Group The Group’s focus is to empower clients to maximise the value of £5.05m (2019: 6.02m). gained from their customer data, delivering major uplifts in terms of their revenue and profitability. Our real time data collection and Customer Data Management platforms are well positioned as leading offerings for financial and consumer markets as companies We finished the year in a strong cash position at £12.77m (2019: £11.00m) and due to strong sales in the final quarter trade debtors stood at £7.97m (2019: £4.06m). look to accelerate their move towards a digital transformation, fuelled As mentioned previously we have started on the journey to a by the continuing shift online by consumers and businesses alike. more predictable recurring revenue business and I am pleased to Improved our gross profit margin levels to 61% announce that we grew those recurring / term based revenues by 33% during the year to be 45.2% of our total revenue for 2020 (2019: 29.2%). Moving forward, and in line with this transition, we will measure our Annual Recurring Revenues (ARR) exit rate as an additional KPI. 6 Celebrus product family now accounts for 80% of Group sales Partnerships Our strategic partnerships remain a major focus for our business and we recognise that the geographical reach and business diversity that our partners bring to us is key to our own future growth. During the year we have successfully continued to promote and enhance our relationships with Teradata, SAS, Pegasystems and Adobe both directly and via their partners. Our channel partner sales continue to contribute a major proportion of our revenues and as can be seen in recent announcements we will be working even more closely with our partner base. We have recently commenced work on a number of new partner initiatives which should provide significant returns over the coming one to two years. Markets and opportunities Although the Covid-19 pandemic has brought considerable uncertainty, the one thing that remains unchanged is the need for companies, both old and new, to complete the digital transformation of their business. Our products and services are key to many companies’ digital transformation plans and working with both industry analysts and our partners we continue to extend our reach and improve market awareness. cash balance we believe we are well placed to make the most of these opportunities this year. The opportunity to work more closely with our partners has never been greater and many of our sales are made possible as a result of the extended reach and penetration into enterprise accounts that our business partners provide. Technology platform leadership Our Celebrus Customer Data Platform has matured over a period of 20 years and represents the best in class globally for real time omni- channel data collection. The recent launch of Celebrus 9.2, with the introduction of machine learning and Natural Language Processing (NLP) capabilities, has significantly enhanced our offering. Our hybrid cloud Customer Data Management platform continues to gain traction with companies who need to combine their multi siloed customer data sources into one real time environment to gain true advantage from their historical customer data assets for risk, fraud or customer experience applications and now with the introduction of a Platform as a Service option (PaaS) for on- premise deployments we see more opportunity for growth. Our growing research, development and testing teams across Europe and India have enabled us to move significantly ahead of our competitors in the market. With further planned new releases due in the autumn, we will continue to deliver market leading technology in both our data collection and data management platform products. To date, we have presented the business under two divisions: Celebrus Customer Data Platform (CDP) and hybrid cloud Customer Data Management (CDM). Going forward, we will fold hybrid cloud CDM into Celebrus and it will be presented as part of the Celebrus family of data products, which will now include data Throughout the year we will continue to invest in the geographies capture, data migration and data management & monitoring. We where we see the greatest opportunity and take advantage of are making this change in order to simplify the business and the increased availability of highly skilled individuals. We see align our focus on the full Celebrus suite of products and significant opportunities to invest in growth and with our strong supporting services. 7 Annual Report & Accounts 2020Strategic report “We have seen continued blue chip contract wins throughout the year” Peter Kear Chief Executive Officer 8 Celebrus - Customer Data Platform (CDP) The opportunities that we currently see in our sales pipeline We recently announced the release of Celebrus Version 9.2 (our are increasing and our customers are asking to consume this enterprise real-time Customer Data Platform) with new embedded on a Platform-as-a-Service (PaaS) basis which gives us further machine learning and NLP capabilities. Celebrus captures and opportunity to increase our term based recurring revenues. instantly activates data across all digital channels to enable customer analytics and hyper-personalisation through one-to-one Notable wins in this area include: marketing in real-time. Celebrus is the first CDP solution in the industry to use machine learning to deliver Automated Marketing Signals. Automated Marketing Signals enable enterprises to better understand Multiple contract extensions with a major US bank A new contract win with a digital lending provider * An extension to an existing contract with a global nuclear fuel company customer interest, life events, subscriptions and customer Creating notable customer references in the market is key to experience. These preconfigured signals reveal new revenue sustainable future growth and the advocacy of our customers is generating opportunities and dramatically limit customer churn. therefore of paramount importance to us. The value of the new NLP functionality lies in the ability for Summary enterprises to immediately understand ‘customer sentiment’ in all digital channels including online chatbots, complaints feedback and product review forums. This speed is significant because it allows clients to make meaningful interventions ‘in the moment’ to safeguard customer relationships and reinforce their brand values. Notable wins in this area during 2019/20 included: A new multi-year contract with a major UK high street bank A new multi-year contract with a major US bank A capacity extension and a new data collection channel contract with a major financial services customer in the US A significant multi-year capacity extension and multiple country expansion contract with a major European financial services customer An extension of an existing contract with a major US bank An extension of an existing contract with a global telecommunications company headquartered in APAC Customer Data Management (CDM) - Hybrid Cloud We have had considerable success with our hybrid cloud Customer Data Management platform solution in a number of sectors including financial services, automotive, retail and health. We are seeing an increased requirement to combine our Celebrus (Customer Data Platform) digital data, collected in real-time, with historical data held in multiple siloed locations. By bringing together those disparate historical data siloes into one real-time data platform we enable better decisions to be made for customer experience, next best offers, risk and fraud applications. Our data migration, data management and data monitoring software is being used in many organisations where combining and managing very large historical data sets at scale is the challenge. There have been a number of notable developments throughout the year, underpinned by a solid financial performance. D4t4 has made good progress in transitioning away from a perpetual licence model to a recurring revenue model, which will allow more forward visibility and better quality of earnings over the long term. This current year will be key to that transition. We saw continued blue chip contract wins throughout the year, both with new and existing customers across our extended Celebrus product family. Our sales pipeline was strengthened by our strategic global partnerships which remain a major focus for our business and we successfully continued to promote and enhance our relationships with Teradata, SAS, Pegasystems and Adobe. We made significant enhancements to our enterprise software technology with the launch of Celebrus 9.2. This latest version introduced machine learning and NLP to our capabilities, which will facilitate new revenue generating opportunities for customers and will dramatically limit customer churn. Overall, we have maintained our position as a leading data software and solutions provider across our key markets, we have continued to focus on growing our presence in target geographies, particularly the US, and have made huge strides in enhancing our Celebrus products with the introduction of machine learning and NLP capabilities. * Customer success story page 12 Peter Kear Chief Executive Officer 29 June 2020 9 Annual Report & Accounts 2020Strategic report Statement by the Chief Financial Officer Charlie Irvine Chief Financial Officer I am delighted to deliver my first D4t4 Annual Report, having joined the Group on 1 October 2019. It has been another very successful year for the Group, with the transition to a recurring revenue model well under way. This change puts us in a strong position, with much improved visibility of future revenues and cashflows – more important than ever in these uncertain times. Revenue We report today total sales for the year ended 31 March 2020 of £21.75m (2019: £25.24m). This reduction reflects the move to providing annual recurring contracts rather than one-off perpetual licence sales and the transitioning of our hybrid cloud Customer Data Management platform business to “as a Service.” Products - Own IP Products - 3rd party Delivery services Support & maintenance 2020 £’000 7,658 4,362 3,629 6,099 2019 £’000 9,198 7,349 3,132 5,560 We successfully converted a high proportion of net new sales to Revenue 21,748 25,239 recurring revenue contracts. This resulted in our recurring revenues growing to 45.2% of our total revenue (2019: 29.2%). The recurring Gross Profit Gross Profit was £13.21m (2019: £14.31m), reflecting the lower revenues. However, as a result of a change in product mix, we improved our gross profit margin to 60.7% (2019: 56.7%). This is due to the primary reduction in sales being in the low-margin “Products – 3rd Party” segment. Change in product mix improves gross profit margin Administration Expenses Administration costs increased slightly to £8.34m (2019: £8.02m) with continued investment in growing our US business largely offset by a reduction in Head Office costs. We shall continue to invest in growing the business where it makes sense to do so in the coming year. revenue being the proportion of 2019/20 sales which are of a recurring, rather than perpetual or one-off, nature. Recurring revenues growing to 45.2% of our total revenue ARR as at 31 March 2020 was £9.55m (2019: £7.57m), an increase of 26.2%. This is our key forward-looking metric of revenue at a point in time that is reasonably expected to recur in the next twelve months. We are confident of continued growth in this number as we continue the transition. Sales of our Celebrus product family of software and services now make up 80% of total Group revenue (2019: 71%).The switch in business model resulted in our own Products – Own IP sales being down some 16.7%. Products – 3rd Party revenue was also reduced significantly. Delivery services and Support & maintenance revenues increased, by 15.9% and 9.7% respectively, as these revenue streams are less impacted by the transition. 10 Net Profit and Earnings per Share Current assets increased by £7.50m to £24.82m (2019: £17.32m). Adjusted Profit before Tax (before amortisation of intangibles, Driving this was a £3.86m increase in Trade and other receivables share based payment charges, foreign exchange gains/(losses) together with a £1.22m uplift in inventories and £1.77m increase and one-off restructuring costs) for the year was £5.05m (2019: in the closing cash balance to £12.77m (2019: £11.00m). The £6.02m), with the variance driven almost entirely by the reduction increase in receivables was due to particularly strong sales in the in sales. Statutory Profit before Tax was £4.97m (2019: £6.34m). final quarter and the inventory variance is because we acquired A net taxation charge of £522k (2019: £511k) gives a Profit after Tax of £4.45m (2019: £5.83m). Earning per Share on an Adjusted, fully-diluted basis, was 11.19p (2019: 13.89p) whilst Statutory EPS was 11.12p (2019: 14.78p). Balance Sheet some stock in March for a sale due to complete in the first quarter of the current year. Total liabilities at year-end were £9.59m (2019: £7.12m), an increase of £2.47m driven by a £2.60m uplift in Trade and other payables. The increase in Trade payables at year-end was linked to the strong sales in the final quarter mentioned above. The The Balance Sheet remains strong, with Net Assets up 17.8% at Group remains debt-free. £29.26m (2019: £24.84m). Dividends Non-current assets reduced by £613k to £14.03m (2019: £14.65m) principally due to a reduction in the deferred tax asset as a result of utilising US tax losses in the year and a number of share options being exercised during the year. Also included within Non- current assets are £188k of Celebrus-related Development costs capitalised during the year. The Board is recommending a reduced final dividend of 1.9p (2019: 2.3p) which brings the total dividend for the year to 2.67p (2019: 3.0p). This reduction is to reflect the lower profit level this year due to the recurring revenue transition. If approved at the Annual General Meeting, which is to be held on 6 August 2020, the final dividend will be paid on 28 August 2020 to shareholders on the Register at the close of business on 24 July 2020. Balance Sheet remains strong and debt-free We continue to expense the majority of R&D costs, only capitalising where we are very confident that all of the IAS 38 criteria are met. R&D costs expensed in the year amounted to £784k (2019: £576k) as we continue to invest in further developing our software. Charlie Irvine Chief Financial Officer 29 June 2020 11 Annual Report & Accounts 2020Strategic report Customer success story KEY FACTS AT A GLANCE Small and medium enterprises (SMEs) are the growth engine the project to build up their team’s own skills and capabilities. John for any economy. According to the Bank of England, they are Pillar, CTO of NatWest Ventures, commented “it is crucial that our responsible for 60% of all private sector employment in the platform is always one step ahead of our business. So we worked UK. Yet despite their importance to the British economy, they with partners, like D4t4, who are capable of accelerating our time to often struggle to get access to the finances they need to grow market and removing friction from the lending process”. their businesses. The strain on them is further exacerbated by a convoluted and unnecessarily lengthy process which stifles their The D4t4 Value ability to grow and expand. Enter Esme Loans. D4t4 have built robust data models and unlocked insights on the Esme is NatWest’s standalone digital lending platform which customer journey that have helped Esme prepare and scale their launched in February 2017 to address this yawning gap and to business to handle ten times the volume of loan applications and offer SMEs and scale-ups a fresh new way to have fairer and faster become truly data driven. Fully automated pipelines refresh the access to funds in the market. The Challenge Esme Loans’ ambition was to leverage technology to provide the UK SME marketplace with an easy, secure and fast way of accessing unsecured loans ranging from £10,000 to £250,000 through a simplified application process with the promise of a prompt decision at a fair price. They defined their business model and set about building the plan for the infrastructure and business processes to realise their vision. Finding the right technology and business data from the key loan platform and an external web analytics tool to allow the full end-to-end customer journey to be mapped. From the first ad campaign through approval stages and on to the current payment status, Esme now have new levels of visibility and continue to refine and optimise the customer journey. a significant contribution to the growth and success partners to support them on this journey was critical. The project has also provided Esme with an analytics workbench. The Solution Esme set out to build a data-driven business. They recognised the value early on of choosing the best technologies and partners to build a robust platform alongside their team. Esme were committed to leveraging the power of machine learning and predictive analytics to ensure they could achieve the rapid growth they anticipated. The first step on this journey was to create a Cloud-based customer data management solution using Microsoft’s Azure. This could consolidate data from their lending platform, customer interactions, digital marketing, CRM platforms and data sets from third parties Think of this as ‘a single source of truth’ that is enabling business managers to self-serve from a range of pre-canned reports within Microsoft’s PowerBI tool. They require and create their own reports and do vital investigative analytics using D4t4’s trusted tables. The Results When Esme entered this market just over three years ago, the average time it took for an SME from loan application to acceptance was two months and leveraging a combination of technology and data, they have got it down to just a few hours in most cases. that would improve the value of the customer insights e.g. credit It is not an overstatement to say that Esme has revolutionised the ratings. The search then moved to finding a trusted partner who unsecured loans market for SMEs. The Esme digital platform now had proven skills in Cloud, deep knowledge of banking security offers SMEs a frictionless process to apply for unsecured loans to processes, customer interaction tracking and the skill at creating the grow their businesses. As of April 2020, Esme has processed data models and insight reports to inform the business and allow about £1 billion of loan applications and provided loans to c.2k them to scale. D4t4 Solutions plc, a Microsoft accredited partner SME customers. and a company with a rich history implementing customer data management platforms as well as a 30 year track record working with some of the world’s largest financial services companies, were judged to be the perfect partner to work with the Esme team. Esme appointed D4t4 as their specialist data partner in December 2018 and have been working with their leadership team and Peter Kear, CEO of D4t4 Solutions commented, “it was been an absolute pleasure working with the founders and leadership team at Esme and I am proud that the skills and expertise of the D4t4 team has made a significant contribution to the growth and success of the disruptive business model Esme is pursuing”. technology providers since January 2019. It was important to Esme, Looking ahead, Esme Chief Executive Richard Kerton stands ready as it is to any new scale up organisation, that D4t4 could work in this to significantly increase lending to UK SMEs and support them in ‘agile’ way and effect the appropriate knowledge transfer throughout the post Covid-19 economy. 12 KEY FACTS AT A GLANCE Esme Loans is part of the NatWest Group Target Market SMEs trading for 3 years with a £50,000+ turnover Established 2016 Launched 2017 Product - Unsecured loans of £10k - £250k 4 employees at launch 70 employees in 2020 £1 billion of loan applications have been processed since launch Automated self-service Digital Lending Platform Traditional application times reduced 2 months to a few hours “It is crucial that our platform is always one step ahead of our business. So we worked with partners, like D4t4, who are capable of accelerating our time to market and removing friction from the lending process” John Pillar Chief Technical Officer NatWest Ventures 13 Powering Digital Transformation with Artificial Intelligence and Machine Learning Organisations have become hyper-focused on building positive experiences for their customers across all the various touchpoints of their business. Interactions, on a one-to-one level, not only require data fit for purpose on a timely basis, but the sheer amount of data that is generally created about a customer becomes quite cumbersome to manage for businesses looking for that next great idea. Layered on top of that data is a demand for brands to be good stewards of customer data in a 100% compliant manner. The challenges for brands today to maintain a competitive advantage is rooted in the ability to activate data in a meaningful way. The only true way to activate customer data quickly, and to shorten the runway to value, is by harnessing Artificial Intelligence and Machine Learning. Clients are under immense pressure to generate positive results in today’s marketplace, and the Board of D4t4 made solving this problem a strategic focus in the prior year. One of the most powerful and important datasets has undoubtedly become digital, and the challenges in today’s industry makes that a difficult channel to cater for within the traditional world of marketing technology and tag-based solutions. In a world where marketing technologies struggle to capture customer data, we are poised to excel. Throughout this report, we will detail the opportunity for D4t4 as well as our competitive positioning in the marketplace that puts us in prime position to be the partner that brands need in order to be successful in today’s data-driven world. Importance of Select Emerging Technologies in 2020 according to Client-side Marketers and Agency Executives Worldwide % of respondents AI 36% 47% 18% Enhanced payment technologies 35% Live video/live streaming 31% Chatbots/messenger apps 5G 30% 29% Internet of things 26% Voice interfaces 22% VR/AR 17% 40% 43% 47% 180.708 mm 36% 180.708 mm 47% 180.708 mm 44% 180.708 mm 48% Facial recognition 13% 32% 180.708 mm Wearables 13% 35% 180.708 mm 25% 25% 24% 36% 27% 34% 35% 54% 52% Market focus and growth Artificial Intelligence is top of mind for Executives heading into 2020 and beyond on both the Marketing and Technology sides of the house. The reality is that this, combined with significant growth in the CDP sector, means we are faced with an opportune moment to capitalize with our core differentiators. With our focus at D4t4 on capturing customer data in a compliant manner, and also providing the hybrid cloud Customer Data Management solutions to harness that data and get it to the right people at the right time, we continue to be on the forefront of innovation and helping brands evolve on their path of digital transformation. Customer Data is Paramount Our Customer Data Platform (CDP), Celebrus, is the gold standard for digital customer data capture and connection to downstream systems for activation. Recent data from MarketsandMarkets1 suggests the global CDP market size is expected to grow from USD 2.4 billion in 2020 to USD 10.3 billion by 2025, at a Compound Annual Growth Rate (CAGR) Very important Quite important Not important of 34.0% during the forecast period. Celebrus continues to expand Note: numbers may not add up to 100% due to rounding Source: Warc, “The Marketer’s Toolkit 2020,” Dec 2, 2019 globally with a geographic representation to the right. 1. https://www.marketsandmarkets.com/Market-Reports/customer-data-platform-market-94223554.html 14 Global implementation of our Celebrus CDP With this heavy focus on connecting customer data across channels and devices comes the challenge of building environments that can perform at scale for the analytical use cases across the business. This trend is further emphasised by MarketsandMarkets2 again who suggests the global big data market size to grow from USD 138.9 billion in 2020 to USD 229.4 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 10.6% during the forecast period. This positions D4t4 uniquely as not only are we solving for the digital customer data challenge, but we are also poised to build the hybrid cloud architectures to ensure that organisations are able to capitalize on the better data they possess. 2. https://www.marketsandmarkets.com/PressReleases/big-data.asp 15 Annual Report & Accounts 2020Strategic report Market Opportunity From our view, and recently outlined by a study we commissioned, there are five stages of Digital Transformation that organisations go through as they mature. The five stages of Data-Driven Transformation STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAGE 5 Channel Centric Customer Centric Real Time Enterprise North Star NPS Business Focus Marketing focus on customer acquisition & sales. Digital focus on channel performance (clicks, page conversions) Cross sales and loyalty focus. Delivering a consistent omni-channel experience across all touchpoints. Customer value and advocacy by optimising customer journeys. Digital & Customer marketing merge. Data as a strategic asset: Now utilised across Marketing, Risk, Fraud, Product, Pricing, Digital business model with virtual agents augmenting complex advice processes and decisions. and more Outbound marketing Customer centric Hyper-personalisation Data captured once Data driven AI including Achieved by & paid advertising. Vanilla web/mobile marketing. Automated event triggers, of content and decisions using contextual real and connected to all analytic & decisioning deep learning and knowledge based experience. Analytics focus on volumes and personalisation & multi- channel orchestration. time data plus a blend of AI and rules. Fully platforms, to support widest range of decisions powered by real-time data and sales conversion. Marketing optimisation. automated operation analytics & decisioning use cases intelligent bots Outcomes ($ estimates for organisations with 10m customers) Low Marketing ROI Medium Marketing ROI Highest Marketing ROI Maximise Business Market leading due to poor response & conversion rates plus labour intensive as automation drives improve response & as hyper-personalisation delivers 10-50x uplift in sales conversion Outcomes across all lines of business, channels and analytic across all customer facing business functions. processes. $10-$20m conversion. $100m+ rates, better CX, and lowest operating costs. functions (Risk, Fraud, etc.). $500m+ data driven sustainable competitive advantage. $250m+ $bns Based on our analysis of the market, approximately 60% of organisations are working towards Stage 2, and the single biggest gap to them getting there is the missing integration between digital channels and their customer data platform. Of the organisations fully at Stage 2, roughly 50% are on the way to Stage 3. Our target opportunity is highlighted by any organisations trying to get to Stage 2 and any organisation already in Stage 2 - 5. This represents roughly 70% of organisations in our key verticals. 16 Industry Sectors D4t4 is focused on the finance and consumer sectors, with a strong track record of delivering on over 300+ use cases for our customers with a combination of our Celebrus Data Capture and Customer Data Management solutions. Over the past financial year, we have come to recognise that many of the use cases we have solved for in the finance sector, as well as many of the challenges, mirror those in the Insurance and Healthcare spaces in the US. In addition, the Telco sector is also one that we are investigating for opportunities globally. Celebrus provides a complete, digital customer profile instantly to downstream applications to deliver a hyper-personalised experience for our clients. The customer and one-to-one personalisation are key focal points across many industries in today’s marketplace, and our differentiators uniquely position us as the partner for true digital transformation within our clients’ organisations. While we remain focused on the finance sector, we feel that many of the industry challenges and trends play to the strengths of our offerings in several potential sectors. D4t4 Solutions is leading the artificial intelligence revolution Digital disruption in the finance sector has been, and will continue to be, a growth focus for us. The backbone to digital disruption is the activation of data and Executive adoption of a view towards the North Star in the previous table. Looking out to the marketplace as a whole portrays an industry where many of the traditional marketing clouds and various pieces of financial technology (Fintech) are unable to accurately create a view of a customer that can be built upon over time and integrated with other key first-party datasets. Web browser changes, including Apple’s Intelligent Tracking Prevention (ITP), in the past year are designed to limit the ability for traditional, tag-based marketing technologies to identify and persist an individual identifier over time and track the full journey that those individuals are taking. Celebrus, due to the nature of the technology and product innovation, is not impacted in any way by these changes in the digital industry. Our tagless implementation, combined with our ability to create a customer profile for instant use across the enterprise, allows us to truly be the “single source of truth” for digital data to power high-value use cases in Marketing, Customer Experience, Advanced Analytics, Risk, and Fraud. The Board of D4t4 has further emphasised the development of Artificial Intelligence and Machine Learning solutions as a core focus of both our Celebrus CDP and Customer Data Management solutions. This focus ensures we remain on the forefront of innovation for the top-of- mind use cases of our customers. D4t4 Solutions continues to excel with growth in the consumer sector Compliant consumer data with the right depth, breadth, consistency, and accuracy can be applied across the enterprise for use cases in Marketing, Customer Experience, Data Science, Risk, and Fraud. With the launch of version 9 of our Celebrus CDP came the release of Automated Marketing Signals to harness the power of Machine Learning, Legitimate Interest to empower fraud detection in a GDPR-compliant manner, and expanded connection capabilities downstream for our core partners as well as new potential growth-focused partnerships in this financial year. We are relentlessly focused on helping our customers march towards the North Star of Digital Transformation. Geographic Reach We are currently able to provide 24/7 support for our customers as a result of our existing geographic reach. We continue to bring in the necessary skills and people in each market to ensure both our current ability to service our customers as well as the ability to scale to meet the new demands as our business continues to expand in key markets such as the US. The largest global market remains the US, and this accounts for over 60% of D4t4 sales. Revenue by region Note 5 page 82 17 Annual Report & Accounts 2020Strategic report The Regulatory Opportunity As organisations march towards the North Star of Digital Transformation, privacy and compliance continue to be paramount to continued success. Many 3rd party marketing technologies are unable to truly capture and store customer data at the level of granularity needed to power one-to-one marketing. Celebrus, as a true first-party solution installed in a client-controlled environment, future-proofs an organisation’s ability to mature along their journey towards transformation. Combining that with our Celebrus Control module, which has been vetted by many of the world’s largest global banks, ensures that our customers can confidently capture 100% compliant data adhering to the regulatory requirements around the globe. Furthermore, the risk and liability of digital fraud in the financial sector, and the launch of our fraud-specific features in version 9 of Celebrus, has created a new set of use cases and opportunity for our CDP. A selection of regulations impacting D4t4 Solutions’ customers PIPEDA HIPPA CalOPPA CCPA LGPD PoPI GDPR Chinese Cybersecurity Law Indian Information Technology Acts 2000 and 2011 APP New Zealand Privacy Act 1993 Our hybrid cloud Customer Data Management business is also further enhanced by the regulatory challenges in the finance sector. Regulations such as Comprehensive Capital Analysis and Review (CCAR) and the Current Expected Credit Loss (CECL) framework in the US require highly performant environments to run several models on extremely large data sets, which is a key differentiator of our hybrid cloud Customer Data Management platform. 18 18 Key New Trends New trends and challenges continue to seemingly appear daily, and we continue to innovate to ensure we can capitalise on these trends for our customers. The themes that remain consistent from the previous year include a desire to be data-driven, the development of cloud strategies, the rise of open source software, and the focus on collecting and harnessing the power of customer data. From our perspective, there are a several new trends that we are focused on to drive further growth across our existing accounts and new business: Fraud / Risk Our launch of Legitimate Interest in Celebrus and the additional Fraud features in version 9.2 and 9.3 of Celebrus in this financial year will be groundbreaking for our customers and offer up new market opportunities for our business. Artificial Intelligence / Machine Learning The launch of Automated Marketing Signals in version 9.2 in Celebrus will be the first- ever true deployment of Machine Learning in any marketing technology focused on capturing customer data. This module leverages our vast knowledge in the financial sector and can be easily applied to other sectors under consideration. Hyper- Personalisation Celebrus delivers a complete customer profile instantly to any downstream application for data activation and personalisation. Several innovations in 9.2, including HTTP 2.0, further expands our capabilities within the arena of personalisation and offers significant functionality to guide our customers down the path of digital transformation. Digital Data Challenges Advertising Cloud Ready Apple Intelligent Tracking Prevention (ITP), and changes within Google Chrome, Firefox, and Microsoft Edge, continue to limit the effectiveness of traditional marketing tag-based technologies and their ability to capture and process customer data in a compliant way. Celebrus is not impacted in any way by these changes as a result of being a true, 1st party system and our IP. Additionally, as a true 1st party system, Celebrus is also not impacted by the browser restrictions on 3rd party cookies and cross-domain tracking, which brings us to the next opportunity. Advertising as a budget line-item tends to be the single largest investment in our target customers With the digital data challenges to cookies in this sector, and the IP we have within our CDP, we are exploring the role we can play in solving for the challenges here and provide a more complete view into the marketing journey of the consumer. Celebrus has continued to innovate to support not only cloud deployments but also many of the frameworks required to connect our data to platforms within Azure, AWS, Snowflake, and others. Our hybrid cloud Customer Data Management platform has been innovated to support “burst to the cloud” capabilities and allow for open-source analytics within the cloud to interface with our core platform. 19 19 Annual Report & Accounts 2020Strategic report Mission and strategy Our Vision To continually innovate and build a steadily growing business that earns high margins and recurring revenues by partnering with our clients to drive maturity in their usage of data along their transformative journey. We intend on leading digital disruption by powering artificial intelligence, machine learning, advanced analytics, compliance, fraud, risk, marketing, and customer experience use cases with a combination of a market-leading CDP and our hybrid cloud Customer Data Management platform. Our Mission To provide the two most critical components that drive Digital Transformation as an intersection within our business. Powering the most granular, contextualised customer data at an individual level and the data management platforms to operationalise that data throughout an enterprise for the use cases that matter. Our Strategy To deliver the vision our strategy is to continue to focus our activity on two complimentary areas that financial services and consumer organisations are investing in today and expected to continue to invest in for the foreseeable future: 1. Increasing revenues derived from our CDP, Celebrus, by leveraging our recent innovations in the AI/ML and fraud sectors to create new opportunities while expanding our existing client relationships with new use cases and upgrades. We will also use these new options to expand our partners with a focus on marketplace differentiation. 2. Generating recurring revenue through developing, deploying, and managing hybrid cloud Customer Data Management platforms that combine the intellectual property, services, software, and hardware needed to help our clients evolve their Digital Transformation vision. Continue to offer the flexibility and scalability of our environments to support artificial intelligence, advanced analytics, and regulatory analyses on a scheduled and ad-hoc basis. 20 N a D NOV A TI O IN T t a Capture R U S T INTEGRATED CORE SERVICES S E C U R IT D ata Mana g e m e nt C O Y N B O RATIO A L L Our Tactics This strategy will be executed by continuing to live our core values of innovation, trust, collaboration, and security. We will continue to enhance and grow our capabilities across the two main pillars of our business: Data Capture and Data Management. We have depth of expertise and wide connections within the financial services and consumer sectors, and we will continue to further apply our learnings to other verticals and partnerships. 21 21 Annual Report & Accounts 2020Strategic report Our challenges Like any Group, D4t4 Solutions has several inherent challenges that it must overcome in order to execute its Strategy successfully. The table below sets out these key challenges and the actions taken to ensure the Group continues to deliver successful outcomes for all of our Stakeholders. Covid-19 The coronavirus crisis has clearly had a major impact on many businesses across the world, with almost no industry isolated from this. The way we do business has changed dramatically over the last few months and some of these impacts will be felt for a long time to come. The markets in which D4t4 operates shouldn’t be impacted too significantly in the long term, and in fact the new environment presents the Group with an opportunity given the renewed focus on the customer and reliance on data. There are clearly challenges nonetheless, not least of all a reluctance on the part of some businesses to commit large funds at this time. Similarly, there is a challenge in terms of ensuring that all of our people and products are still able to function for our clients at a time when most offices are closed and travel restrictions remain in place. Management actions All staff set-up for home-working and able to fulfil duties remotely Investment has ensured good level of skills and experience in all three main geographies, ensuring back-up in place if required Board meetings and weekly Executive meetings held via video conference Stress-testing of forecast scenarios to confirm no cashflow issues. Additional financing is in place with our Bank should this be required Working with our Partners and end-user clients to ensure no interruption to service levels Continued focus on sales pipeline, supported by ability to offer variety of contracts to suit e.g. SaaS, PaaS, term or perpetual licences Sales Cycle Management The sales cycle for our products and services is typically greater than one year due to the cutting-edge nature of our products. There are also typically multiple stakeholders within the client company that have to be addressed. Also, due to the size of projects, internal budgets have to be planned far in advance. The challenge is to manage the sales pipeline so that investor expectations for steady, predictable growth are met. Management actions Bi-weekly sales reviews Monthly Board review of the sales pipeline Account plans for every major client are in place and reviewed regularly Relationship mapping is undertaken for major clients Managing the recurring revenue transition Flexible pilot project offerings to engage the client early in the process are made available Renewed focus on Partner education and activation in the marketplace The Board has announced previously a desire to move towards more of a recurring revenue model, with a more predictable revenue stream allowing for improved revenue and cashflow forecasting. Over the long-term, this is seen as a clear opportunity to improve visibility of the business and scale resources appropriately. That said, this transition away from the perpetual licence sales that we’ve recognised previously can mean a reduction in short term revenues and profits. Management actions Regular internal and external communication as we move through the transition Regular agenda item at Board meetings and with external advisers Clearly defined KPIs around recurring revenues Continued focus on cash as transfer Data Management business to PaaS Refresh of sales incentive schemes to ensure aligned with new business model Keep investors up to date as we move through the transition E N O E G N E L L A H C O W T E G N E L L A H C E E R H T E G N E L L A H C 22 Expanding the relationship base To grow the business faster and reduce risk the strategy calls for an increase in both the number of partners through which sales are made and the number of direct client relationships the business has. To achieve our stated financial performance targets our financial resources need to be carefully shared between sales, marketing and partnering activities. Management actions Additional sales and marketing investment Growing partner base Mix of direct and indirect commercial relationships Developing the right talent Deeper understanding of client data and analytics maturity and how it evolves In recent years, the Group has evolved into a data-focused technology organisation, therefore retraining and redeployment of existing staff has been required. As always, the challenge is to create a balanced, flexible and highly motivated global team that can collaborate successfully across three continents. Management actions Training investment is made as required Increased number of Group-wide presentations and events to develop greater team spirit. Regular online events and presentations held during Covid-19 pandemic Working location flexibility is offered to all Refurbished offices to improve the working environment Total remuneration, including share options, is reviewed annually in light of the market Creating the right products Development resources are allocated based upon financial performance targets and consequently management prioritises product development carefully. The challenge is to understand the market and make the right investment decisions which will deliver a return as well as a clear value to our customers. Management actions Frequent client and partner engagement to understand changing requirements Interaction with industry analysts to understand current and future trends Attendance at industry events and seminars to widen our knowledge Growing the development team, especially in new areas such as mobile and AI Structured product planning meetings involving all stakeholders Exploration of Customer Advisory Boards to generate more input from our install base for our Product Planning team R U O F E G N E L L A H C E V I F E G N E L L A H C X I S E G N E L L A H C 23 23 Annual Report & Accounts 2020Strategic report Business model The Board is confident that the D4t4 business model supports the business strategy of growing software and recurring revenues year-on- year. This business model is continuously reviewed as the organisation grows and develops. Our integrated core services Data Capture Capture all individual consumer data in a 100% compliant manner in the most granular way possible in the industry today. Provide these digital consumer profiles instantly to our partners downstream for data activation in the realm of Marketing, Data Science, Customer Experience, Fraud, and Risk. t a Capture a D INTEGRATED CORE SERVICES Data Management Rapidly solving the issue of underperforming, multi-siloed, mixed- technology data environments by consolidating them into a simple to use customer data management solution. These solutions integrate data, software and hardware using our own proprietary tools. D ata Mana g e m e nt Our strengths People Our teams are at the heart of the business. They understand the markets we operate in, create innovative and adaptable solutions, write complex product code, drive sales and deliver solutions and positive outcomes for our clients. In order to maintain and drive the business forward, D4t4 seeks to attract and retain the best talent in our marketplace. Despite being spread across three continents, the business is primarily organised as a single entity rather than divisions. As the business wins and delivers new contracts, this gives D4t4 the best flexibility to deploy skilled staff on to the right projects at the right time. Security Data security is vitally important to both our clients and D4t4. Regulations such as the European General Data Protection Regulation (GDPR) and the nature of the consumer data we handle means secure process and facilities that enable ISO27001 and PCI compliance are needed. Our software is regularly tested to ensure it is safe, private and secure. 2424 Our strengths Value creation D4t4 fundamentals create competitive advantage by enabling it to offer complete enterprise scale data solutions for the largest financial services and consumer organisations. For investors Our strategy and business model are designed to create the opportunity to earn high margin recurring revenues, that deliver capital growth and a progressive dividend policy. For customers D4t4 provides an end-to-end data service that is designed, from the ground up, to be safe, secure and high quality, which result in delivering exceptional value to our clients over many years. For employees D4t4 provides a flexible and secure working environment in which staff can develop their own careers. As a global business D4t4 aims to assist staff in gaining valuable international experience as well as broad exposure to all the latest data tools and technologies. 26.2% increase in Annual recurring revenue Customer success page 12 CSR for employees page 39 Partners Our primary route to market is to sell our software and solutions in conjunction with other third party organisations, including SAS, Dell EMC, Teradata, Pegasystems, Microsoft and Adobe. The solutions D4t4 deliver primarily contain components from SAS, Microsoft and Dell EMC and our own software, Celebrus. We undertake joint sales and marketing activities with the organisations to generate the majority of our sales but continue to develop. Intellectual property To deliver the strategy, the business continues to invest in developing its intellectual property (IP). Competitive advantage is maintained through investment in the core functionality of our Celebrus software, developing solution “know-how”, building tools to automate processes (such as software deployment), applying for additional legal protection for our IP and the development of a network of partners who rely on the technology for their own business. 2525 Annual Report & Accounts 2020Strategic report Our Intellectual Property Product and technology innovation used to be the preserve of large enterprises, typically within their research and development departments. But innovation can come from anywhere. This is very true of D4t4 and we are proud of our product development team and the rich stream of technology innovations they are adding to the Celebrus Customer Data Platform (CDP) solution every year. Most recently they have succeeded in embedding both Machine Learning (ML) and Natural Language Processing (NLP) capabilities making it the first solution in its category to offer enterprises this rich functionality out-of-the-box. These new pre-configured Automated Marketing Signals (AMS) have the power to save enterprises millions of pounds of in-house development costs and dramatically accelerate bottom line revenues as a result of being able to instantly detect and act on customer intent data in real time. Customer Data Platform (CDP) Market Celebrus, acquired by D4t4 Solutions in 2015, is a data capture and customer profiling software solution which is positioned in the high growth market category of Customer Data Platforms (The Forrester New Wave B2B Customer Data Platforms 2019). The Customer Data Platform (CDP) market size is projected to grow from USD 2.4 billion in 2020 to USD 10.3 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 34.0% during the forecast period according to US market research by Reportlinker. The major growth factors of the CDP include the proliferation of customer channels and the growth in the volume of transactions and interactions occurring online. It is believed that the recent Covid-19 pandemic will further accelerate demand for CDPs. Drastic changes in customer buying behaviour and the need for employees to work from home has highlighted the need for organisations to be able to effectively interact and deliver a frictionless, personalised experience to all their customers, across every digital channel in real time. Celebrus is very well positioned to capitalise on this demand. Web Mobile ATM Card Reader Internet of Things Internal data Celebrus Data External data Commercial analytics & decisions Risk analytics & decisions Fraud analytics & decisions Compliance analytics & decisions Experience / marketing analytics & decisions 26 The four core capabilities of Celebrus 1. Capture 2. Create 3. Connect all of a customer’s interaction and behavioural data a comprehensive digital profile in milliseconds to an enterprise’s that can be persisted across analytics and decisioning platforms every channel 4. Control - the privacy of all your customer data ensuring 100% ethical compliance to industry regulations like GDPR, CCPA Celebrus is typically bought by enterprises and deployed in distinct stages, usually starting with one or two use cases to prove value. A detailed insight study of Celebrus clients across many different industry segments revealed some very distinct phases and similarities of approach in the process for our clients to becoming truly data-driven organisations. We have codified these to produce a Five Stage Data-Driven Transformation Model to help other business leaders understand the journey. While many clients are aiming for Stage 5 (which we call the ‘North Star’) none has achieved this yet, so there are many more opportunities for Celebrus to expand its footprint in existing clients as well as acquire new ones. Five Stages of Data-Driven Transformation page 16 27 27 Annual Report & Accounts 2020Strategic report The Celebrus Impact Because of the way Celebrus captures all interactions and behaviours for our clients, this has proved to be very valuable when something unexpected such as the coronavirus pandemic occurs. This requires businesses to be agile, responsive and do swift additional analysis so they can take prompt action to support both their customers and the business itself. Had our customers been relying on traditional tag- based solutions, they would not have the ability or agility to support important ad-hoc requests such as these: Major Banking Client International Insurance Client Used Celebrus data to measure interactions with their Covid-19 Captured web chat interactions in their overloaded call centres initiatives and to better understand things like loan deferment and to help prioritise responses, understand how supportive that financial stability channel had been and to identify opportunities for improvement Illustrations of the business value and financial impact of the Celebrus CDP UK Retail Bank with global network Real time decisioning enabled Year 1 Impact: Delivered >$50m incremental revenues Significant improvements on customer engagement 50-70x increase in Click Through Rate (CTRs) on website Predictive Analytics $7.5m in new revenue from just one campaign Leading European Insurance Group Transformed their marketing attribution using highly Achieved a 10% uplift in conversion rates granular and contextualised Celebrus Data to do advanced analytics Improved retargeting visitors to the website 10% reduction in advertising saving millions each year Financial calculators, abandoned applications and $12m uplift in conversions in year 1 product browsing Multi-Brand Online Retailer Fraud Detection: Interaction data captured by Celebrus £1m in customer fraud quickly identified and mitigated was analysed to reveal patterns of account opening activity revealing fraudulent behaviours enabling prompt Cases of multiple identity theft traceable in minutes intervention and millions of pounds in savings 28 28 One area that has benefitted from such insights is the continued development of DNB’s online and mobile digital services. When looking at digital channel interaction data to assess our customer journeys on our digital channels we use a leading-edge real-time digital capture solution, ‘Celebrus from D4t4 Solutions’.. We can assess whether our digital channels are aligned to customer preferences and continuously improve the digital experience. The platform can also be easily optimised to deliver highly tailored digital offerings to meet anticipated customer needs and wants. Our analytics capabilities are focused on delivering the right product, at the right price, through the right channel, at the right time. Aidan Millar Chief Data and Analytics Officer DNB DNB is Norway’s leading financial services provider with a market capitalisation of NOK 258 billion at year-end 2019 – it is not just leading in regard to size, but also with its progressive data driven digital transformation program. Over the last 15 years, DNB has gone from having 550 branch offices to 57. The mobile bank has gone from a hundred thousand visits a year in 2010, to almost a million daily customer interactions in 2019. The success of the channel shift is remarkable. In a Finalta benchmark analysis of the international banking sector, DNB was ranked number one in the world based on the efficiency of its branch network. 29 Annual Report & Accounts 2020Strategic report Customer Data Management For 35 years D4t4’s work and solutions have been focused on helping companies get the best possible value from all their data assets. We have expertise in solving the thorny technical challenges associated with managing and optimising complex data platforms and have developed a proven methodology and suite of tools to deliver these. This is our Customer Data Management solution which is delivered as a Platform-as-a-Service (PaaS) offering. Our intellectual property comprises: 1. Development tools, database management, business analytics Specialist tools for synchronising extremely large data volumes non-disruptively, taking across extended access control information and converting data in the background between old and new formats 2. Operating systems Configuration Control and Change Management 3. Servers and Storage Monitoring and control of storage allocation and tuning synchronisation and backup through the use of snapshots to optimise usage of storage and meet requirements known as RPO (recovery point objectives) and RTO (recovery time objectives) for big data platforms 4. Network Security and Firewalls Proven process for vulnerability and threat management, roll-out of production environments; monitor and eliminate any security weaknesses to safeguard the critical security infrastructure and ensure 100% compliance with industry and data privacy regulations 5. Data Centres Physical facility Development tools, database management business analytics 30 PaaS Operating systems Servers and storage Networking firewalls/security Data centre physical plants/building The Customer Data Management Impact Covid-19 Resilience Our Customer Data Management platform is built for scale and flexibility as a customer’s needs change. With the emergence of the Covid-19 pandemic, our customers on the platform have a massively increased volume of requirements to run models and analyses that were not foreseen in addition to the standard day-to-day. Our customers have experienced no issues with running thousands of new advanced and regulatory analytics models on our platform which is testimony to the resilience and agility of our hybrid cloud CDM solution. Illustrations of the business value and financial impact of the Celebrus CDP Top 3 US Retail bank Hybrid Cloud Analytics & Business Intelligence Deployed a fully remote-managed appliance in multiple on-premise data centres with integration to off-premise private clouds 500x Performance Improvements across various analytics and data management areas Drastic improvements in analytics processing times freed up $100m+ liquidity to the bank $10 million cost savings 60% reduction in total cost of ownership of the analytics environment year-on-year 31 31 Annual Report & Accounts 2020Strategic report Growth plan Our business model and our chosen markets, together with our innovative technology and IP, are all harnessed to grow the business through four key initiatives. 1. Regional growth 2. Additional use cases Continued investment enables the business to access market opportunities that are currently untapped. In 2018/19 we increased our North American sales team significantly and created a pipeline of new clients. Use cases are the stories and wins needed to promote and establish new applications of Celebrus data and our hybrid cloud customer data management platform in areas such as risk, fraud, advanced analytics, and customer support. In 2019/20 we supplemented this investment by adding in US technical support and project management resources to continue to drive growth in the largest and most sophisticated market in the world. The US market accounts for over 60% of Group sales. During the current financial year, we are targeting growth in the Asia Pacific region which is a clear opportunity for the Group as currently around 95% of sales are to customers in Europe and the US. We are considering ways to invest in order to further support our existing clients and current partners whilst also accessing new opportunities in this fast-growing region. In 2018/19 we created a knowledge bank of over 300 use cases and started to use them as a tool to support and engage existing clients and prospects. These same use cases better enabled our partners to tell our story as well. During 2019/20 we expanded our story and use cases into risk, fraud and commercial decision making (e.g. pricing) with the latest features of Celebrus. In 2020/21 we’ll be continuing to expand upon our key use cases, simplify our story, and align our messaging against the challenges that our key markets are facing today. With Celebrus, we are uniquely poised to provide data that can power enterprise use cases across Marketing, Customer Experience, Risk, Fraud, Compliance, and Data Science. 32 3. More engagement with clients 4. New partners Investing in customer success teams to work more closely with clients to help creating value from data leads to cross-sell of services and expansion of existing relationships. In 2018/19 we started to engage more clients directly, rather than through a partner, to enhance the quality of service and advice available to the client. Adding new partners gives access to more solution sales opportunities that require the power of Celebrus or our data management capabilities. In 2019 /20 we cemented our new relationship with Pegasystems, a leading decisioning software company, that uses Celebrus data to power real-time personalisation. We also further expanded relationships with Dell and SAS. In 2019/20 we advanced our Celebrus customer success capability by dedicating more time and resource to In 2020 /21 we will develop new relationships with a regional partner in Asia Pacific to support the regional working in closer collaboration with our clients outside growth goals and will extend our existing portfolio of the usual project-based activity and closed a number of systems integrators. large direct accounts. In 2020/21 we shall be continuing to develop both our direct and partner relationships to ensure we’re well- We will also seek new partners to support the new use cases in areas such as risk and fraud as they are developed. In addition, we are exploring partnerships with placed for success with all opportunities in any market. other key vendors such as Salesforce. D4t4 has many potential growth areas; the Board ultimately makes the decisions regarding the balance of profit vs. growth investment. It is the Group policy to ensure profitable growth in predominantly recurring business as a primary objective balanced by an appropriate level of investment where required. 33 Annual Report & Accounts 2020Strategic report Key performance indicators Group’s financial key performance indicators Revenue Gross profit margin Adjusted profit before tax -13.83% +4.06% -16.1% 2020 2019 £21.75m 2020 60.75% 2020 £5.05m £25.24m 2019 56.69% 2019 £6.02m Short-term reduction due to Unusually favourable product Short-term reduction due to transition to recurring revenue mix with high proportion transition to recurring revenue business model of celebrus software and business model services revenue 34 Group’s financial key performance indicators Adjusted diluted EPS Net cash ARR -19.4% +16.1% +26.2% 2020 2019 11.19p 2020 £12.77m 2020 £9.55m 13.89p 2019 £11.00m 2019 £7.57m Short-term reduction due to Strong balance sheet with no Annually Recurring Revenue transition to recurring revenue external borrowings allows expected to continue to grow business model further investment to fund as continue transition in future growth 2020/21 35 Annual Report & Accounts 2020Strategic report Principal risks and uncertainties D4t4 faces all of the standard economic, commercial and political risks facing a global technology business with employees, customers and suppliers spread throughout the world. Whilst in the short term the extraordinary circumstances created by the Covid-19 pandemic have not negatively impacted the business, clearly the uncertainty this crisis brings impacts the risk profile of the Group. As a result, the risk level of a number of the principal risks mentioned below have increased since the last Annual Report. However, the Directors remain confident that the Group is well-placed to mitigate these risks. As detailed below and elsewhere in the Annual Report, controls have been increased in light of the pandemic as have the regularity of both Risk Committee and Main Board meetings, ensuring close monitoring of all issues as the situation develops. The major risks to the Group that the Board focuses upon are shown below: 1 Execution timing At the centre of our strategy is the delivery of product and projects in line with our business plan. Failure to deliver these projects and products within the constraints of our fiscal periods would impact our overall objectives. Change in risk Increase in risk level Risk remains mitigated with ongoing improvement to standardised project delivery processes, though Covid-19 has inevitably increased the risk of delays in execution. Mitigation Our clients are typically engaged with us on multiyear programmes, so we invest significantly in sales, marketing and partner activities to ensure we can plan and predict the associated growth and revenue targets. Collaboration tools are being used whilst working from home to maintain regular and effective communication with partners and clients. h g H i Y T I L I B A B O R P w o L 2 5 3 6 1 4 7 Low IMPACT High Risk heat map 1 Execution timing 2 People risks 3 Market and regulatory changes 4 Client or partner loss 5 Foreign currency management 6 Competition 7 Data loss and reputational risk 36 Structure, remit and reporting of the Group’s Risk Committee page 47 2 People risks 3 Market and regulatory changes 4 Client or partner loss A loss or severe issue with key The Group is exposed to the risks The loss of a key client or personnel could impact the ability of of changing regulations for the significant sales partner would the Group to execute on its strategy, collection of consumer data. Some impact the ability of the Group causing severe reputational and of these changes may be positive, to meet its key business objectives. operational challenges. but others negative which can impact on D4t4’s performance and outlook. Change in risk Change in risk Change in risk Increase in risk level No change in risk level Increase in risk level Increased risk that employees may The Risk Committee have carefully The Covid-19 pandemic has be lost on a temporary basis at least, considered this and deem there to made it more likely that a client or due to the Covid-19 pandemic. be no change in risk. partner could be lost, though this risk is well mitigated. Mitigation Mitigation Mitigation Key individuals are identified, D4t4 monitors the markets in which The business has specific succession plans put in place and we operate by close collaboration relationship management plans in actions taken to spread the risk with our clients, suppliers and place for both clients and partners. between more individuals. Covid-19 partners. We then plan product, The status of the relationships is risks are mitigated by existing and project or operational changes to reviewed by management on a robust business continuity plans. ensure we are minimising the impact regular basis and actions put in of changes. We follow proposed place to reduce the risk of loss. regulatory changes closely. The risk is mitigated by the market sector in which the majority of the Group’s clients operate, the broadening of sales partners and the move to a higher recurring revenue model with improved visibility of future cash flows. 37 Annual Report & Accounts 2020Strategic report 5 Foreign currency management 6 Competition 7 Data loss and reputational risk Changes in foreign exchange rates New competitors or changes to A significant IP, data loss, or can result in reduced profitability existing competitors’ products security breach could impact the due to cash collection values not can significantly alter the market brand and reputation of the Group. matching transaction values and dynamics, which in turn risks the an increased potential for currency position and standing that our own losses in the income statement. Intellectual Property has in the banking, finance and financial and consumer marketplace. Change in risk Change in risk Change in risk Increase in risk level No change in risk level No change in risk As the Covid-19 crisis escalated The Risk Committee have carefully The Risk Committee have during the first quarter of 2020, reviewed this and consider the considered this with respect to the currency markets were Group is ready for any opportunities Covid-19 and conclude this is particularly volatile and much as they arise. mitigated via existing information uncertainty remains. Mitigation Mitigation security controls. Mitigation Foreign currency fluctuation risks The Group continually scans the We are certified to ISO 27001 are mitigated via the use of market for potential technology and operate an information financial instruments (eg forward threats and has a development security process that controls contracts). In light of the process in place to ensure its own and minimises the risks. This fluctuations in the currency technology continues to evolve to process is externally assessed markets seen in March 2020, the meet client needs, that cannot be yearly. These risks are mitigated finance team are meeting more easily disrupted, and which can via existing and established regularly than before to review and be protected by patents. information security controls. ensure currency risks are hedged where necessary. 38 Corporate Social Responsibility and Sustainability D4t4 Solutions aims to work in a way that delivers socially responsible and environmentally sustainable business performance. We ensure observance of the law and conduct activities to the highest ethical standards, and we expect our customers and suppliers to embrace these same principles. Environment Policy statement Ethical Business Practices Human rights D4t4 Solutions fully supports the principles of, and is committed D4t4 Solutions fully recognises and supports the protection of to, promoting good environmental practice and sustainability in the Human Rights, the UN Universal Declaration of Human Rights conduct of its activities. It is our policy to ensure that any adverse (UDHR) and the ten principles of the UN Global Compact. effects on the environment are kept to a minimum. D4t4 Solutions therefore: Anti-corruption and bribery It is our policy to conduct all of our business in an honest and wholly supports the requirements of accepted international ethical manner. We take a zero tolerance approach to bribery standards and current EU environmental legislation and codes and corruption and are committed to acting professionally, fairly of practice. minimises consumption through the reduction, reuse or and with integrity in all our business dealings and relationships wherever we operate, and implementing and enforcing effective recycling of materials as much as possible. systems to counter bribery. encourages efficient use of energy, utilities and natural resources. continually strives to improve environmental performance. communicate our environmental commitment to clients and suppliers and encourages their support. We will uphold all laws relevant to countering bribery and corruption in all the jurisdictions in which we operate. However, we remain bound by the laws of the UK, including the Bribery Act 2010, in respect of our conduct both at home and abroad. Carbon emissions Modern slavery Following on from our Head Office refurbishment last year for improved standards in insulation, lighting, heating and energy waste reduction, our electricity supply at our Head Office is now based entirely on 100% renewable energy sources. Enhanced collaboration software and flexible working arrangements for our dynamic workforce continue to help reduce travel and associated environmental impacts. We have looked at the potential for carbon emission offsets for flight travel but feel that the complexity and inconsistency of standards in the industry does not currently make this viable, our approach therefore is to minimise travel wherever possible and make maximum use of our collaboration and conferencing facilities. We will continue to explore other options available to further reduce carbon emissions. People D4t4 Solutions values teamwork, taking personal responsibility, positive attitudes and working hard to deliver beneficial outcomes for all our customers, staff and shareholders alike. We encourage personal learning and development of our team members in order to create a more sustainable workforce. We have a zero tolerance approach to Modern Slavery and will act ethically and with integrity in all our business dealings and relationships. Our approach is also underlined by our recognition and support for UDHR and UN Global Compact. Supplier engagement includes a check on approach to modern slavery and a record is noted with respect to their statement on modern slavery. Equal opportunity In order to provide equal employment and advancement opportunities to all individuals, employment decisions at our company will be based on merit, qualifications and abilities. Except where required by law, employment practices are not be influenced or affected by an applicant’s or employee’s race, colour, religion, gender, national origin, age, political affiliation, marital status, sexual orientation, age or any other characteristic protected by law. This policy governs all aspects of employment, including selection, job assignment, compensation, discipline, termination, and access to benefits and training. 39 Annual Report & Accounts 2020Strategic report Board of Directors Peter Simmonds Non-Executive Chairman COMMITTEES A N Re Peter Kear Chief Executive Officer COMMITTEES N Peter was appointed to the Board as Chairman in April Peter co-founded D4t4 Solutions in 1985. Prior to this he 2015. He was CEO of dotDigital Group plc for eight years was a divisional director for Hawke Electronics, then a and a major contributor to their success prior to stepping subsidiary of Lex Service plc. He became CEO in 2016, down. He is also Chairman of Cloudcall Group plc and is having been responsible until then for both the sales a Board member of the Quoted Company Alliance. 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. Charles Irvine Chief Financial Officer COMMITTEES Ri Mark Boxall Chief Operating Officer COMMITTEES None Charlie was appointed as CFO in October 2019 and is a Mark brings a wealth of knowledge and experience member of the Risk Committee. He is responsible for all in the areas of sales, delivery, operations and finance of the Group’s financial functions including accounting, having been both board director and senior manager at audit, treasury, corporate finance and investor relations. technology consultancies and product based technology Since qualifying as a Chartered Accountant in 2006, companies such as rbase, Morse, PTC and Siemens, and Charlie has held senior finance positions in a number of most recently Dell EMC. companies including Alliance Boots, Bausch & Lomb and most recently Ergonomic Solutions, where he is a Non-Executive Director. 40 Jim Dodkins Chief Technical Officer COMMITTEES Ri Peter Whiting Non-Executive Director COMMITTEES A N Re Jim is responsible for the Group’s strategic direction in Over a 30-year career, Peter has gained extensive technology, specialising in solution architecture for D4t4 financial and commercial experience. His core skills are Solutions and its clients, and is a member of the Risk centred around the financial services and technology Committee. Prior to joining D4t4 Solutions he worked for industries; he has the proven ability to quickly understand Logica plc in various roles, where he gained wide industry complex technologies and their applications and at the experience and later managed the division responsible for same time successfully developed strong interpersonal projects in the broadcast and media sector. and management skills which have enabled him to build a technology-led NED portfolio. He is currently a Non- Executive Director of Aptitude Software Group plc, FDM Group plc and Keystone Law plc. Monika Biddulph Non-Executive Director COMMITTEES A N Re John Lythall Non-Executive Director COMMITTEES Re Ri Monika has a wide range of experience in both the John co-founded D4t4 Solutions in 1985 and was commercial and technical aspects of an international Managing Director from 1985 to 2016 when he retired technology business. In over twenty years at ARM, - handing over the reins to long term business partner Monika held various General Manager, IP licensing and Peter Kear - taking up a role as Non-Executive Director technical roles in the business. Currently Monika is also with the Group. Prior to forming D4t4 he was Managing a Non-Executive Director on the board of Ilika Plc. She Director of Hawke Electronics, a computer systems was previously NED at Linaro Limited, and holds a PhD distribution business which he and his partners sold to in High Energy Particle Physics from the ETH Zurich. She the Lex group. He has a wealth of experience in sales, was appointed to the Board in December 2019. operations and finance. BOARD OF DIRECTORS KEY EXECUTIVE NON-EXECUTIVE COMMITTEE MEMBERSHIP A N Re Audit Committee Ri Risk sub-Committee Nomination Committee Chair of Committee Remuneration Committee 41 Annual Report & Accounts 2020Corporate Governance Chairman’s introduction to governance The Board recognises the importance of high standards of The incidence of the Covid-19 pandemic this calendar year corporate governance for delivering long-term success to the has resulted in unprecedented times. Noting that uncertainty is Group and acknowledges its role in setting the culture, values and commonplace in the world both economically and societally, the ethics of the Group (as outlined in Principle 8) and communicating Board of D4t4 has recognised that now more than ever there these to all the Group’s stakeholders. This requirement is set is a need for strong leadership. Since March 2020 the Board out formally on the following page. The Board meets regularly has embarked on holding additional meetings to coordinate the to discuss the monitoring and promotion of a healthy corporate operations of the business, whilst ensuring the safety and welfare culture. The Chairman has ultimate responsibility for corporate of its employees is of paramount importance. governance matters and has overseen the preparation of this governance statement accordingly. Whilst the current composition of the Board demonstrates a wide balance of skills, our Nomination Committee has been working In March 2018, AIM Rule 26 was amended to require all AIM to further strengthen the balance of independent Non-Executives companies to disclose details of a recognised corporate on the Board and good progress has been made in the last year governance code that its Board of Directors has decided to apply, towards achieving full compliance with the QCA Code. how the Group complies with that code and, where it departs from its chosen corporate governance code, an explanation of the reasons for doing so. Finally, the Board continues to engage with shareholders and welcomes ongoing dialogue throughout the year. Due to the pandemic, this year’s AGM will most likely have to be a closed Since then and to assist the Board’s aim to operate as effectively meeting but I welcome your participation in the accompanying as possible, the Board has formally applied the principles of the online investor meeting immediately afterwards. Corporate Governance Code published by the Quoted Companies Alliance (the QCA Code) to ensure compliance with AIM Rule 26 and for the production of the Group’s Annual Report and Accounts. A statement of the Directors’ responsibilities in respect of the accounts is set out on page 64 of the 2020 Annual Report. Board discussions are conducted openly and transparently, By order of the Board which creates an environment for sustainable and robust debate. In the year, the Board has constructively and proactively challenged management on Group strategies, proposals, operating performance and key decisions, as part of its ongoing work to assess and safeguard the position and prospects of the Group. Key risks and uncertainties affecting the business are regularly assessed and updated. The Board challenges management to ensure appropriate risk mitigation measures are in place. The Board has completed a full, specific review of the Group’s key risks and uncertainties (page 36 of the 2020 Annual Report), in light of the new and emerging risks or uncertainties arising from the Group’s strategic growth plans and the wider economic, political and market conditions. As part of a critical review of the Group’s procedures, a rolling risk review process has been developed which seeks to ensure that risks are constantly monitored, assessed and quantified, so that action may be prioritised by the Board accordingly. Peter Simmonds Non-Executive Chairman 29 June 2020 42 Statement of corporate governance Section 172 Statement The Board recognises the importance of setting high standards of corporate governance and complying with all legal requirements. In particular, the Directors are required to act in accordance with a set of general duties as detailed within section 172 of the UK Companies Act 2006. These duties are summarised as follows; “A Director of a Company must act in a way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole and, in doing so, have regard (amongst other matters) to: The likely consequences of any decisions in the long-term; The interests of the Group’s employees; The need to foster the Group’s business relationships with suppliers, customers and others; The impact of the Group’s operations on the community and environment; The desirability of the Group to maintain a reputation for high standards of business conduct; and The need to act fairly as between shareholders of the Company.” By formally applying the principles of the Corporate Governance Code published by the Quoted Companies Alliance, the Directors feel they demonstrate compliance with the requirements of Section 172 of the UK Companies Act (2006). The table below sets out how each of the specific matters mentioned in Section 172 is related to the principles of the QCA Code and the relevant sections within the Statement of Corporate Governance. The likely consequences of any decisions in Please refer to Principle 1 – “Establish a strategy and business model which promote the long-term long-term value for shareholders” on page 45 and Principle 9 – “Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board” on page 51. The interests of the Group’s employees Please refer to Principle 3 – “Take into account wider stakeholder and social responsibilities and their implications for long-term success” on page 46. Particular attention is drawn to the section on staff. The need to foster the Group’s business Please refer to Principle 3 – “Take into account wider stakeholder and social relationships with suppliers, customers responsibilities and their implications for long-term success” on page 46. Particular and others attention is drawn to the sections on clients, suppliers and industry bodies. The impact of the Group’s operations on Please refer to Principle 3 – “Take into account wider stakeholder and social the community and environment responsibilities and their implications for long-term success” on page 46. Particular attention is drawn to the sections on communities and the environment. The desirability of the Group to maintain a Please refer to Principle 8 – “Promote a corporate culture that is based on ethical values reputation for high standards of business and behaviours” on page 50. conduct The need to act fairly as between the Please refer to Principle 1 – “Establish a strategy and business model which promote shareholders of the Group long-term value for shareholders” on page 45 and Principle 2 – “Seek to understand and meet shareholder needs and expectations”, also on page 45. 43 Annual Report & Accounts 2020Corporate Governance This statement explains how D4t4 Solutions plc has applied the main and supporting principles of corporate governance and describes the Group’s compliance with the provisions of the QCA Corporate Governance Code (2018). For the purposes of clarity and candour, the description of how the Group complies with the ten key principles of the QCA Code begins with a summary of the two areas where the Group does not yet fully comply, followed by a review of each of the principles in turn. No significant corporate governance matters arose during the period covered by the 2020 Annual Report nor subsequently to the date of this statement on which it was considered necessary for the Board or any of its Committees to seek external advice. The Board consults with its Nominated Adviser and other professional advisers on routine matters arising in the ordinary course of its business. Exceptions to the application of the QCA Code The following table summarises the specific areas within one of the principles where the Board considers that the Group does not fully comply, or may be perceived as not fully complying, with the QCA Code. Principle 5 (Maintain the Board as a well-functioning, balanced team led by the Chair) Exceptions and explanations Application: The Board should At the beginning of the period covered by the 2020 Annual Report, the Board consisted have an appropriate balance of eight members, five Executive and three Non-Executive. In the course of the year between Executive and Non-Executive Directors. C Warren and M Tod resigned, whilst on 1 December 2019 M Biddulph was appointed as a Non-Executive member. This meant that at the year end the Board comprised three Executive and four Non-Executive members. This means that at 31 March 2020 the general expectation that at least half of a Board should be independent Non-Executives has been satisfied. It should be noted however that C Irvine was formally appointed to the Board on 30 April 2020. Principle 6 (Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities) Exceptions and explanations Application: The Board should contain the The male to female ratio on the Board is presently 7:1 and there are currently no female necessary mix of experience, skills, personal Executive Directors. We believe that this reflects a strong gender bias in the technology qualities (including gender balance) and industry as a whole, and the Board remains confident both that the opportunities in the capabilities to deliver the Group’s strategy Group are not excluded or limited by any diversity issues (including gender) and that the over the medium to long term. Board nevertheless contains the necessary mix of experience, skills and other personal qualities and capabilities necessary to deliver its strategy. 44 The Principles of the QCA Code Principle 1 - Establish a strategy and business model which promote long-term value for shareholders The Board’s shared view of the Group’s purpose, business model and strategy, and the values underpinning them, are detailed in the Strategic Report within pages 14 to 33 of the 2020 Annual Report as follows: “Powering Digital Transformation” (pages 14 to 19). “Mission and strategy” (pages 20 to 21) considers how D4t4 Solutions seeks to realise its’ vision of earning high-margin, recurring revenues. “Business model” (pages 24 to 25) reviews D4t4 Solutions’ key strengths, capabilities and values. “Our Intellectual Property” (pages 26 to 31) explains what D4t4 Solutions’ services and products are. The Group’s approach to delivering long-term value for shareholders is addressed in the Statement of the Chief Executive Officer on pages 6 to 9. Pages 32 to 33 set out the Group’s four-pronged “Growth acceleration plan” and pages 36 to 38 (“Principal risks and uncertainties”) detail the key risks faced by the business and how these continue to be addressed. Principle 2 – Seek to understand and meet shareholder needs and expectations Relations with shareholders and dialogue with institutional shareholders The Board as a whole is responsible for ensuring that a dialogue is maintained with shareholders based on the mutual understanding of objectives. Members of the Board meet with major shareholders on a regular basis, including presentations after the Group’s announcement of the year-end results and at the half year. In addition to regulatory news announcements the Directors have published the annual report and accounts, the annual results presentation, the half year results and announcements on new contract wins as they arise. In the period from 1 April 2019 to the date of this corporate governance statement, the following activities and events with stakeholders have been arranged with the view to: Communicating the Group’s business model, strategy and values, Provide financial updates and explanations sought by shareholders, and Engage with shareholders to fully understand their needs and expectations. Date Description of engagement Group participants Notes June 2019 Preliminary results roadshow P Kear, C Warren August 2019 AGM Directors Shareholders invited to attend with Q&A session November 2019 Interim results roadshow P Kear, C Irvine June 2020 Preliminary results roadshow P Kear, C Irvine August 2020 AGM (scheduled 6 August) Directors Shareholders invited to attend with Q&A session Various Shareholder/potential shareholder meetings P Kear, C Irvine The Board is kept informed of the views of shareholders and other stakeholders at each monthly Board meeting through a report from the Chief Executive Officer together with formal feedback on shareholders’ views gathered and supplied by the Group’s advisers. The views of private and smaller shareholders, typically arising from the AGM or from direct contact with the Group, are also communicated to the Board on a regular basis. 45 Annual Report & Accounts 2020Corporate Governance P Simmonds is available to shareholders if they have concerns where contact through the normal channel of Chief Executive Officer has failed to resolve or for which such contact is inappropriate. P Simmonds can be contacted through the UK head office contact information shown on our website. Constructive use of the AGM The Board uses the AGM to communicate with private and institutional investors and welcomes their participation. At these meetings, shareholders are asked to confirm that their questions have been successfully answered. All members of the Board attended the Group’s AGM held on 23 August 2019 but in light of the Covid-19 pandemic, this year it will most likely have to be a closed meeting. As mentioned on page 42, P Simmonds as Chairman is encouraging all shareholders to participate in an online investor meeting immediately after the formal AGM to ensure they have the opportunity to ask questions. After the year end and interim results roadshows, the Group’s Nominated Adviser consults with attendees for feedback to ensure that future presentations encapsulate their requirements where possible. Principle 3 – Take into account wider stakeholder and social responsibilities and their implications for long-term success The Board is fully aware that the long term success of the Group relies upon maintaining successful relationships with a range of different stakeholders, both internal and external. The table below identifies who the key stakeholders are and how we engage with them. Stakeholders Reason for engagement How we engage Staff Our ability to provide an industry We have identified our internal values in order to recruit and maintain talented leading software and services and motivated staff. These values form the basis of all communications which business is dependent upon are sought through internal appraisals and regular cross-functional meetings. good communications within our There are also regular opportunities for the staff to engage with other parts organisation. of the organisation and recognise the successes of others. Examples include fortnightly staff breakfasts and quarterly Group-wide “Town Hall” meetings, which are held to provide staff with an operational and sales update on what is happening within the business and ask any questions they may have of any of the Executive Team. Clients Understanding current and We have account managers and account directors whose primary emerging requirements of clients responsibility is to engage with our clients to understand and develop enables us to develop new and our products and services so that we can work with them to exceed their enhanced services, together with requirements. software to support the fulfilment of those services. In relation to our own IP products we seek formal and informal feedback on product roadmap and enhancements via our support offering and annual user group meetings. Suppliers Our relationships with our We treat all suppliers as individuals, build long term collaborative relationships suppliers are key to the core and where possible work within the local community. Our partnership and success of our business. purchasing teams seek to build ongoing communication with our suppliers so that feedback can be received and acted upon. We seek to ensure that supplier invoices are processed and paid promptly. 46 Stakeholders Reason for engagement How we engage Shareholders As a public company it is vital that This is achieved in several ways: we build relationships with our shareholders so that we can both inform them of our successes and listen to their guidance. Regulatory news releases Investor relations section of the website Annual and half-year reports and presentations AGM Capital markets and Technology demo events Our intention is to engage with our shareholders to inform them of our successes and to listen to the question and comments. This feedback is usually received at the AGM and the investor presentations. Industry bodies Information security is fundamental We have an established information security management system which to our business, clients, partners, encompasses independently audited ISO27001 and PCI DSS controls, suppliers and associated data industry best practices, as well as latest regulatory requirements including subjects and so we ensure that our General Data Protection Regulations (GDPR) and the UK Data Protection policies and procedures provide Act (2018). Our experienced Information Security Committee ensure that a cohesive approach to this governance, risk and compliance is actively managed and that our policies important area. and procedures evolve to meet ongoing requirements. Communities We consider that it is important We look to recruit locally experienced staff and through the local universities, to be a business that makes a both in the UK and India. We employ local suppliers where possible and positive contribution to local throughout the year, we encourage staff to identify charities that they have an economies and is attractive as an affiliation with for the Group as a whole to support. employer and partner. Environment Irrespective of our status as We endeavour to use technology wherever possible such that meetings with a public company, it is part of both internal and external stakeholders can be held online, thus reducing the our ethos to conduct business need for travel. operations that minimise any adverse impact on the climate these may have. This further extends to allowing employees to work at home on occasion, further reducing commuting costs on both economic and environmental grounds. In addition, our HQ at Sunbury was recently refurbished using the latest standards in insulation, lighting, heating and energy waste reduction and is now fully powered using 100% renewable energy sources. Principle 4 – Embed effective risk management, considering both opportunities and threats, throughout the organisation The Board’s risk management controls and mitigation strategies are described in the 2020 Annual Report at pages 36 to 38 (“Principal risks and uncertainties”) and page 51 (“Control environment”). The Directors and operating Company management have a clear responsibility for identifying risks facing the business and for putting in place procedures to mitigate and monitor risks. To this end the Company has a Risk sub-Committee appointed by, and reporting directly to, the Board. It consists of one Non-Executive Director, two Executive Directors, a senior member of the finance team and a senior member of the Operations team (the Information Security and Process Manager); other members of the Company can be seconded to the Committee as required. 47 Annual Report & Accounts 2020Corporate Governance The remit of the sub-Committee is to examine the vulnerability of the Group to all types of risk, the mitigation of such risks, maintain the risk register to properly reflect this and to report back to the Board with any changes in, or new areas of, vulnerability to risks and recommendations for mitigation. This is done at three levels: A review of the risk register is included in the monthly Board pack A quarterly report provided to the Board A formal assessment of risks during the annual budget process The Risk Committee meets every two months, or more often as required, and on each occasion reviews two areas of the corporate risk register in detail to assess the vulnerability of the Group to risks under consideration and how to mitigate such risks. Employees from within the relevant areas of the business are invited to help provide a more informed opinion of which risks are key and how they can be managed. The Committee report back to the Board with any changes in, or new areas of, vulnerability to risks and recommendations for mitigation. The Covid-19 pandemic is an example of an occasion when the Risk Committee has convened more frequently in order to review the register for any changes to the level of risk due to the pandemic and the emergence of any new issues which may require mitigation. Principle 5 – Maintain the Board as a well-functioning, balanced team led by the Chair Composition Directors’ biographies are shown both in the 2020 Annual Report on pages 40 to 41 and on the Group website. At 31 March 2020, the Board comprises seven members, made up of three Executive Directors and four Non-Executive Directors. C Irvine was appointed to the Board on 30 April 2020. Having reviewed their respective lengths of service, the size of individual shareholdings where applicable and any prior roles or relationships with the Group, the following Non-Executive Directors are considered independent at the date of this corporate governance statement: P Simmonds (Chair) P Whiting M Biddulph P Simmonds and P Whiting are considered independent, despite being shareholders of the Company, as their shareholdings are not deemed as significant as defined by the AIM rules. J Lythall is not considered independent due to the fact that prior to 1 April 2016 he acted in the capacity of Chief Executive Officer of the Group. The Board does not consider it necessary to appoint an independent Director to a formal “Senior Independent Director” role. All Directors are subject to election by shareholders at the first AGM immediately following their appointment and thereafter are subject to re-election at intervals of no more than three years. All Non-Executive Directors are appointed for fixed terms in line with corporate governance requirements, although those Non-Executive Directors whose independence may be called into question are subject to re- election annually. The Non-Executive Director currently subject to annual re-election is J Lythall, as described above. All of the Executive Directors are full-time employees of D4t4 Solutions plc. Operation of the Board The Board is responsible to shareholders for the proper management of the Group. A statement of the Directors’ responsibilities in respect of the financial statements is set out on page 64 and a statement of going concern is given on page 61. The Board meets at least once a month. The formal schedule of matters specifically reserved to it for decision was reviewed and adopted by the Board on 27 May 2020 and will be reviewed annually. Other matters are delegated to the Executive Directors, supported by policies for reporting to the Board. Presentations are made to the main Board at each monthly meeting by the Executive Directors and also on regular occasions by operational management. 48 The Company Secretary is responsible to the Board for ensuring that Board procedures are followed, and that applicable rules and regulations are complied with and for advising the Board, through the Chairman, on corporate governance matters. The Group maintains appropriate insurance cover in respect of any legal action against the Group’s Directors and the Company Secretary, but no cover exists if a Director is found to have acted fraudulently or dishonestly. The Non-Executive Chairman and Non-Executive Directors are able to meet without Executives present prior to each Board meeting. The agenda and relevant briefing papers are distributed in advance of each Board meeting. When Directors have concerns which cannot be resolved about the running of the Group or a proposed action, these concerns are recorded in Board minutes. Upon resignation, a Non-Executive Director is asked to provide a written statement to the Chairman for circulation to the Board if there are any such concerns. Commitment All Directors are expected to attend the monthly meeting of the full Board, or to make themselves available to join the meeting by telephone, and to attend all meetings of any Committee(s) of which they are members. In addition, the Directors are expected to attend strategy and business planning meetings each year. The Non-Executive Directors are expected to make themselves available at all reasonable times for consultation by other members of the Board. Prior to each monthly Board meeting the Directors receive a detailed pack which includes: Board meeting agenda Minutes from previous Board meeting Board pack which includes financial summary, update on each part of the business, strategy execution update and risk assessment update Papers as required for additional items requiring Board attention Meetings and attendance The following table summarises the number of Board, Audit Committee, Nomination Committee and Remuneration Committee meetings held during the period covered by the 2020 Annual Report and the attendance record of individual Directors at those meetings: MG Boxall JL Dodkins PJ Kear J Lythall PA Simmonds PF Whiting M Biddulph (appointed 1 December 2019) MA Tod (resigned 30 September 2019) CE Warren (resigned 3 July 2019) Non-statutory director attendance CC Irvine (appointed CFO 1 October 2019, appointed statutory Director 30 April 2020) Board 13/13 12/13 13/13 11/13 13/13 11/13 5/5 6/6 3/3 7/7 Audit Nomination Remuneration - - - - 1/1 1/1 - - - - - - 2/2 - 2/2 2/2 1/1 - - - - - - 3/3 3/3 2/3 - - - - The Board met monthly as in prior years but also had an additional meeting in March to discuss, amongst other matters,the Covid-19 pandemic and consider what actions the business should take to ensure its employees were as protected as possible whilst continuing to execute the business strategy. 49 Annual Report & Accounts 2020Corporate Governance Principle 6 – Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities The 2020 Annual Report includes, at pages 40 to 41 particulars of the Directors who held office throughout the financial year to 31 March 2020 (apart from C Warren and M Tod who both resigned earlier in the year). It is Board policy that Executive Directors receive suitable training for their position, which is considered as part of the appraisal process. The Chairman ensures that Directors update their skills and knowledge required to fulfil their roles on the Board and Committees. Ongoing training is provided as necessary and includes updates from the Company Secretary on changes to the AIM rules, requirements under the Companies Act and other regulatory matters. Directors may consult with the Company Secretary at any time on matters related to their role on the Board. More detail on the experience and capability of the Directors is included in their biographies on the corporate website. On 1 December 2019 M Biddulph was appointed as an additional independent Non-Executive Director and as a member of the Board’s Nomination Committee (to which she was appointed Chair in March 2020). Her biography can be found in the 2020 Annual Report on page 41 and on the Group website. External Advice No significant matters of a corporate governance nature arose during the period covered by the 2020 Annual Report nor subsequently to the date of this statement on which it was considered necessary for the Board or any of its Committees to seek external advice, although the Board consults with its Nominated Adviser and other professional advisers on routine matters arising in the ordinary course of its business. Principle 7 – Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement 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 Nomination Committee. In addition, a formal Board effectiveness evaluation process is conducted biannually. The process involves all Directors completing a detailed individual evaluation of Board performance, which covers effectiveness in several areas including Board composition, Board information, Board process, internal control and risk management, Board accountability, CEO/Senior management and Standards of conduct. The results of these evaluations are interpreted by an independent Non-Executive Director, with support from the Chairman, and outputs plus any associated recommendations are reviewed by the Board as a whole, with progress on any actions arising monitored at the monthly Board meetings. The results of the second evaluation, carried out during early 2020, were interpreted by M Biddulph and presented to the Board at the meeting held in April 2020. Improvements in a number of areas were noted, for example Board composition and size, and risk management. Areas were identified for action or closer monitoring, with a focus on succession planning and long-term strategy. As the business expands and as part of succession planning, the Executive Directors will be challenged to identify potential internal candidates who could potentially occupy Board positions and set out development plans for these individuals. Principle 8 – Promote a corporate culture that is based on ethical values and behaviours Our long-term growth strategy incorporates our objectives and the business model set out in the strategic report. It is also underpinned by our core values, which were redefined following a staff consultation process and are split between client and internal values. Values Innovation D4t4 Solutions is dedicated to the development of innovative technology that provides insight into your business, drives value from your data and pragmatically addresses your challenges. 50 Security D4t4 Solutions’ advanced technology collects, manages and Ethical business practices The Group is committed to corporate sustainability and to applying enables analysis of your data, supporting it with the utmost care for the highest standards of ethical conduct and integrity to its its security. Trust D4t4 Solutions takes pride in its relationships with clients, working hard to understand your business needs and developing trust through professional and responsive service provision. Collaboration D4t4 Solutions augments its own technology by collaborating with industry partners that provide further opportunities for engendering the long-term success of your operation. business activities in the UK and overseas. The Group does not tolerate any form of bribery: the Directors and senior management are committed to implementing and enforcing effective systems throughout the organisation to prevent bribery in accordance with its obligations under the Bribery Act 2010. Principle 9 – Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board Roles and Responsibilities of Directors Pride D4t4 Solutions will be a Group in which we can be proud of our The 2020 Annual Report includes, at pages 40 to 41, descriptions of the individual roles and responsibilities of the Chairman, Chief achievements, delivering the highest standards of quality and being Executive Officer and other Directors. confident in our ability to satisfy our clients’ needs. Recognition D4t4 Solutions will acknowledge the value of all employees and recognise their contribution to the Group’s ongoing success. Teamwork D4t4 Solutions will create an environment of innovation in which The Board and its Committees composition The Board is currently comprised of the Non-Executive Chairman, four Executive Directors and three Non-Executive Directors. The roles of Chairman and Chief Executive Officer are distinct, set out in writing and agreed by the Board. The Chairman is responsible for the effectiveness of the Board and ensuring communication with we work together as a team to develop pioneering technology that shareholders, and the Chief Executive Officer is accountable for the solves our clients’ challenges. management of the Group. Engagement D4t4 Solutions will be a workplace in which all employees are Non-Executive Directors constructively challenge and assist in the development of strategy. They scrutinise the performance of engaged with our business and are empowered to get involved with management in meeting agreed goals and objectives and monitor our communications and decision- making processes. the reporting of performance. The culture of the Group is characterised by these values which are The Board has not appointed a Senior Independent Non-Executive communicated regularly to staff through internal communications Director, but currently this role is performed by the Chairman. and forums. These core values are also communicated to prospective employees in the Group’s recruitment programmes and are further embedded within the induction process. The Board believes that a culture that is based on the core values is a competitive advantage and consistent with fulfilment of the Group’s mission and execution of its strategy. The Company Secretary is J Thorne, a solicitor of over 25 years standing, who was appointed to the role on 27 July 2017. He is not a Director of the Group. To deal with specific aspects of the Group’s affairs, the Board has formed certain Committees. Each of these Committees is governed by terms of reference available upon request from the The Board has a high proportion of Executive Director Company Secretary. representation which means communication and feedback between the business and the Board is very well established. Recognition and respect of appropriately ethical values and behaviours within the organisation is therefore both well monitored and promoted. Engagement between the Board and the organisation via these Executive Directors is therefore deemed to be all-inclusive. Details of the membership, roles, responsibilities and activities of the Audit, Nomination and Remuneration Committees are described in more detail in the individual Committee reports commencing on page 53 of the 2020 Annual Report. The Chair of each Committee reports to the Board on the activities of that Committee. 51 Annual Report & Accounts 2020Corporate Governance The terms of reference for each of the Audit, Nomination and Remuneration Committees can be found in the Annual Report on pages 53 to 55 and on the Group website. Evolution of governance framework In March 2018 the QCA Code was formally selected as the appropriate recognised corporate governance code to be applied for the purposes of AIM Rule 26. The Board monitors the requirements of this code on an annual basis and revises its governance framework as appropriate as the Group evolves. As part of ongoing governance efforts, the Group decided in the year ended 31 March 2019 that an extra Committee should be formed to review risk throughout the organisation. In March 2019, the first sitting of this Risk Committee took place. The Committee was formed to establish and review that the Group are performing risk management throughout the organisation (and, to emphasise the point, not trying to perform the risk management itself). As the Group continues to grow the Board fully recognises both the importance and the need of the governance framework to continue to evolve, as evidenced in very recent times by additional consideration of matters reserved for the Board, the newly created Risk Committee and external advice being sought to assist the Remuneration Committee in making its decisions. Consideration of the need to further enhance the governance framework will attract ongoing focus with the Group. Principle 10 – Communicate how the Group is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders A range of forums exist at which the functioning of the Group is critically appraised and where opportunities exist for stakeholders to challenge management and hold them to account for the Group’s performance. Board Committees A description of the work of the Board’s Committees in the financial year to 31 March 2020, including a report from each of the Audit, Nomination and Remuneration Committees, is set out at pages 53 to 55 of the 2020 Annual Report. The work of the Nomination Committee resulted in the appointment on 1 December 2019 of Monika Biddulph as an independent Non- Executive Director. Votes at General Meetings All resolutions put to the AGM held on 22 August 2019 were passed by majorities of not less than 90% of the votes cast. The most recent results for the Group, together with Annual Reports for the preceding ten years and notices of all General Meetings, can be found on the Group’s website. 52 Audit Committee report Peter Simmonds Chair Audit Committee membership Peter Simmonds (Chair) Peter Whiting Monika Biddulph (appointed 1 December 2019) I am pleased to present the report of the Audit Committee for the The two main issues that the Audit Committee are concerned with year ended 31 March 2020. The Audit Committee comprises three Non-Executive Directors of the Company, Peter Whiting, Monika Biddulph and myself. The Committee is chaired by myself and met once during the year under review, prior to Monika Biddulph being appointed. It operates under formal terms of reference, which are available are in relation to revenue recognition and the carrying value of goodwill. The Committee review the Group’s revenue recognition policies to ensure they are compliant with current accounting standards. They also review revenue streams in relation to various customers to ensure that the carrying value of goodwill in the financial statements remains supported. on request from the Company Secretary or at the AGM. The Auditor Independence 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. To ensure auditor independence, consideration is given to their integrity and the objective approach of the audit process. The use of non-audit services is not considered to be significant and The Audit Committee is responsible for reviewing a wide range of amounts paid in respect of these are disclosed in note 6. 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. I am satisfied that the Committee has satisfactorily discharged its duties in the year in accordance with its terms of reference, which are reviewed annually. Peter Simmonds Chair of the Audit Committee 29 June 2020 53 Annual Report & Accounts 2020Corporate Governance Nomination Committee report Monika Biddulph Chair Nomination Committee membership Monika Biddulph (appointed 1 December 2019 and as Chair 26 March 2020) Peter Simmonds (resigned as Chair 26 March 2020) Peter Kear (CEO) Peter Whiting I am pleased to present the report of the Nomination Committee In relation to succession planning, the Nomination Committee for the year ended 31 March 2020. keeps under review, and takes appropriate action to ensure, The Nomination Committee comprises four Directors: three Non- Executives Directors (myself, Peter Simmonds and Peter Whiting) and one Executive Director, Peter Kear. In the performance of its duties, the Committee held two meetings in the year. orderly succession for appointments to the Board and to senior management, thereby maintaining an appropriate balance of skills and experience within the Group and on the Board. With regard to Non-Executive Directors, the Committee considers, amongst other factors, their other significant outside commitments prior to The principal activity of the Nomination Committee in the year was making recommendations. This is designed to ensure that they leading the recruitment process for new directors. This ultimately led have sufficient time to meet what is expected of them and keeps to the appointment of a new Chief Financial Officer from 1 October any changes to these commitments under review. 2019 (Charles Irvine) and myself as a new Non-Executive Director from 1 December 2019. I am satisfied that the Nomination Committee has satisfactorily discharged its duties in the year in accordance with its terms of The process included a merit-based assessment based on objective reference, which are reviewed on an annual basis. criteria having regard to the Group’s current and future requirements. The Board’s policy is to ensure that all appointments are merit- based and based on clear and objective criteria, giving due regard to equality of opportunity, and to promote inclusion and diversity. The Board notes that achieving diversity in the technology sector is challenging, having regard to the available pool of individuals with the right skills, experience and talent. Given the size of the Board and the Group, the Nomination Committee does not currently set any measurable objectives for implementing a diversity policy, but it acknowledges the role of the Board in promoting diversity, including gender diversity, throughout the Group. Currently there is one female member of the Board, representing 13% of Board membership. Monika Biddulp Chair of the Nomination Committee 29 June 2020 54 Remuneration Committee report Peter Whiting Chair Remuneration Committee membership Peter Whiting (Chair) John Lythall Peter Simmonds Monika Biddulph (appointed 1 December 2019) I am pleased to present the report of the Remuneration Committee For 2019/20, the Remuneration Committee has continued to for the year ended 31 March 2020. operate a simple remuneration structure made up of basic salary, The Remuneration Committee consists of four Non-Executive Directors; Peter Simmonds, John Lythall, Monika Biddulph and me as Chair. The Committee’s terms of reference require it to meet not less than once each year. The Committee met three times in the year ended 31 March 2020. 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 performance-related bonuses, share options, benefits and pensions. As previously, a significant proportion of Executive remuneration is based on performance, designed to align Executive pay with shareholder interests. In this respect, the Committee has assessed the performance of Executive Directors for the year reported, set performance targets for the following financial period and made recommendations to the Board on the overall package for Executive Directors. payments. The Committee is also responsible for monitoring I am satisfied that the Committee has appropriately discharged compliance with the implementation by the Group of the legal its duties in the year in accordance with its responsibilities and requirements and, so far as reasonably practical, recommendations encourage you to read the Directors Remuneration Report on the and guidelines relating to Directors’ remuneration. following pages. 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 any part in any discussion about his or her own remuneration. Peter Whiting Chair of the Remuneration Committee 29 June 2020 55 Annual Report & Accounts 2020Corporate Governance Directors’ Remuneration report This report complies with the requirements of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in 2013, the provisions of the QCA Corporate Governance Code 2018 and the Listing Rules. The report is in two sections: The Directors remuneration policy which sets out the Group’s current policy on remuneration for Executive and Non-Executive Directors; and The Directors’ Remuneration Report. This section sets out details of how the remuneration policy was implemented for the year ended 31 March 2020. Directors’ remuneration policy Executive remuneration packages are prudently designed to attract, motivate and retain Directors of the high calibre needed to maintain the Group’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 determined by the Board within limits set out in the Articles of Association. The Group’s policy is that a substantial proportion of the potential remuneration of the Executive Directors should be performance related. The performance criteria set should motivate the Executive Directors to create value for the shareholders. There are five main elements of the remuneration package for Executive Directors and senior management: Element of remuneration Link to Group strategy Operation Framework Base salary Ensures that the Group Base salary is paid monthly An Executive Director’s salary is determined by can recruit and retain and reviewed annually, with the Remuneration Committee in March of each high-quality Executives any increases applying from year and when an individual changes position or to deliver on the Group 1 April. responsibility. In deciding appropriate levels, the strategy in the interest of the shareholders. Remuneration Committee considers the Group as a whole and relies on objective research which gives up to date information on a comparable group of companies. Benefits Ensures that the Group Benefits principally In relation to health care and death in service can recruit and retain comprise private healthcare benefits, premiums are paid by the Group to an high-quality Executives and death in service external broker to arrange cover, in line with other to deliver on the Group insurance. In addition, two Group employees. These benefits are standard strategy in the interest of Executive Directors receive for all Group employees. the shareholders. company cars. The Group offers company cars / car allowances to a number of employees across the organisation. Annual bonus Rewards and incentivises The Committee sets annual The Remuneration Committee sets bonus plans the Executive Directors performance targets, linked for Executive Directors based upon achieving a for achievement of to strategic objectives number of pre-defined growth targets including strategic objectives. and risk management. revenue and EPS. Bonus payments in respect of a year are made in June, or later if any element is deferred. 56 Element of remuneration Link to Group strategy Operation Framework Share option plan Aligns the interests of the The Remuneration The share option plans are subject to rules Executive Directors with Committee has discretion and limits approved by shareholders in general the interest of the long to make option grants meeting. Options are granted at an exercise term shareholders as the to Executive Directors price based on the mid-market price of ordinary options only deliver value if and other staff, subject shares on the day prior to the date of grant. Any the share price rises. to the scheme rules, and exercise is subject to satisfaction of the specified to determine appropriate performance conditions defined. performance conditions. Pension Ensures that the Group Pension contributions are Executive Directors are members of the can recruit and retain made by the Group to a Company Money Purchase pension scheme. high-quality Executives defined contribution scheme to deliver on the Group operated by third party strategy in the interest of providers. the shareholders. 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 their salary by way of salary sacrifice. There are no unfunded pension promises or similar arrangements for Directors. There were two Directors in the scheme in 2020 (2019: four). Chairman and Non- Ensures that the Group Fees for Non-Executive A basic fee is set for normal duties, Executive Director fees can recruit and retain a Directors are set by the commensurate with fees paid for similar roles high-quality Chairman and Board (excluding Non- in other similar companies, taking account of Non-Executive Directors Executive Directors). Fees the time commitment, responsibilities, and to deliver on the Group are paid monthly or quarterly. committee position(s). Supplementary fees strategy in the interest of the shareholders. are paid for any additional duties at fixed day rates. Non-Executive Directors are not eligible for pensions, incentives, bonus or any similar payments other than normal out-of-pocket expenses incurred on behalf of the business. Compensation for loss of office is not payable to Non-Executive Directors. Remuneration policy considerations Recruitment The Group’s Nomination Committee is responsible for leading the process for Board appointments and making recommendations to the Board. Refer to the report of the Nomination Committee for details. Loss of office payments In the event of early termination, all of the Directors contracts provide for compensation up to a maximum of basic salary plus benefits for the notice period. Wider staff employment conditions The Remuneration Committee considers pay and employment conditions for other senior Executives and staff members of the Group when designing and setting Executive remuneration. Underpinning all pay is an intention to be fair to all staff of the Group, taking into account the individual’s seniority and local market practices. 57 Annual Report & Accounts 2020Corporate Governance Consultation with shareholders The Remuneration Committee is committed to an ongoing dialogue with shareholders and seeks the views of significant shareholders when any major changes are being made to remuneration arrangements. The Committee takes into account the views of significant shareholders when formulating and implementing the policy. Consultation with employees The Board and the Remuneration Committee did not consult with employees when formulating and implementing the policy. Service contracts and letters of appointment 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 P Kear and J Dodkins have Directors’ service agreements which can be terminated on twelve months’ notice. These agreements were dated 29 August 1997. M Boxall has a service agreement which can be terminated on 3 months’ notice dated 1 November 2015. C Irvine has a service agreement which can be terminated on 3 months’ notice dated 1 October 2019. Non-Executive Directors P Simmonds, J Lythall, P Whiting and M Biddulph each have an agreement for 12 months. The fees of the Non-Executive Directors are determined and confirmed by the full Board excluding (in each case) the Non-Executive Director concerned. Policy on Director shareholdings The Group has no policy on Director shareholdings. Outside appointments Executive Directors are entitled to accept appointments outside the Group providing that the Chairman’s permission is sought and fees in excess of £20,000 from all such appointments are accounted for to the Group. Aggregate Directors’ remuneration The total amounts for Directors’ remuneration were as follows: Emoluments (Fees / basic salary, benefits and annual bonus) Money purchase pension contributions IFRS 2 share-based payment charge Employer’s National Insurance Total 2020 £000 1,207 38 66 1,311 157 1,468 2019 £000 1,615 44 84 1,743 217 1,960 Three directors (2019: four) exercised 766,667 options during the year (2019: 1,388,864) with gains on exercise of share options during the year totalling £1,184k (2019: £2,471k). There are no other long term incentive schemes. 58 Single figure for the total remuneration (audited) 31 March 2020 Executives P Kear J Dodkins M Boxall C Warren (resigned 4/7/19) M Tod (resigned 30/9/19) Non-Executives P Simmonds J Lythall P Whiting M Biddulph (appointed 1/12/19) R McDowell (resigned 31/3/19) Total Fees/basic salary £000 Benefits Bonus Sub total Pension £000 £000 £000 £000 Total 2020 £000 Total 2019 £000 210 160 180 39 88 50 20 45 13 - 805 27 17 3 1 1 - 7 - - - 138 92 90 26 - - - - - - 375 269 273 66 89 50 27 45 13 - 10 10 11 2 5 - - - - - 385 279 284 68 94 50 27 45 13 - 390 299 319 244 281 50 27 34 - 15 56 346 1,207 38 1,245 1,659 Remuneration of highest paid Director Remuneration Company contributions to money purchase pension schemes 2020 375 10 385 2019 380 10 390 Emoluments for the highest paid Director for the year ended 31 March 2020 and 31 March 2019 are included in the table above. The highest paid Director exercised no share options during the year (2019: 435,000 options exercised with a gain of £823k upon exercising those options). 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 at Number at C Warren M Boxall M Tod 31 March 2019 31 March 2020 Option price Expiry date Exercisable from 50,000 300,000 166,667 166,667 166,666 250,000 - - - 166,667 166,666 - 90.5p 75.0p 149.0p 149.0p 149.0p 113.0p 22 Jan 2026 2 Nov 2025 13 Aug 2028 13 Aug 2028 13 Aug 2028 26 Jun 2026 22 Jan 2017 2 Nov 2016 1 Jul 2019 1 Jul 2020 1 Jul 2021 26 Jun 2017 P Kear, J Dodkins, P Simmonds, J Lythall, P Whiting and M Biddulph did not hold any share options during the year. 59 Annual Report & Accounts 2020Corporate Governance All reductions in options held by Directors between 31 March 2019 and 31 March 2020 have arisen due to the exercising of options held at 31 March 2019 and were all exercised whilst in office. No options lapsed. Three directors (2019: four) exercised 766,667 options during the year (2019: 1,388,864) with gains on exercise of share options during the year totalling £1,184k (2019: £2,471k). The market price of the shares at 31 March 2020 was 140.0p (257.0p at 31 March 2019) and the range in the period under review was 121.5p to 278.0p. There have been no variations to the terms and conditions or performance criteria for share options during the financial year. As the share options have been issued on different dates, they have different performance criteria attached. However, these performance criteria are in line with increasing Earnings Per Share. Directors shareholdings and dividends paid to Directors are disclosed in the Directors’ Report on page 62. Performance graphs Company share price 450 350 250 150 15 16 17 18 19 20 (INDEX) D4t4 Solutions plc - Price (INDEX) FTSE AIM - Price (INDEX) FTSE Small Cap - Price The graph to the above shows the Company’s share price performance compared with the performance of the FTSE AIM All-Share and FTSE SmallCap Index (GTBP) for the last six years. 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. Peter Whiting Chair of the Remuneration Committee 29 June 2020 60 Directors’ report The Directors present their annual report and the audited financial There are a number of agreements that take effect, alter or statements for the year ended 31 March 2020, which should be terminate upon a change of control of the Group such as read in conjunction with the Strategic Report on pages 14 to 33. commercial contracts, bank loan agreements, property lease The Corporate Governance Statement set out on pages 43 to 52 arrangements and employees’ share plans. forms part of this report. Incorporation D4t4 Solutions Plc is a company incorporated in the United Kingdom under the Companies Act 1985. Dividends The Directors recommend a final dividend of 1.9p (2019: 2.3p) per ordinary share to be paid on 28 August 2020 to ordinary shareholders on the register on 24 July 2020. Future outlook The Group’s future outlook and opportunities are referred to in the Chairman’s and CEO Statements on pages 2 to 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 21. The Company has one class 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 Group 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. 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. of ordinary shares which carry no right to fixed income. Each share Having reviewed the impact of the Covid-19 pandemic on (other than own shares held in treasury) carries the right to one the business, and stress-tested the Group’s future plans and vote at general meetings of the Company. cashflow projections, the Directors are confident that the Group 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 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 43. Under its Articles of Association, the Company has authority to issue 50,000,000 ordinary shares. and Company and its subsidiary undertakings have adequate resources to continue in operational existence for the foreseeable future. It should be noted that the Group finished the year with £12.77m net cash, no debt and has so far seen little material impact on sales as a result of the pandemic. For this reason, they continue to adopt the going concern basis in preparing the financial statements. In accordance with the Companies Act s414 c(11) information in relation to the business and risks is shown in the Strategic Report. Supplier Payment Policy It is Group policy to pay all claims from suppliers according to agreed terms of payment upon receipt of a valid invoice which is materially correct. The Group does not follow a code on standard payment practice. At 31 March 2020 the Group had 93 days (2019: 71 days) of outstanding liabilities to creditors. 61 Annual Report & Accounts 2020Corporate Governance Directors and Directors’ Interests The Directors who held office during the year and to the date of signing, unless otherwise stated, were as follows: P J Kear J L Dodkins M G Boxall C C Irvine (appointed 30 April 2020) P A Simmonds J Lythall P Whiting M Biddulph (appointed 1 December 2019) At the AGM, M Boxall, C Irvine, J Lythall and M Biddulph 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: P J Kear J L Dodkins M G Boxall P A Simmonds J Lythall P Whiting M Biddulph (appointed 1 December 2019) * or date of appointment if later Interest at Interest at 31 March 2020 31 March 2019* 1,665,752 690,266 35,000 346,500 1,000,000 22,000 Nil 1,340,752 690,266 10,000 311,500 2,213,960 Nil Nil 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 59. Substantial Holdings As far as the Directors are aware, as at 31 May 2020, the only holdings of 3% or more of the Company’s issued share capital were the following: Number of ordinary shares 6,291,600 3,550,461 2,724,800 2,500,000 1,665,752 1,369,273 1,283,532 % 15.63 8.82 6.77 6.21 4.14 3.40 3.19 Canaccord Genuity Wealth Management Ennismore Fund Management Herald Investment Management Chelverton Asset Management P Kear Esq Otus Capital Management M Ward Esq 62 Acquisition of the Company’s own shares Financial Instruments At the end of the year, the Directors had authority, under the The Group’s financial risk management objectives and policies are shareholders’ resolution of 22 August 2019, to purchase through discussed on page 96 within note 29 to the accounts. the market up to 4,024,363 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 6 August 2020. 45,208 shares were purchased and 364,955 shares were sold in the year ending 31 March 2020. Details of the sale and purchase of own shares are disclosed 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 (2019: nil). within Note 22 on page 94. Insurance 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 maximum number of own shares held in the year was 488,880 (2019: 478,880), which represents 1.21% (2019: 1.21%) of the issued share capital. Employees The Group has a policy of offering equal opportunities to employees at all levels in respect of the conditions of work. The Group 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 Throughout the Group it is the Board’s intention to provide any relevant audit information (as defined) and to establish that employment opportunities and training for disabled people and the Company’s auditor is aware of that information. to care for employees who become disabled having regard to This confirmation is given and should be interpreted in accordance aptitude and abilities. with the provisions of s418 of the Companies Act 2006. Regular consultation and meetings, formal or otherwise, are held Auditor with all levels of employees to discuss problems and opportunities. Information on matters of concern to employees is presented in house. 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 The Company operates share option Schemes which are open to Annual General Meeting. all employees. The two current Schemes are the D4t4 Solutions Employee Share Options ‘A’ Scheme and the D4t4 Solutions EMI Share Options Scheme. Details of the share options are laid out on By order of the Board page 94 within note 26 to the accounts. Treasury Policy The Group’s operations are funded by cash reserves. 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. Peter Kear Chief Executive Officer Research and Development 29 June 2020 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. Windmill House, 91-93 Windmill Road, Sunbury-on-Thames, TW16 7EF 63 Annual Report & Accounts 2020Corporate Governance Statement of Directors’ responsibilities 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 required 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 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 29 June 2020 64 Independent auditors report to the members of D4t4 Solutions plc Opinion We have audited the financial statements of D4t4 Solutions plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 March 2020 which comprise of the consolidated income statement, consolidated statement of comprehensive income, consolidated and Company statements of changes in equity, consolidated and Company statements of financial position, consolidated and Company cash flow statements, and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union 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 2020 and of the Group’s profit for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent Company financial statements have been properly prepared in accordance with 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. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s or the parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Summary of our audit approach Key audit matters Materiality Group Revenue recognition Group Overall materiality: £247,000 (2019: £515,000) Performance materiality: £185,000 (2019: £386,000) Parent Company Overall materiality: £247,000 (2019: £480,000) Performance materiality: £185,000 (2019: £360,000) Scope Our audit procedures covered 100% of revenue, total assets and profit before tax. 65 Annual Report & Accounts 2020Financial Statements Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Group and parent Company financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the Group and parent Company financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue recognition Key audit matter description The Group has several different revenue streams under product-own IP, product-3rd party, delivery services and support & maintenance segments. See notes 2, 3, 4 and 5 for further details. The product segments include revenue of one or more elements of hardware and software and are often included in the same contract as delivery services and support & maintenance. These transactions are often individually significant to the results of the Group and include an element of judgement in allocating the transaction price between different performance obligations within a contract. We consider there to be a significant risk around the completeness of some elements of revenue as performance obligations within a contract often have different recognition periods. We also consider there to be a significant risk of misstatement of the financial statements related to transactions occurring close to the year end, as transactions could be recorded in the wrong financial period (cut-off). As such we have determined revenue recognition to be a key audit matter. How the matter was In order to address the risk of misstatement related to cut-off in revenue recognition and ensure addressed in the audit that the income recognition policy applied is in line with the Group’s policy, which complies with IFRS 15, we performed testing, focusing in particular for a sample of contracts signed around both the current year and prior year ends, we tested balances recognised in the Group’s statement of financial position and tested individual transactions occurring either immediately before or after the year end. Our tests of detail focused on transactions occurring within proximity of the year end across these segments, obtaining evidence to support the appropriate timing of revenue recognition, based on terms and conditions set out in sales contracts and delivery documents. We linked this to both purchases cut off and revenue deferrals. In addition, for material contracts arising during the year, which have with multiple performance obligations, we assessed for a sample of contracts whether the transaction price had been appropriately allocated to different performance obligations, by reference to underlying pricing documentation. We also performed tests of details on accrued revenue, deferred revenue and trade receivables balances recognised at 31 March 2020. We also reviewed disclosure in the financial statements of the revenue recognition policies and key estimates and judgements in respect of revenue recognition. Our application of materiality When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures. When evaluating whether the effects of misstatements, both individually and on the financial statements as a whole, could reasonably influence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements. Based on our professional judgement, we determined materiality as follows: 66 Group Company Overall materiality £247,000 (2019: £515,000) £247,000 (2019: £480,000) Basis for determining overall 5% of profit before tax 5% of Group profit before tax materiality Rationale for benchmark applied Profit measure used for the trading activities Parent Company is the main trading of the Group. component therefore Group materiality applied for the purpose of calculating an appropriate component materiality. Performance materiality £185,000 (2019: £386,000) £185,000 (2019: £360,000) Basis for determining performance 75% of overall materiality 75% of overall materiality materiality Reporting of misstatements to the Misstatements in excess of £12,300 and Misstatements in excess of £12,300 and Audit Committee misstatements below that threshold that, in misstatements below that threshold that, in our view, warranted reporting on qualitative our view, warranted reporting on qualitative grounds. grounds. An overview of the scope of our audit The Group consists of two components, located in the United Kingdom and the United States of America (“US”). A full scope audit was performed on the component in the United Kingdom and specified audit procedures were applied to the US component, achieving 100% coverage by our audit procedures. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. 67 Annual Report & Accounts 2020Financial Statements Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and the parent Company and their environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the parent Company financial statements are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement set out on page 64, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. David Clark Senior Statutory Auditor For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants 25 Farringdon Street London EC4A 4AB 29 June 2020 68 Consolidated income statement for the year ended 31 March 2020 Continuing operations Revenue Cost of sales Gross profit Administration expenses Other operating income Profit from operations Finance income Finance costs Profit before tax Tax Attributable to equity holders of the parent Earnings per share from continuing operations attributable to the equity holders of the parent Basic Diluted Notes 4,5 6 8 9 9 10 13 2020 £’000 21,748 (8,537) 13,211 (8,343) 58 4,926 43 - 4,969 (522) 4,447 11.12p 11.04p Consolidated statement of comprehensive income for the year ended 31 March 2020 Attributable to equity holders of the parent Other comprehensive income: Items that will not be reclassified to profit or loss Gains on property revaluation Exchange differences on translation of foreign operations Total comprehensive income for the year attributable to equity holders of the parent 2020 £’000 4,447 71 24 4,542 16 11 2019 £’000 25,239 (10,932) 14,307 (8,022) 57 6,342 9 (8) 6,343 (511) 5,832 14.78p 14.53p 2019 £’000 5,832 70 16 5,918 69 Annual Report & Accounts 2020Financial Statements Consolidated statement of changes in equity attributable to Equity Holders of the Parent for the year ended 31 March 2020 Share Share Merger Revaluation Own Equity Retained Notes capital premium reserve reserve shares reserve earnings Total £’000 Balance at 1 April 2018 765 1,972 5,917 1,029 (308) 133 10,606 20,114 Dividends paid Purchase of own shares Issue of new shares - exercise of share options Settlement of share based payments Share-based payment charge Deferred tax on outstanding share options 26 11 Transactions with equity holders Profit for the year Other comprehensive income Total comprehensive income 12 22 - - - - - - 21, 23 29 652 60 - - - - - - - - - 29 652 60 - - - - - - - - - - - - - - - - - 70 70 - (1,469) - 650 - - - - (26) (48) - (49) (980) - - (351) 162 178 (980) (1,469) 715 251 162 129 (819) (123) (991) (1,192) - - - - - - 5,832 5,832 16 86 5,848 5,918 Balance at 1 April 2019 794 2,624 5,977 1,099 (1,127) 10 15,463 24,840 12 22 21 26 11 Dividends paid Purchase of own shares Issue of new shares - exercise of share options Settlement of share based payments Share-based payment charge Deferred tax on outstanding share options Transactions with equity holders Profit for the year Other comprehensive income Total comprehensive income - - - - 14 741 - - - - - - 14 741 - - - - - - - - - 4 - - 4 - - - - - - - - - - - 71 71 - (69) - 856 - - - - - (3) - (7) (1,235) (1,235) - - (516) 97 (69) 755 341 97 - (7) 787 (10) (1,654) (118) - - - - - - - 4,447 4,447 24 95 4,471 4,542 18,280 29,264 Balance at 31 March 2020 808 3.365 5,981 1,170 (340) 70 Consolidated statement of financial position as at 31 March 2020 Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Current assets Trade and other receivables Tax receivables Inventories Cash and cash equivalents Total assets Current liabilities Trade and other payables Tax liabilities Non-current liabilities Deferred tax liabilities Total liabilities Net assets Equity Share capital Share premium account Merger reserve Revaluation reserve Own shares Equity reserve Retained earnings Attributable to the equity holders of the company Notes 14 15 16 11 18 19 2020 £’000 8,696 956 4,099 283 14,034 10,137 649 1,266 12,772 24,824 38,858 20 (9,377) - (9,377) (217) (217) (9,594) 29,264 808 3,365 5,981 1,170 (340) - 18,280 29,264 11 21 21 23 24 22 25 These financial statements were approved by the Board of Directors and authorised for issue on 29 June 2020 and were signed on its behalf by: Peter Kear Chief Executive Officer Company registration number: 01892751 (England and Wales) 2019 £’000 8,696 1,014 4,106 831 14,647 6,275 - 45 10,996 17,316 31,963 (6,774) (133) (6,907) (216) (216) (7,123) 24,840 794 2,624 5,977 1,099 (1,127) 10 15,463 24,840 71 Annual Report & Accounts 2020Financial Statements Consolidated cash flow statement for the year ended 31 March 2020 Operating activities Profit before tax 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 Operating cash flows before movements in working capital (Increase) / Decrease in receivables (Increase) / Decrease in inventories Increase / (Decrease) in payables Cash generated from operations Income taxes paid Net cash generated from operating activities Investing activities Interest received Purchase of property, plant and equipment Capitilisation of development costs Net cash used in investing activities Financing activities Dividends paid Repayment of borrowings Interest paid Payments to finance lease creditors Purchase of own shares Exercise of share options Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year 72 2020 £’000 4,969 327 246 (43) - 97 - 5,596 (3,862) (1,221) 2,603 3,116 (738) 2,378 43 (249) (188) (394) (1,235) - - - (69) 1,096 (208) 1,776 10,996 12,772 2019 £’000 6,343 315 247 (9) 8 162 (3) 7,063 14,269 545 (11,811) 10,066 (983) 9,083 9 (459) - (450) (980) (763) (8) (17) (1,469) 966 (2,271) 6,362 4,634 10,996 Company statement of changes in equity attributable to Equity Holders of the Parent for the year ended 31 March 2020 Share Share Merger Revaluation Own Equity Retained Notes capital premium reserve reserve shares reserve earnings Total £’000 Balance at 1 April 2018 765 1,972 5,917 1,029 (308) 133 11,179 20,687 Dividends paid Purchase of own shares Issue of new shares - exercise of share options Settlement of share based payments Share-based payment charge Deferred tax on outstanding share options 26 11 Transactions with equity holders Profit for the year Other comprehensive income Total comprehensive income 12 22 - - - - - - 21, 23 29 652 60 - - - - - - - - - 29 652 60 - - - - - - - - - - - - - - - - - 70 70 - (1,469) - 650 - - - - (26) (48) - (49) (980) - - (351) 162 179 (980) (1,469) 715 251 162 130 (819) (123) (990) (1,191) - - - - - - 6,906 6,906 - 70 6,906 6,976 Balance at 1 April 2019 794 2,624 5,977 1,099 (1,127) 10 17,095 26,472 12 22 21 26 11 Dividends paid Purchase of own shares Issue of new shares - exercise of share options Settlement of share based payments Share-based payment charge Deferred tax on outstanding share options Transactions with equity holders Profit for the year Other comprehensive income Total comprehensive income - - - - 14 741 - - - - - - 14 741 - - - - - - - - - 4 - - 4 - - - - - - - - - - - 71 71 - (69) - 856 - - - - - (3) - (7) (1,235) (1,235) - - (516) 97 (69) 755 341 97 - (7) 787 (10) (1,654) (118) - - - Balance at 31 March 2020 808 3.365 5,981 1,170 (340) - - - - 3,676 3,676 - 71 3,676 3,747 19,117 30,101 73 Annual Report & Accounts 2020Financial Statements Company statement of financial position as at 31 March 2020 Non-current assets Goodwill Other intangible assets Property, plant and equipment Investment in subsidiaries Deferred tax assets Current assets Trade and other receivables Tax receivables Inventories Cash and cash equivalents Total assets Current liabilities Trade and other payables Tax liabilities Non-current liabilities Deferred tax liabilities Total liabilities Net assets Equity Share capital Share premium account Merger reserve Revaluation reserve Own shares Equity reserve Retained earnings Attributable to the equity holders of the company The Company’s profit for the year was £3.7m (2019: £6.9m). Notes 14 15 16 17 11 18 19 2020 £’000 8,696 956 4,099 273 10 14,034 11,211 649 7 12,694 24,561 38,595 20 (8,277) - (8,277) (217) (217) (8,494) 30,101 808 3,365 5,981 1,170 (340) - 19,117 30,101 11 21 21 23 24 22 25 2019 £’000 8,696 1,014 4,106 273 347 14,436 8,441 - 13 10,996 19,450 33,886 (7,065) (133) (7,198) (216) (216) (7,414) 26,472 794 2,624 5,977 1,099 (1,127) 10 17,095 26,472 These financial statements were approved by the Board of Directors and authorised for issue on 29 June 2020 and were signed on its behalf by: Peter Kear Chief Executive Officer Company registration number: 01892751 (England and Wales) 74 Company cash flow statement for the year ended 31 March 2020 Operating activities Profit before tax 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 Operating cash flows before movements in working capital (Increase) / Decrease in receivables Decrease in inventories Increase / (Decrease) in payables Cash generated from operations Income taxes paid Net cash generated from operating activities Investing activities Interest received Purchase of property, plant and equipment Capitalisation of development costs Net cash used in investing activities Financing activities Dividends paid Repayment of borrowings Interest paid Payments to finance lease creditors Purchase of own shares Exercise of share options Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year 2020 £’000 3,962 327 246 (43) - 97 - 4,589 (2,770) 6 1,213 3,038 (738) 2,300 43 (249) (188) (394) (1,235) - - - (69) 1,096 (208) 1,698 10,996 12,694 2019 £’000 7,676 315 247 (9) 8 162 (3) 8,396 13,017 577 (11,927) 10,063 (980) 9,083 9 (459) - (450) (980) (763) (8) (17) (1,469) 966 (2,271) 6,362 4,634 10,996 75 Annual Report & Accounts 2020Financial Statements Notes to the financial statements 1. General information Adoption of new and revised standards D4t4 Solutions plc is a public limited company incorporated and domiciled in England and Wales and quoted on the AIM Market, Standards, amendments and interpretations effective in the hence there is no ultimate controlling party. period to 31 March 2020 (all effective 1 January 2019, not early Details of substantial shareholdings are shown in the Directors’ adopted last year): report on page 62. IFRS 16 (New Standard) Leases The address of its registered office, registered number and Various principal place of business is disclosed on the inside cover of the financial statements. The financial statements of D4t4 Solutions plc and its subsidiaries (the Group) for the year ended 31 March 2020 were authorised and issued by the Board of Directors on 29 June 2020 and the Consolidated Statement of Financial Position was signed on the Board’s behalf by Peter Kear. 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, with the exception of land and buildings which is held at valuation. The presentation and functional currency of the financial statements is British Pounds and amounts are rounded to the nearest thousand pounds. IFRIC 23 (Interpretation) IAS 28 (Amendment) Annual improvements to IFRSs 2015-2017 Cycle Uncertainty over Income Tax Treatments Investments in Associates and Joint Ventures IAS 19 (Amendment) Employee Benefits IFRS 16 is effective for the year ending 31 March 2020. Upon the adoption of IFRS 16, lease arrangements give rise to a right-of- use asset and a lease liability for future lease payables. The asset is depreciated on a straight line basis over the life of the lease. Interest is recognised on the lease liability, resulting in a higher interest expense in the earlier years of the lease term. The total expenses recognised in the Income Statement over the life of the lease will be unaffected by the new standard. However, IFRS 16 does result in the timing of lease expenses recognition being accelerated for leases which would be currently accounted for as operating leases. The Group has one leased property in India, details of which are in note 27. The Directors have decided not to recognise the Right of Use asset or corresponding liability associated with this lease under IFRS 16 as this would not have a material impact on the financial statements. 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 36 to 38. The Group and Company have sufficient financial resources to cover budgeted future Standards, amendments and interpretations to existing standards that have not been early adopted by the Group (all effective 1 January 2020): IFRS 3 (Amendment) Definition of a Business IAS 1 (Amendment) Definition of Material cashflows, together with contracts with a number of customers IFRS 9 (Amendment) Interest Rate Reform 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. Having reviewed the impact of the Covid-19 pandemic on the business, and stress-tested the Group’s future plans and cash flow projections, the Directors are confident that the Group and Company 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. IFRS 7 (Amendment) Interest Rate Reform The Directors do not expect the adoption of these amendments in future periods to have any material impact on the financial statements of the Group. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to the reporting date. 76 Investees are classified as subsidiaries where the Company has Acquisitions control, which is achieved where the Company has the power to On the acquisition of a business, net fair values are attributed to govern the financial and operating policies of an investee entity, the identifiable assets and liabilities acquired. Where the cost of exposure to variable returns from the investee and the ability acquisition exceeds this net fair value, the difference is treated to use its power to affect those variable returns. All intra-group as purchased goodwill and capitalised in the Group Statement of transactions, balances, income and expenses are eliminated Financial Position in the year of acquisition. If a subsidiary’s assets on consolidation. The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree’s identifiable are subsequently hived up into the parent then the corresponding amount of goodwill is capitalised in the Company Statement of Financial Position. assets and liabilities are initially recognised at their fair values at Goodwill acquisition date. The results of acquired entities are included in the Capitalised goodwill is shown in the Statement of Financial Consolidated Statement of Comprehensive Income from the date Position. Its carrying value is subject to annual review and any at which control is obtained and are deconsolidated from the date impairment is recognised immediately as a loss which cannot control ceases. 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 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. approved financial statements. The profit of the parent is disclosed Goodwill has arisen from the acquisition of businesses. in the Company Statement of Financial Position and Statement of Changes in Equity for the year. 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, the lives and values are adjusted 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 future cash flows in respect of revenue streams related to the investment. as necessary, and any impairment loss is recognised in the Other intangible assets income statement. Freehold land and buildings were last valued Intellectual Property Rights (IPR) professionally at 31 March 2018 but are valued by the Directors on On the acquisition of a business, the fair value of IPR is estimated an annual basis. The carrying values are reviewed for impairment and capitalised taking into consideration the software development when events or changes in circumstances indicate that the carrying cycle and the amount of effort involved between updated versions value may not be recoverable. 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: Buildings - up to 35 years Leasehold improvements - up to 10 years of the software. The fair value is amortised over the expected development cycle which is estimated to be eight years. Capitalised IPR 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. Trade name On the acquisition of a business, the future value of the trade name Fixtures and equipment - up to 4 years of that business is estimated and capitalised. The fair value is Motor vehicles - up to 5 years amortised over ten years. Revaluation gains/losses are shown in the Statement of Impairment of intangibles is reviewed annually with reference to Comprehensive Income and recognised in Other comprehensive future cash flows from the specific cash generating units to which income. Where losses are greater than previously recognised the intangible asset has been allocated. gains, these are taken to the income statement. 77 Annual Report & Accounts 2020Financial Statements Notes to the financial statements (continued) Inventory policy rental income arising from the short term operating lease at the Inventories are stated at the lower of cost or net realisable value. parent Company’s premises is credited to income on a straight- The valuation method for each item of inventory remains consistent line basis over the period of the lease. The Directors have decided from one accounting period to the next. Research and development costs not to recognise the Right of Use asset or corresponding liability associated with this lease under IFRS 16 as this would not have a material impact on the financial statements. To assess whether research and development expenditure has Dividends generated an intangible asset the Group classifies the expenditure Final dividend distribution to the Company’s shareholders is into two phases, the research phase and the development phase. recognised as a liability in the Group’s financial statements in Expenditure on the research phase is recognised as an expense when it is incurred. Expenditure on the development phase is recognised as an intangible asset if, and only if, each of the following can be demonstrated: (a) the technical feasibility of completing the asset; the period in which the dividends are approved by the Company’s shareholders. Interim and prior period dividends paid are included in the Statement of Changes in Equity. Share-based payments Periodically the Group offers share options (at the prevailing (b) its intention to complete and use or sell the asset; market price) to employees. The Group has conformed with the (c) its ability to use or sell the asset; requirements of IFRS2 “Share Based Payment” for share options issued after 7 November 2002 and unvested at 31 March 2020. (d) how the asset will generate future economic benefit; Those options are measured at fair value (using the Black-Scholes (e) the availability of sufficient resources to complete the development and to use or sell the asset; (f) the ability to measure reliably the expenditure incurred on the asset during its development. 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 and unless the Board, at its discretion, agrees The intangible asset is recognised using the cost model and is carried at its cost less any accumulated amortisation and any to settle in cash. Treasury shares accumulated impairment losses. Foreign currencies In line with IAS 21, transactions denoted in foreign currencies are recorded at an approximation of the exchange rate ruling 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. on the date of the transaction. Monetary assets and liabilities Own shares 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. Similarly, for translation of foreign operations, transactions are recorded at an approximation of the exchange rate ruling in the period of consolidation. Monetary assets and liabilities are On the acquisition of a business, the accrual for the future value of own shares contingent upon no warranty claims being made is classified as equity where there is a fixed value and hence fixed number of the company’s shares to be issued. Where the value of the contingent shares is not fixed at the point of acquisition, these would be treated as a financial liability under IAS 32. translated using the rate of exchange ruling at the balance sheet Pension costs date and the gains or losses on translation are included in Other comprehensive income. Profit from operations Profit from operations is stated before investment income, finance costs and other gains and losses. Other gains and losses 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. principally include movements in property valuation and are Taxation included in Other comprehensive income. Lease commitments The Group has a rental lease for office space in India. Rentals payable in respect of this short term lease are recognised as a cost on a straight line basis over the life of the lease. Similarly, Current tax (UK and foreign) is calculated on the profit for the year (adjusted for appropriate tax 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 78 for taxation and accounting purposes which have arisen but have intelligence applications. Where these are on premise Customer not reversed by the balance sheet date. It is recognised at the Data Management platform solutions they will include both expected prevailing rate at the time of reversal, and is recognised hardware and third party software. The revenue for each product as an asset only to the extent that it is probable that taxable profits is recognised when the full performance obligation has been will be available to utilise it. It is reviewed annually. satisfied, typically this is when the hardware and associated third Revenue recognition party software is delivered to the customers designated premises. This is when control passes to the customer. Revenue is measured at the transaction price received or receivable Delivery Services from the sale of goods and services in the ordinary course of the For delivery services work, revenue is recognised over time Group’s activities. Revenue is shown net of value added tax, rebates by comparing how much of the project has been completed and discounts and after the elimination of intercompany transactions versus total expected time required and also with reference to within the Group. The Group recognises revenue as it satisfies its performance obligations by transferring promised goods and services to its the completion of specific milestones. This is because costs are incurred in proportion to the Group’s progress as it satisfies its performance obligations. customers. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and In relation to time-based projects, time on projects is recoverable on a time and expenses basis at an agreed daily rate and is the specifics of each arrangement. In the course of the year ended 31 March 2019 there was a change in the segmental reporting information being used internally. This change was made to better reflect the Group’s management reporting based on the integrated core services of the business. In line with invoiced to the customer in the month of performance and an associated value is recognised. The Group has a right to consideration from its customers in an amount that corresponds directly with the value to the customer of the Group’s performance completed on a daily basis. the requirements of IFRS 8 Operating Segments, which requires the Support & maintenance disclosure of segmental reporting information that is actually being Support & maintenance is typically of a recurring nature and is used internally by management, the following segmental reporting is made up of hosting, support services and maintenance. The now in use: Products – Own IP D4t4 create, author, market and sell a software product, Celebrus, Group’s efforts are expended evenly throughout the performance period therefore revenue is recognised on a straight-line basis over the period of the contract, normally 12 months. focused on the capture of customer data from Bundled goods and services all digital channels. This data is then used in applications that Products (software and hardware), delivery services and support & deliver artificial intelligence, customer insight and analytics, maintenance services are often bundled together in a contract. personalisation, decisioning and customer relationship management. The products and the services are considered to be separate performance obligations on the basis that the products can be The Group has also created its own IP in order to create delivered with or without the hosting and other services and architecture and deployments for high performance on premise or therefore the products and services are not interdependent or cloud solutions that combine hardware, software and services. interrelated with another good or service. Software and hardware Perpetual licence revenue is recognised upon delivery as the company has no further obligations to the customer once the non-refundable licences have been delivered. Any upgrade to however require combined delivery to the customer to benefit from them and are therefore considered to be interdependent and interrelated and one performance obligation. the software will be supplied as part of an ongoing maintenance In allocating the consideration to the separate performance contract that the customer may make. This maintenance contract obligations, the standalone selling price is determined by reference is covered under the hosting and support services policy below. to an internal price book. Term licences are recognised upon delivery at the commencement of the term where the licence is not cancellable during the term. Products – 3rd Party The contracted invoice schedule does not always coincide with the recognition of the income from the sale. Therefore management have considered the time value of money and concluded that a D4t4 services are focused on delivering data management using financing benefit is provided to the customer. This is adjusted public and private cloud infrastructure that is securely designed to against revenue and recognised as interest income over the period ensure our clients can operationalise data within their organisation. of the contract using an effective interest rate. In addition, we design and build performant platforms for critical business, analytics, compliance, risk, marketing and artificial 79 Annual Report & Accounts 2020Financial Statements Notes to the financial statements (continued) Partnerships with third party organisations Derecognition of financial assets (including write-offs) and The Company sells both directly to the customer and through financial liabilities partnerships. There are two types of partnerships. The first is where the Company acts as principal in the sale to the partner. A financial asset (or part thereof) is derecognised when the The partner then uses the products and services purchased contractual rights to cash flows expire or are settled, or when from the Company as part of their sale to their customer. The the contractual rights to receive the cash flows of the financial second is where the Company acts on an agency basis. Here asset and substantially all the risks and rewards of ownership are the Company acts as a supply channel on behalf of the software transferred to another party. supplier who dictates the sell and buy price and provides details of the customer. In the first case, the revenue will consist of a combination of licence, project and recurring as defined in the When there is no reasonable expectation of recovering a financial asset it is derecognised (‘written off’). revenue recognition policy above, and hence is recognised as The gain or loss on derecognition of financial assets measured at defined there. In the second case, where the Company acts on an amortised cost is recognised in profit or loss. agency basis, revenue will be recognised at the point of sale to the end customer. A financial liability (or part thereof) is derecognised when the obligation specified in the contract is discharged, cancelled or Recognition of financial instruments expires. Financial assets and financial liabilities are recognised when the Group becomes party to the contractual provisions of the instrument. Financial assets Initial and subsequent measurement of financial assets Cash and cash equivalents Any difference between the carrying amount of a financial liability (or part thereof) that is derecognised and the consideration paid is recognised in profit or loss. Impairment of financial assets An impairment loss is recognised for the expected credit losses on financial assets when there is an increased probability that the Cash and cash equivalents comprise cash at bank and in hand counterparty will be unable to settle an instrument’s contractual and other short-term deposits held by the Group with maturities of cash flows on the contractual due dates, a reduction in the less than three months. amounts expected to be recovered, or both. Trade, Group and other receivables Trade receivables are initially measured at their transaction price. Group and other receivables are initially measured at fair value plus transaction costs. The probability of default and expected amounts recoverable are assessed using reasonable and supportable past and forward- looking information that is available without undue cost or effort. The expected credit loss is a probability-weighted amount determined from a range of outcomes and takes into account the Receivables are held to collect the contractual cash flows which are solely payments of principal and interest. Therefore, these receivables are subsequently measured at amortised cost using time value of money. Trade and other receivables the effective interest rate method. Financial liabilities and equity For trade receivables, expected credit losses are measured by applying an expected loss rate to the gross carrying amount. The expected loss rate comprises the risk of a default occurring Financial liabilities and equity instruments are classified according and the expected cash flows on default based on the ageing of to the substance of the contractual arrangements entered into. An the receivable. The Group has adopted a simplified approach to equity instrument is any contract that evidences a residual interest calculating its expected credit loss provision. For intercompany in the assets of the company after deducting all of its liabilities. loans that are repayable on demand, expected credit losses are Initial and subsequent measurement of financial liabilities Trade, Group and other payables based on the assumption that repayment of the loan is demanded at the reporting date. If the subsidiary does not have sufficient accessible highly liquid assets in order to repay the loan if Trade, Group and other payables are initially measured at fair demanded at the reporting date, the parent Company assesses the value, net of direct transaction costs and subsequently measured expected manner of recovery. at amortised cost. Equity instruments Borrowings Interest bearing bank loans are recorded at the proceeds received, Equity instruments issued by the Company are recorded at fair net of direct issue costs. Finance charges, including premiums value on initial recognition net of transaction costs. payable on settlement or redemption and direct issue costs, are 80 charged to profit or loss over the period 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. Related party transactions These are disclosed in note 28 of the financial statements. 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, estimates and assumptions of the carrying values of assets and liabilities as at the statement of financial position date and the amounts reported for revenues and expenses during the year. However, the nature of estimations means that actual outcomes could differ from those estimates. These judgements are reviewed on an ongoing basis, and recognise revisions to accounting estimates in the period in which the Directors revise the estimate and in any future periods affected. It is considered that all judgements have an element of estimation. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Valuation of goodwill and intangible assets The ongoing valuation of goodwill for the purposes of determining impairment requires the evaluation of future cash flows from the cash generating unit to which the goodwill has been allocated. This is disclosed in note 14. Revenue recognition for bundled goods and services In determining revenue for each of the component elements of a bundled contract, consideration is given to price books which are compiled following a review of standard industry practice and expected gross profit margins. 4. Business and geographical segments IFRS 8 Operating Segments requires these 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 Group has four tightly integrated service lines that are offered to clients. These service lines combine one or more of four types of revenue to deliver on our core services. Information is presented to the Board on the revenue analysis below: Product - Own IP Product - 3rd party Delivery services Support & maintenance All revenue streams are recognised on a point in time basis apart from Support & maintenance which is recognised over time. No allocation of other income and costs to these categories is made because the Directors consider that any such allocation would be arbitrary and contract sensitive, as would be any allocation of assets and liabilities. The segmental reporting set out below is consistent with that provided to the Board of Directors. 81 Annual Report & Accounts 2020Financial Statements Notes to the financial statements (continued) The segmental reporting analysis is as follows: Continuing operations 2020 Group Products - Own IP Products - 3rd party Delivery services Support & maintenance Revenue Cost of sales Gross profit Other operating costs and income Investing and financing activities Profit before tax 2020 £’000 7,658 4,362 3,629 6,099 21,748 (8,537) 13,211 (8,285) 43 4,969 2019 £’000 9,198 7,349 3,132 5,560 25,239 (10,932) 14,307 (7,965) 1 6,343 Major customers (partners) over 10% of revenue Products - Own IP Products - 3rd party Delivery services Support & maintenance Total Revenue 2020 £’000 2020 £’000 2019 £’000 2019 £’000 Customer 1 Customer 2 Customer 1 Customer 2 3,855 3,401 1,515 2,616 11,387 1,363 - 2 1,767 3,132 5,576 6,774 1,055 2,206 15,611 1,581 - 48 1,102 2,731 The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 2. 5. Revenue Geographical information United Kingdom Rest of Europe United States of America Others Group 2020 £’000 4,158 3,162 13,327 1,101 21,748 2019 £’000 3,452 2,972 17,543 1,272 25,239 The geographical revenue segment is determined by the domicile of the external customer. Non-current assets, including Property, Plant & Equipment, Goodwill and Intangibles, are all located in the United Kingdom. These are not reported to management on a segmented basis. 82 Analysis of revenue Continuing operations Sale of goods Rendering of services Timing of transfer Goods and services transferred at a point in time Products - Own IP Products - 3rd party Delivery services Goods and services transferred over time Support & maintenance Contract balances Receivables included within Trade and other receivables Contract assets Contract liabilities Group Group 2019 £’000 4,196 21,043 25,239 2019 £’000 9,198 7,349 3,132 2020 £’000 4,472 17,276 21,748 2020 £’000 7,658 4,362 3,629 6,099 21,748 5,560 25,239 Group 2020 £’000 7,970 1,534 (4,057) 2019 £’000 4,064 1,210 (3,318) Contract assets predominantly relate to fulfilled obligations in respect of Own IP and 3rd Party Products, Delivery services and Support & maintenance which have not been invoiced. At the point of invoice, the contract asset is derecognised and a corresponding trade receivable is recognised. Contract liabilities relate to consideration received from customers in advance of work being completed. 83 Annual Report & Accounts 2020Financial Statements Notes to the financial statements (continued) 6. Analysis of expenses by nature The breakdown by nature of expenses is as follows: Employee remuneration (see note 7) Intangible assets Amortisation of intangible assets (see note 15) Research and development costs expensed Property, plant and equipment Depreciation of property, plant & equipment (see note 16) Gain on disposal of property, plant & equipment Auditor’s remuneration - for audit services (Group and Company, the Company fee is not separately quantifiable) - for other services Impairment of trade receivables Operating leases Net foreign exchange gains Other expenses Total cost of sales and administration expenses 7. Staff costs The average number of employees (including Directors) during the year was: Production and support Distribution Administration Their aggregate remuneration comprised: Salaries Social security costs Defined contribution costs Share-based payments: equity settled 84 2020 £’000 2019 £’000 9,720 9,598 246 784 1,030 327 - 327 54 9 63 57 58 247 576 823 315 (3) 312 47 10 57 - 58 (362) 5,987 16,880 (727) 8,833 18,954 Group Company 2020 2019 2020 Number Number Number 2019 Number 90 27 15 132 £’000 8,341 870 412 97 88 24 10 122 £’000 8,181 873 382 162 84 23 15 122 £’000 6,856 779 357 97 87 20 10 117 £’000 7,108 806 345 162 9,720 9,598 8,089 8,421 Key management personnel consist of the Board of Directors and their remuneration (included in the totals above) was as follows: Emoluments Social security costs Defined contribution costs Share-based payments: equity settled Group and Company 2020 £’000 1,287 167 42 66 2019 £’000 1,615 217 44 84 1,562 1,960 Details of Directors remuneration required by the Companies Act are set out in the audited information included in the Directors Remuneration report on pages 56 to 60. Other related party transactions including loans and dividends, involving Directors are disclosed in the Directors report on pages 56 to 60. 8. Other operating income Analysis of other operating income Operating lease receipts (see note 27) 9. Finance income and finance costs Analysis of finance income Bank interest received Analysis of finance costs Mortgage interest paid Bank loan interest Other Group 2020 £’000 2019 £’000 58 58 57 57 Group 2020 £’000 2019 £’000 43 - - - - 9 (2) (5) (1) (8) 85 Annual Report & Accounts 2020Financial Statements Notes to the financial statements (continued) 10. Taxation Current UK tax Foreign tax Less: double taxation relief Over provision in prior year Deferred tax - temporary differences - US tax charge / (credit) Corporation tax The charge for the year can be reconciled to the reported profit as follows: Profit before tax UK corporation tax at 19% (2019: 19%) Research and development credit Patent Box Exercise of share options Difference between writing-down allowances and depreciation Other non-deductible expenses Effect of different rates in other jurisdictions Movement in US tax losses Over provision in prior year Tax charge as above 2020 £’000 142 60 (1) (245) (44) 331 235 566 522 4,969 944 (240) (76) 34 17 10 33 45 (245) 522 Other timing Equity Share based differences reserve payments Tax losses Intangibles £’000 (32) £’000 56 £’000 131 £’000 202 £’000 (214) - (49) (11) (43) - (12) (55) - 7 (7) - - 178 31 340 17 265 484 - 41 (173) - 24 - 17 (330) 10 (235) 273 11 (162) (566) 66 11. Deferred tax Group Balance at 1 April 2018 Recognised within the Statement of Changes in Equity (Charge) / credit to Income Statement Balance at 1 April 2019 Recognised within the Statement of Changes in Equity (Charge) / credit to Income Statement Balance at 31 March 2020 86 2019 £’000 796 57 (10) (6) 837 (61) (265) (326) 511 6,343 1,205 (142) - (610) 13 14 47 (10) (6) 511 Total £’000 143 146 326 615 Company Balance at 1 April 2018 Recognised within the Statement of Changes in Equity (Charge) / credit to Income Statement Balance at 1 April 2019 Recognised within the Statement of Changes in Equity (Charge) / credit to Income Statement Balance at 31 March 2020 Other timing Equity Share based differences reserve payments Intangibles £’000 (32) £’000 56 £’000 131 £’000 (214) - (49) (11) (43) - (12) (55) - 7 (7) - - 178 31 340 - 41 (173) - - (330) 10 11 (162) Total £’000 (59) 129 61 131 (7) (331) (207) A deferred tax rate of 19% (2019: 19%) has been used. The financial statements include a deferred tax asset of £273k (2019: £484k) in respect of trading losses in the Group’s US subsidiary. In accordance with the requirement of IAS 12 Income Taxes, the Directors have considered the likely recovery of this deferred tax asset. The Directors have taken into account expected future taxable profits and expect an improvement in profitability and profits in future periods and that this will be sustained. Accordingly the Directors have satisfied themselves that it is appropriate to recognise the above deferred tax asset. 12. Dividends Amounts recognised as distributions to equity holders: Final dividend for the year ended 31 March 2019 of 2.3p (for the year ended 31 March 2018: 1.875p) per share Interim dividend for the year ended 31 March 2020 of 0.77p (31 March 2019: 0.7p) per share Proposed final dividend for the year ended 31 March 2020 of 1.9p 2020 £’000 2019 £’000 925 310 1,235 713 267 980 The proposed final dividend is subject to shareholders’ approval at the AGM and has not been included as a liability in these financial statements. 13. Earnings per share The calculation of earnings per share is based on profit attributable to owners of the parent and the weighted average number of ordinary shares in issue during the year. The adjusted earnings per share figures have been calculated based on earnings before adjusted items. These have been presented to provide shareholders with an additional measure of the Group’s year-on-year performance. 87 Annual Report & Accounts 2020Financial Statements Notes to the financial statements (continued) For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares arising from share options granted to employees where the exercise price is less than market price of the Company’s ordinary shares at the year end. Details of the adjusted earnings per share are set out below: Profit attributable to owners of the parent Amortisation of intangible assets (see note 15) Share-based payments (see note 26) Net foreign exchange differences Restructuring costs Tax on the adjustments 2020 £’000 4,447 246 97 (362) 96 (15) 2019 £’000 5,832 247 162 (727) - 60 Adjusted profit attributable to owners of the parent 4,509 5,574 Basic weighted average number of shares, excluding own shares, in issue Dilutive effect of share options Diluted weighted average number of shares, excluding own shares, in issue Basic Earnings per share Diluted Earnings per share Adjusted Basic Earnings per share Adjusted Diluted Earnings per share 14. Goodwill Cost of goodwill Balance at 1 April 2018, 31 March 2019 and 31 March 2020 Accumulated impairment charge Balance at 1 April 2018, 31 March 2019 and 31 March 2020 Carrying amount at year end 2020 No. 2019 No. 39,976,957 39,471,172 299,994 654,078 40,276,951 40,125,250 2020 2019 Pence per Pence per share 11.12 11.04 11.28 11.19 share 14.78 14.53 14.12 13.89 Group Company £’000 10,952 £’000 10,952 2,256 8,696 1,912 8,696 Allocation of goodwill (Group and Company) Balance at 1 April 2018 and 31 March 2019 Integration with Speed-Trap goodwill Balance at 31 March 2020 AXL Chapter26 Speed-Trap 100 (100) - 918 (918) - 7,678 1,018 8,696 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 Directors have considered during the year whether the AXL and Chapter26 businesses continue to meet the definition of cash generating units (CGUs). These businesses have been fully integrated into the Group’s operations for several years and it is no longer possible to 88 separately identify cash flows relating to these businesses and therefore the Directors do not believe it is appropriate to continue to disclose these as separate CGUs. The goodwill attaching to these has therefore been combined with the goodwill relating to Speed-Trap. Prior to this decision being taken the Directors carried out an assessment of potential impairment of these former CGUs and no impairment was required. The recoverable amount of this CGU has been determined based on a value-in-use calculation. To calculate this, pre tax cashflow projections are based on financial budgets calculated using both current year and prior year knowledge of customer contracts and approved by the Board for the year ended 31 March 2020. These are then extrapolated for five years with 2% (2019: 2%) growth rate applied, and extended beyond five years at 2% (2019: 2%), which the Board considers conservative given the long-term opportunities that exist in the regions that the CGU operates in. The discount rate applied to cashflow projections is 15% pre tax (2019: 15%). Key assumptions used for the value-in-use calculations Key assumptions are made by management based on past experience taking into account external sources of information around gross margins, growth rates and discount rates for similar businesses. The calculation of value in use is most sensitive to assumptions around: operating cashflows, based on financial budgets for the year ended 31 March 2021 approved by the Board; growth rates in the current year budget which are based on individual customer contracts; growth rates in year 2 onwards, which we have maintained at a conservative 2%; the discount rate, based on the pre-tax weighted average cost of capital of the Group; the CGU gross margin achieved. Sensitivity to changes in assumptions The margins achieved are based on actual margins, the forecast revenues are based on budget for the current year and an ongoing 2% growth rate has been used. The discount rate is considered to be the variable with the maximum impact. Varying this by 20% would still allow the recoverable amount to exceed the carrying value. Therefore management is confident in the assumptions used. Management has considered the growth rates used in light of the Covid-19 pandemic and remains confident that they are reasonable. Management are satisfied that a reasonable change in the key assumptions used in assessing the recoverable amounts of the cash generating unit would not give rise to the recoverable amount exceeding the carrying value. 15. Other intangible assets Group & Company Cost Balance at 1 April 2018 and 31 March 2019 Additions Balance at 31 March 2020 Accumulated amortisation Balance at 1 April 2018 Amortisation Balance at 1 April 2019 Amortisation Balance at 31 March 2020 Carrying amount Balance at 1 April 2018 Balance at 31 March 2019 Balance at 31 March 2020 Development Costs Internally generated IPR Purchased IPR £’000 £’000 £’000 Trade name £’000 - 188 188 - - - - - - - 188 56 - 56 56 - 56 - 56 - - - 1,858 - 1,858 697 232 929 232 1,161 1,161 929 697 142 - 142 42 15 57 14 71 100 85 71 Total £’000 2,056 188 2,244 795 247 1,042 246 1,288 1,261 1,014 956 89 Annual Report & Accounts 2020Financial Statements Notes to the financial statements (continued) The amortisation charge for the year is booked to administration expenses. The amortisation period for the Development Costs is 8 years commencing 1 April 2020. The remaining amortisation period for the Purchased IPR is 3 years (2019: 4 years) and the Trade name is 5 years (2019: 6 years). 16. Property, plant & equipment Group and Company Cost or valuation Balance at 1 April 2018 Additions Disposals Balance at 1 April 2019 Additions Balance at 31 March 2020 Depreciation Balance at 1 April 2018 Depreciation charge Revaluation Eliminated on disposals Balance at 1 April 2019 Depreciation charge Revaluation Balance at 31 March 2020 Carrying amount Balance at 1 April 2018 Balance at 31 March 2019 Balance at 31 March 2020 Allocation of depreciation charge Cost of sales Administration expenses Charge for year Tangible Assets held at valuation Land & buildings Fixtures & equipment £’000 £’000 Motor vehicles £’000 3,300 1,222 - - 3,300 - 3,300 - 70 (70) - - 71 (71) - 3,300 3,300 3,300 436 - 1,658 249 1,907 674 225 - - 899 230 - 1,129 548 759 778 106 23 (18) 111 - 111 62 20 - (18) 64 26 - 90 44 47 21 2020 £’000 60 267 327 Total £’000 4,628 459 (18) 5,069 249 5,318 736 315 (70) (18) 963 327 (71) 1,219 3,892 4,106 4,099 2019 £’000 79 236 315 In respect of tangible assets held at valuation, the comparable carrying amount that would have been recognised if the assets had been carried under the historical cost model are as follows: Group and Company Land and buildings 90 2020 £’000 1,753 2019 £’000 1,798 Included in land & buildings (valued in 2018) is freehold land at £1,230,000 (2019: £1,230,000) which is not subject to depreciation. The land and buildings original purchase cost was £2,224,000. For detail on the fair value measurement of the freehold land and buildings see note 29. 17. Investment in subsidiaries Company Cost of investment Balance at 1 April 2019 and 31 March 2020 Accumulated provision for impairment Balance at 1 April 2019 and 31 March 2020 Carrying amount at year end IS Solutions Ltd (formerly Celebrus Ltd)† 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† 2020 £’000 273 - 273 2019 £’000 273 - 273 Proportion of ownership of ordinary shares 100% 100% 100% 100% 100% 100% 100% 100% 100% Country of Incorporation England & Wales England & Wales England & Wales Nature of business Dormant Dormant Dormant USA Software & services England & Wales England & Wales England & Wales England & Wales England & Wales Dormant Dormant Dormant Dormant Dormant * Owned by Speed-Trap Holdings Ltd. † Registered address - Windmill House, 91-93 Windmill Road, Sunbury-on-Thames, TW16 7EF, UK § Registered address - 2626 Glenwood Avenue, Suite 550, Raleigh, North Carolina 27608, USA All UK subsidiaries individually prepare and file their own financial statements. The principal place of business is considered to be the registered address. 18. Trade and other receivables Trade receivables Amounts due from Group undertakings Other debtors Prepayments Accrued income Group Company 2020 £’000 7,970 - 66 567 1,534 10,137 2019 £’000 4,064 - 114 887 1,210 6,275 2020 £’000 7,241 1,811 61 564 1,534 11,211 2019 £’000 4,064 2,506 114 547 1,210 8,441 91 Annual Report & Accounts 2020Financial Statements Notes to the financial statements (continued) Trade receivables Ageing of receivables: Less than 30 days 31 to 60 days 61 to 90 days 91 to 120 days More than 120 days 2020 £’000 6,629 155 386 800 - 2019 £’000 3,703 97 3 186 75 2020 £’000 5,981 74 386 800 - 2019 £’000 3,703 97 3 186 75 7,970 4,064 7,241 4,064 The average credit period taken on sales of goods and services was 69 days (2019: 87 days). In accordance with IFRS 9, the Group performed a year end impairment exercise to determine whether any write down in amounts receivable was required, using an expected credit loss model. The expected loss rate for receivables less than 120 days old is 0% on the basis of the Group’s history of bad debt write-offs and above 120 days has not been considered on the basis of immateriality. 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. Definition of default The loss allowance on all financial assets is measured by considering the probability of default. Receivables are considered to be in default when the principal or any interest is significantly more than the associated credit terms past due, based on an assessment of past payment practices and the likelihood of such overdue amounts being recovered. Determination of credit-impaired financial assets The Group considers financial assets to be ‘credit-impaired’ when the following events, or combinations of several events, have occurred before the year end: significant financial difficulty of the counterparty arising from significant downturns in operating results and/or significant unavoidable cash requirements when the counterparty has insufficient finance from internal working capital resources, external funding and/or group support; a breach of contract, including receipts being more than materially past due; it becoming probable that the counterparty will enter bankruptcy or liquidation. Write-off policy Receivables are written off by the Group when there is no reasonable expectation of recovery, such as when the counterparty is known to be going bankrupt, or into liquidation or administration. During the year, one trade receivable was considered impaired and there was a charge of £57k to the Income Statement as shown in note 6 (2019: £nil). Additionally the recoverability of intercompany debts is considered. After review, the Directors believe that no further expected credit loss provision is required. The policy of credit risk management is covered in note 29. 19. Inventories Finished goods and goods for resale There was no write down in the recognised value of inventories (2019: nil). Group Company 2020 £’000 1,266 2019 £’000 45 2020 £’000 7 2019 £’000 13 92 20. Trade and other payables Trade payables Amounts owed to Group undertakings Other taxes and social security Other creditors Accruals Deferred income Group Company 2020 £’000 3,403 - 531 22 1,364 4,057 9,377 2019 £’000 1,476 - 343 21 1,616 3,318 6,774 2020 £’000 2,208 465 487 22 1,098 3,997 8,277 2019 £’000 543 1,378 343 21 1,462 3,318 7,065 There is no material difference between the fair value of receivables and their carrying value. Trade payables comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases across the year is 46 days (2019: 57 days). Their carrying value approximates to their fair value. 21. Share capital Ordinary shares of 2p each Authorised Issued and fully paid up Balance at 1 April 2019 Issued during year Balance at 31 March 2020 Share capital £’000 2020 Share premium £’000 Share capital £’000 Shares 2019 Share premium £’000 Shares 50,000,000 1,000 50,000,000 1,000 39,700,889 716,667 40,417,556 794 14 808 2,624 38,261,019 741 1,439,870 3,365 39,700,889 765 29 794 1,972 652 2,624 The Company issued 716,667 (2019: 1,439,870) Ordinary shares during the year to satisfy share option exercise requirements. These were issued in one tranche at a price of 105.47p (2019: comprised two tranches, 184,388 shares at a price of 38.42p and 1,255,482 shares at a price of 51.18p). This increased the share premium account by £741k (2019: £652k). Any costs associated with the issue of new shares were less than £1k (2019: £1k) and are recognised in professional fees. 93 Annual Report & Accounts 2020Financial Statements Notes to the financial statements (continued) 22. Own shares At the year end the Company held 159,133 (2019: 478,880) ordinary shares in Treasury, with Fair Value of £222,786 (2019: £1,230,722). Details of purchases and sales are shown below. Number of Share price at point Total Consideration own shares of transaction in pence paid £’000 Balance of own shares at 1 April 2018 Shares acquired into Treasury reserve Shares sold out of Treasury reserve 247,815 671,538 (440,473) 146.00 - 240.00 146.00 - 206.00 Balance of own shares at 31 March 2019 478,880 Total consideration paid in year end 31 March 2019 Shares acquired into Treasury reserve Shares sold out of Treasury reserve 45,208 (364,955) 125.00 - 230.00 202.50 - 259.00 Balance of own shares at 31 March 2020 159,133 Total consideration paid in year end 31 March 2020 1,469 1,469 69 69 In the Statement of Changes in Equity (page 70) the value of Treasury shares is calculated on a First-In-First-Out (FIFO) basis, while the fair value represents the value based on the year end share price. 23. Merger reserve The merger reserve arose on the acquisition of Speed-Trap Holdings Ltd (23 January 2015) and represents the excess consideration paid by the issue of shares over the share capital nominal value. Additions to this reserve of £4k (2019: £60k) are a result of the exercise of options issued which have been held in the own shares and equity reserve accounts. 24. Revaluation reserve This represents the gains on revaluation of the property in line with market valuations. The property was last professionally revalued as at March 2018. The gain on revaluation was £71k (2019: £70k). This is a non-distributable reserve as it represents unrealised profits on the revalued assets. 25. Equity reserve This is in relation to the options issued following the Speed-Trap acquisition in 2015 and represents the fair value less the cash received to exercise those options. As all options had been exercised by 31 March 2020, the fair value at the balance sheet date is nil (2019: £3,833). The outstanding balance of these options is included in the balance at 1 April 2019 and 31 March 2020, as applicable, in note 26. There is no deferred tax asset at the year end (2019: £6,994). 26. Share-based payments The Company has a share option scheme for all employees of the Group, a combination of both EMI and non-EMI schemes. Share options vest in equal instalments over three years based on previously set EPS targets based upon 10% growth. In relation to the share options shown below the Board forecasts that the remaining share options will vest. Options are granted at the closing price on the previous day and have a vesting period of between one and three years. If the options are not exercised within ten years of the grant date, or if employees leave before their options vest then those options are forfeited. Vested options are settled subsequently by a combination of equity shares in the parent Company and cash at Board discretion. 94 Balance at 1 April Granted during the year Exercised during the year Balance at 31 March 2020 Weighted 2019 Weighted No. of share av. exercise No. of share av. exercise options price options price 1,790,455 113.19p 3,140,798 70.11p 25,000 205.00p 530,000 149.20p (1,081,622) 101.20p (1,880,343) 51.38p 733,833 134.01p 1,790,455 113.19p Exercisable at year end 106,500 120.95p 884,788 90.97p The weighted average share price at the exercise date of the exercised shares was £2.562 (2019: £2.221). The weighted average contractual life of the outstanding options was 7 years (2019: 7 years), exercisable in the range 90.5p to 205.0p. 1,081,622 share options were exercised in the year, 716,667 by way of issue of new shares (note 21) and 364,955 by issue of shares from Treasury. A summary of the option price ranges are as follows: 2020 Exercisable Number of price range share options 90.50p to 124.00p 136.00p to 152.50p 152.50p to 205.00p 335,500 343,333 55,000 733,833 The Group recognised £97k of expense related to equity-settled share-based payments in the year (2019: £162k). 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 in respect of options granted this year are as follows: Date of Grant 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 (vested after one year) Fair value of options (vested after two years) Fair value of options (vested after three years) 8,334 options 8,333 options 8,333 options 14 Jan 2020 25,000 205.00p 205.00p 10 3.25% 38.50% 1.17% 32.79p 46.33p 56.36p Expected volatility was determined by calculating the historical volatility of the Group’s share price for the five 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. 95 Annual Report & Accounts 2020Financial Statements Notes to the financial statements (continued) 27. Operating lease arrangements (Group and Company) As lessee Lease payments recognised as an expense during the year Lease payments for rental of premises in India Total value of future minimum lease payments committed under non-cancellable operating leases: Not later than one year Later than one year and not later than five years Later than five years 2020 £’000 58 2020 £’000 61 278 32 2019 £’000 58 2019 £’000 58 260 105 As explained in note 2, the Directors have decided not to recognise the Right of Use asset or corresponding liability associated with this lease under IFRS 16 as this would not have a material impact on the financial statements. As lessor Lease receipts recognised as income during the year 2020 £’000 57 2019 £’000 57 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. Related party transactions During the year the parent Company undertook the following transactions with D4t4 Solutions Inc., a wholly owned US subsidiary: Sales to D4t4 Solutions Inc. Purchases from D4t4 Solutions Inc. Management charge to cover services provided (from D4t4 Solutions plc to D4t4 Solutions Inc.) Management charge to cover services provided (from D4t4 Solutions Inc. to D4t4 Solutions plc) Payments made by D4t4 Solutions plc on behalf of D4t4 Solutions Inc. 2020 £’000 1 2,905 35 2,261 4,008 2019 £’000 - 4,885 - - 7,326 29. Financial instruments and risk management 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 comprise issued share capital, reserves and borrowings, along with cash and cash equivalents. 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 96 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, as defined above, is managed by the Board to ensure that the Group and Company continues as a profitable going concern. There are no externally imposed capital requirements. The Group has no net debt (2019: nil). Cash and cash equivalents Net cash Categories of financial instruments Financial Assets at Amortised Cost Cash and bank balances Trade and other receivables Financial Liabilities at Amortised Cost Trade and other payables Foreign currency risk management The Group’s foreign currency exposure arises from: Group Company 2020 £’000 12,772 12,772 2020 £’000 12,772 9,570 2019 £’000 10,996 10,996 2019 £’000 10,996 5,388 2020 £’000 12,694 12,694 2020 £’000 12,694 10,647 2019 £’000 10,996 10,996 2019 £’000 10,996 7,894 4,789 3,113 3,793 3,404 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. Natural hedging is employed, to the extent possible, to minimise net exposures; however, where significant exposures arise it is Group policy to enter into formal hedging arrangements. Carrying amounts of the Group’s financial assets and liabilities denominated in foreign currencies was as follows: US Dollars - cash - receivables - payables Euros - cash - receivables - payables Liabilities Assets 2020 £’000 2019 £’000 - - - - 1,626 1,361 - - 26 - - 36 2020 £’000 2,907 6,464 - 167 26 - 2019 £’000 725 3,371 - 133 16 - 97 Annual Report & Accounts 2020Financial Statements Notes to the financial statements (continued) The following table shows the effect on the Group’s result for the year of the £ strengthening by 5% against debtor, creditor and cash balances denominated in foreign currencies, with all other variables held constant. 5% represents management’s assessment of the reasonably possible change in exchange rates. At 31 March 2020 Impact on profit/equity for the year At 31 March 2019 Impact on profit/equity for the year $ £’000 € £’000 (367) (138) (8) (5) Total £’000 (375) (143) The following table shows the effect on the Group’s result for the year of the £ weakening by 5% against debtor, creditor and cash balances denominated in foreign currencies, with all other variables held constant. 5% represents management’s assessment of the reasonably possible change in exchange rates. At 31 March 2020 Impact on profit/equity for the year At 31 March 2019 Impact on profit/equity for the year $ £’000 411 180 € £’000 9 6 Total £’000 420 186 Credit risk management The Group uses credit reference agencies to determine and monitor the credit limits of new and existing customers. At the end of the year two partners owed a total of £5,851,000 (2019: two partners owed £3,179,000) and no expected credit loss provision has been made in relation to this balance. No other customers / partners owed more than 10% of the outstanding total. No expected credit loss provision has been recognised for trade receivables at 31 March 2020 (2019: nil). The Group’s customers primarily consist of banks, partners and other longstanding customers, primarily blue-chip companies that are deemed to have a low credit risk. As a result, the credit quality of trade receivables that are neither past due nor impaired has been assessed by the Directors to be relatively high, taking account of a low historic experience of bad debts and relatively good ageing profiles. The Group controls its exposure to credit risk by setting limits on its exposure to individual customers, compliance is monitored by the Credit Control Team. As part of the process of setting customer credit limits, different external credit reference agencies are used, according to the country of the customer. The Group has a policy of dealing only with creditworthy counterparts. The Group manages the credit risk and quality of cash balances by holding balances with reputable banks. 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. 98 Maturity analysis of financial liabilities In less than one year: Trade payables Amounts owed to Group undertakings Other creditors Accruals Group Company 2020 £’000 2019 £’000 2020 £’000 3,403 1,476 2,208 - 22 1,364 4,789 - 21 1,616 3,113 465 22 1,098 3,793 2019 £’000 543 1,378 21 1,462 3,404 All of the financial liabilities above are recorded in the financial statements at amortised cost. The above maturity analysis amounts reflect the contractual undiscounted cash flows, including future interest charges, which may differ from the carrying values of the liabilities at the reporting date. Interest rate risk management The Group’s exposure to changes in interest rate risk is immaterial as the loan and mortgage were repaid during the year. 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 and there are no such financial liabilities at the year end. Fair value measurement 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 2. The Group’s freehold land and buildings are stated at their revalued amounts, being the fair value at the date of the revaluation at 31 March 2020. The fair value measurements of the Group’s freehold land and buildings as at 31 March 2018 were performed by De Souza & Co, independent valuers not related to the Group. De Souza & Co are members of the Royal Institution of Chartered Surveyors, and they have appropriate qualifications and recent experience in the fair value measurement of properties in the relevant location. The valuation was prepared in accordance with the RICS Valuation - Global Standards 2017 and the International Valuation Standards and was based on recent market transactions on arm’s length terms for similar properties. The Directors have considered the impact of Covid-19 and whether it has had any impact on the value of the land and buildings of the Group. In their opinion, the property has not suffered any reduction in value on account of it’s accessibility, location and the internal refurbishment works which commenced two years ago and which were not therefore not fully incorporated into the 2018 revaluation. The building is also considered to be suitably arranged internally such that any modifications required to the workplace in order to allow for safe working in light of the Covid-19 pandemic can be readily implemented. The fair value of the freehold land and buildings were determined based on the market comparable approach that reflects recent transaction prices for similar properties. Ten similar properties with sales within the last two years, and within ten miles were used as the basis for comparison using both sales value and letting rates to determine the valuation. In order to determine the apportionment of the fair value between land and buildings, firstly the value of industrial development land in the broad area of the property was assessed, and secondly an allowance for age and obsolescence was applied to the likely rebuilding costs of a modern equivalent. The Directors are satisfied that the assumptions applied in the professional valuation at 31 March 2018 are still valid at 31 March 2020, and as such have revalued the land and buildings in line with the 2018 valuation. 99 Annual Report & Accounts 2020Financial Statements Company registration number 01892751 Bank HSBC Bank plc 54 Clarence Street Registrars SLC Registrars Elder House Kingston Upon Thames St Georges Business Park Surrey KT1 1NS Brooklands Road Weybridge, Surrey KT13 0TS Auditor RSM UK Audit LLP 25 Farringdon Street London EC4A 4AB Corporate information Registered office Windmill House 91-93 Windmill Road Sunbury-on-Thames Surrey TW16 7EF Solicitor Barlow Robbins LLP Concord House 165 Church Street East Woking Surrey GU21 6HJ Nominated Adviser & Joint Broker Joint Broker Canaccord Genuity Limited 88 Wood Street London EC2V 7QR finnCap 60 New Broad Street London EC2M 1JJ Financial PR Instinctif Partners 65 Gresham Street London EC2V 7NQ 100 D4t4 Solutions plc Windmill House 91-93 Windmill Road Sunbury-on-Thames TW16 7EF www.d4t4solutions.com
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