Annual Report
2016
Contents
01 Strategic Report
06
08
10
14
Highlights of the Year
Chairman’s Statement
Business Review
Corporate Responsibility
Annual Report 2016
01 Strategic Report
02 Market Review
04 Financial Statements
06
08
10
14
Highlights of the Year
Chairman’s Statement
Business Review
Corporate Responsibility
20
From Call Centre
to Contact Centre
03 Governance Report
24
26
30
34
36
Board of Directors
Directors' Report
Corporate Governance
Directors' Responsibilities
Audit Report for Eckoh plc
40
46
76
80
87
Consolidated Financial Statements
Notes to the Financial Statements
Company Financial Statements
Notes to the Company Financial Statements
Shareholder Information
Contents
3
Strategic Report
06 Highlights of the Year
08 Chairman’s Statement
10 Business Review
14 Corporate Responsibility
01
4
Strategic Report
Annual Report 2016
“The Company is well positioned to execute
on the exceptional market opportunity available
to it in the UK, US and other global markets.
”
Strategic Report
5
Highlights of the Year
Eckoh plc (AIM: ECK), the global
provider of secure payment products
and customer contact solutions, is
pleased to announce its final results
for the year ended 31 March 2016.
OpER AtIOnAl H IG Hl IG Ht S :
• Completed the acquisition of product Support
Solutions, Inc (“pSS”) in november 2015 to further
establish presence in US and support future growth
• nine contracts won in US Secure payments
operation (FY15: four) including the first West
contract
• thirteen new UK contracts secured including
thames Water, the Co-operative Group, Ecotricity
and a global on-line retailer
• two largest UK clients renewed for a minimum of
four years and all other significant clients renewed
• patents awarded for new tokenisation payments
solution Haloh in the UK and core Secure payments
solution CallGuard in the US
CURREnt tRAdIn G:
• US distributor agreement with West updated
for three- year period
• three-year US secure payments contract worth
$2m won with global insurance company via West
• three-year contract worth an estimated $5m
won with US telecommunications provider
6
Strategic Report
Annual Report 2016
FIn AnCIAl HIGHlIGHtS:
£22.5m up
31%
R EvEnUE
(2014/5 £17.2m)
up
from £0.2m
to £4.0m
REvEnUE
FROM tHE US
now 79% up
UK R E CU RR In G
REvE nU E
now 79% of total revenue
(2014/5: 76%)
£16.8m up
29%
£4.1m
up
22%
£5.4m
up
20%
GR OSS pROFIt
(2014/5: £13.1m)
AdjUStEd*
OpERAtInG pROFIt
AdjUS t E d* *
EBItd A
(2014/5: £3.4m)
(2014/5: £4.5m)
£2.5m
up
p ROFIt FROM
Op ERAtInG ACtIvItIES
(2014/5: £0.9m loss***)
up
20%
0.45p
dIvIdEnd
The Board is recommending
a 20% increase in full year dividend
to 0.45 pence per share
(FY15: 0.375 pence per share)
*
excludes expenses relating
to share option schemes,
acquired intangible
amortisation and expenses
relating to acquisitions
** EBITDA is the profit before
tax adjusted for depreciation,
amortisation, finance income,
finance expense, and expenses
relating to share option
schemes and acquisitions
*** Restated as set out in note 1
Strategic Report
7
Chairman's Statement
“ I am pleased to be able
to report on another year
of significant progress
made by Eckoh. Whilst
the financial growth of
the company continues
following an eighth
successive year of revenue,
margin and profit growth,
there have been a number
of milestone events that
will benefit the company
in the years to come.
Chris Batterham, Chairman ”
8
Strategic Report
Most notably, in November 2015, Eckoh completed the
acquisition of Product Support Solutions Inc. (“PSS”)
to support the growth of the US subsidiary created by
Eckoh in early 2014. PSS have a long history of providing
infrastructure support to organisations with large contact
centres and are ideally placed to support the hardware
implementations being undertaken by Eckoh in the US.
We were particularly pleased that the management of PSS
all decided to remain with the business and have played
a significant part in merging the two US businesses into
one corporate entity. Whilst we fully expected that PSS
would complement our business, we have been delighted
to report that PSS has delivered two multi-million dollar
contracts in the first few months following the acquisition.
As we enter the new financial year, PSS and Eckoh are now
fully integrated with the sales and technical team of PSS
fully trained on the Eckoh portfolio of payment products.
We have also been pleased with the organic progress
made in the US with nine new clients being contracted
in the year taking the US Secure Payment client count to
fourteen since creating the subsidiary. We have further
established the company by taking a lease for some office
space in Omaha, Nebraska; hiring an experienced Head of
Sales and renewing our Distribution Agreement with the
West Corporation.
Back in the UK, we continue to be successful in securing
new customers, primarily through demand for our Secure
Payment solutions. The UK has also been successful in
making sales into countries such as France, South Africa
and Morocco. Whilst we have no sales or marketing
activity in these regions, the security of credit card data
in contact centres is a global issue and these sales have
been converted from enquiries to our website. Equally
importantly, we continue to be successful in retaining long
relationships with our clients demonstrated by renewals for
significant periods by both of our largest customers.
Annual Report 2016
Looking ahead, we believe that an increasing proportion
of sales in the years ahead will be covered by our new
tokenisation solution for which a UK patent was awarded
recently. A patent in the US is pending and is expected
to be granted in the next 12 months. We recognise that
it is important that we invest in Research & Development
activity to ensure the success enjoyed by the company is
extended for a prolonged period.
After almost seven years of service, Clive Ansell has
chosen to step down from the Board with effect from our
forthcoming Annual General Meeting. The Company has
changed dramatically over that period and on behalf of
the Board, I would like to thank him for his contribution
over the years. The search for Clive’s replacement is at an
advanced stage and we expect to make an announcement
in this regard in the near future. In addition,
commensurate with the size and growth of the company
we expect to appoint an additional non-executive director
before the end of the year.
Over the course of the last two years, our team has
increased from 93 employees to 195 over the course of
the last two years. We have a large base of employees
with long periods of service which has been supplemented
by a group of ambitious new employees who help to
bring a great energy to the company. The employee base
continues to be the single largest factor in the success
of the company and I would like to take this opportunity
to thank them all for their commitment and exceptional
efforts during the year.
Strategic Report
9
“In view of the strong
performance in the year,
and reflecting the Board’s
confidence in the Group’s
prospects, we are also
pleased to propose a full
year dividend of 0.45p
per share.
nik philpot, CEO ”
Business Review
10
Strategic Report
Introduction
We are pleased to report on the eighth successive year of
revenue and margin growth for the Group and the third
with growth exceeding 20%. As we entered the 2015/6
financial year our primary strategic goal was to consolidate
and expand our newly established US operation. The
acquisition of Product Support Solutions Inc (“PSS”) in
November 2015, for consideration of £5.0m (£4.0m
after adjusting for £1.0m of cash acquired), has enabled
us to accelerate our growth in the US market as well as
broaden our proposition. Coupled with ongoing organic
growth, the Company is well positioned to execute on the
exceptional market opportunity available to it in the UK,
US and other global markets.
In view of the strong performance in the year, and
reflecting the Board’s confidence in the Group’s prospects,
we are also pleased to propose a full year dividend of
0.45p per share.
Operational Review
UK division
In the UK, we have seen a further year of good growth
with revenue increasing 8.9% from £17.0m to £18.5m.
During the year the Company has secured contracts with
13 new clients, taking the overall client count to 66 in
the UK for clients which generate more than £25,000 per
annum. Equally importantly, churn remains virtually zero
with all significant clients (those who generate more than
£25,000 per annum) renewing for a further period when
their existing contracts expired. This included the contracts
for our two largest UK clients where we have been able
to successfully negotiate a four-year renewal with the
first, a global financial services company, which was won
through a global procurement process working alongside
our US partner West Corporation (“West”). The second
was a five-year renewal with home shopping company
Ideal Shopping Direct which has been a client since 2005
and is now owned by Blackstone. This new contract saw
us not only renew the existing business but broaden the
solution to include the future addition of web chat and
social media.
During the year there have also been a number of contract
wins and as has been the case in recent years, the majority
have come from the Secure Payments side of the business.
These include contracts with Thames Water, the Co-
operative Group, Ecotricity and a global on-line retailer.
The level of cross-selling between Secure Payments and
Customer Contact remains high and the split between
clients only taking Secure Payments services compared to
clients taking Customer Contact solutions (which may also
include payments) is currently 23/77.
Annual Report 2016
The Company’s R&D activity remains predominantly in
the UK and the grant of the UK patent for the Haloh
tokenisation payments solution was the culmination
of several years of development effort. Eckoh’s other
patented payments solution, CallGuard, enables Contact
Centre agents to process credit card payments without
being exposed to the card details, also preventing them
from being recorded by the call recording solution. The
newly patented solution also works to stop sensitive data
from being exposed to IT systems and staff members.
It substitutes sensitive data which passes through the
merchant’s environment,such as credit card numbers
with a token. The token is worthless to a criminal if
stolen during a data breach, but can be used for the
merchant’s payments, which are processed via Eckoh’s
data centres. This process can also be applied to web and
mobile payments, enabling Eckoh to provide a patented
solution that caters for payments made through any digital
channel.
Since its launch in May 2015 the tokenisation solution has
rapidly become the leading sales proposition in the Group’s
Secure Payments portfolio and the patent grant will ensure
that Eckoh can protect the unique nature of the solution
and our market-leading position. It is anticipated that
sales interest will grow significantly as appreciation of the
EU General Data Protection Regulation becomes more
widespread. This legislation will have the power to impose
severe financial penalties when it takes effect in 2018 and
the ability for our solution to tokenise and secure not only
card data but other forms of personal data such as email
addresses, bank details, social security numbers and names
and addresses provides an effective and elegant way for
companies to mitigate risk.
Strategic Report
11
As part of the integration process a single US trading entity
has been created, combining PSS with Eckoh’s secure
payment business. Cross-training has been completed by
the PSS operations team to enable them to fully support
the Secure Payment product suite. The combined US
sales team is now led by a seasoned Senior Executive Vice
President who joined in May to support and accelerate the
anticipated growth, as well as join the US Board.
PSS had a long history of working with blue chip US
corporations with large Contact Centre operations and
since the acquisition the newly integrated and enlarged
US business has secured a number of profitable Customer
Contact contracts including a $2m contract with a global
communications company and most recently a three-year
contract with a US telecommunications corporation that
is expected to generate in excess of $5m in revenue over
the contract term. These large contract wins have been
supported by a number of more typical smaller ones
including a three-year deal with Con-Edison, one of the
largest investor-owned US energy firms, and a support
contract with Integra, one of the largest facilities-based
providers of communication and networking services in
the western United States. We are also seeing encouraging
progress introducing the Secure Payments proposition into
the historic PSS customer base.
In March 2016 we announced that a contract had
been won with Children’s Healthcare of Atlanta for our
tokenisation payments solution; the first in the US for this
technology. It has been followed by the West contract in
early June and the solution now represents a significant
proportion of our pipeline. We anticipate that the US
patent will follow the UK patent for our tokenisation
payments solution in due course, as it did for the
CallGuard patent that was awarded in the US in November
2015, some 17 months after the UK award.
With the focus on tightening credit card and data security
increasing in the US over recent months, Eckoh is well
placed to capitalise on the opportunity in a market
estimated to be at least seven times larger than the UK.
US division
The partial contribution from PSS alongside the organic
growth of the Secure Payments business saw US revenue
in 2015/6 grow to £4.0m (2014/5: £0.2m).
In only the second full year of trading for our US subsidiary
we were successful in closing nine new contracts for
Secure Payments in the US during the year and to date
we have secured 15 in total. These included our first
win through our Distributor Agreement with West in
January to provide CallGuard to a major global media and
entertainment group. This contract has been followed
by the announcement earlier this month of a second
contract worth $2m over the three-year term for Eckoh
to provide our patented tokenisation payments solution
to over 5,000 US-based agents employed by a leading
global insurance company. These contracts both illustrate
that, whilst the sales cycle with the target market of large,
Fortune 500 corporations has proved lengthy, contracts
are now emerging from the West pipeline which remains
substantial. Alongside this latest contract we have
successfully renegotiated the West Distributor Agreement
on a non-exclusive basis for a new three-year period. This
follows the recent successes on both sides in winning
new Secure Payments contracts, with West continuing to
focus on the largest enterprise market and Eckoh more
on the mid-market opportunity, which we believe to be
significant. A key strategy for the year ahead is to evaluate
additional reseller arrangements that will give us access to
established relationships and a larger sales resource to gain
even greater traction in this fast growing market.
When we entered the US market the expectation was
originally that the bulk of the Secure Payments contracts
would be for hosted solutions, as they are in the UK.
However, it became clear that US corporations had a
greater predilection for owning infrastructure than we
see in the UK, requiring a shift in how we addressed the
market. The subsequent acquisition of PSS meant that
we would be able to successfully implement and support
secure payment on-site installations across the vast US
continent, without incurring unsustainable levels of
operational expenditure. Its employee base of over fifty
US nationals spread across twenty US states incorporates
highly experienced field engineers and professional services
resource that will enable Eckoh to have expertise on-site
anywhere in the country within a matter of hours.
Whilst the primary rationale for acquiring PSS was to
support the anticipated growth of the Secure Payments
business in the US, its established and profitable Contact
Centre support business has also enabled us to create a
sustainable and attractive US Customer Contact operation
alongside that of Secure Payments. We see huge benefit
in the UK from having both business lines with significant
cross-selling activity and we would anticipate the same to
be true in the US.
12
Strategic Report
Board Change
After serving as a Non-executive Director of Eckoh for
seven years, Clive Ansell has decided to step down from
the Board at the forthcoming Annual General Meeting in
September. The Board would like to take this opportunity
to thank Clive for his considerable contribution to Eckoh
over the past seven years and wish him all the best for
the future. We have already begun the search for his
replacement who we would expect to be in place by
the time of the AGM and furthermore, in view of the
continued growth of the business we intend to strengthen
the Board further with the appointment of a third Non-
executive Director. We are looking forward to providing an
update on both appointments in due course.
Current trading and Outlook
The early months of the year have indicated that this
could be a breakthrough year in the US with the closure
of two multi-million dollar deals in June. These will
contribute significantly to the second half financial
performance of the Company in 2016/7, which we expect
to result in a more pronounced second half weighting
than we have historically seen. Over and above these
successfully concluded contracts, there is a large pipeline
of opportunity with particular interest in the payment
tokenisation products that have recently launched.
The Company has made two acquisitions since 2013
and these acquisitions have integrated within the wider
business very successfully, contributing to the ongoing
growth of the Group. The Board continues to look for
other opportunities in line with its acquisition strategy
and in particular, profitable and growing businesses which
would bring Eckoh complementary technologies
or enhanced reach and scale.
In view of the opportunities for growth, both organic
and via acquisition, the Board therefore looks forward to
2016/7, and the years beyond that, with great optimism
and excitement.
profit / (loss) before tax
Amortisation of intangible assets
Depreciation
Transactions relating to acquisitions
Legal fees and settlement costs -
Annual Report 2016
Financial Review
Revenue
Revenue in the year increased by 31% to £22.5m (2014/5:
£17.2m) while margin increased by 29% to £16.8m
(2014/5: £13.1m). Excluding the contribution from the
acquisition of PSS, organic revenue growth increased by
7% to £18.5m. Much of this organic revenue growth
came from the strong inflow of high margin payment
customers with organic gross margin increasing by 17% to
£15.3m. The Group has also maintained a high proportion
of recurring revenue with 79% of revenue in the UK being
represented by revenues that repeat on a monthly basis.
profitability Measures
The Operational gearing inherent in the business continues
to result in a large proportion of revenue and margin
growth flowing through to the profitability of the Company.
Adjusting for the impact of amortising acquired intangible
assets, share option schemes and non-recurring items
operating profit has increased by 22% to £4.1m (2014/5:
£3.4m). Similarly, adjusted EBITDA (calculated in the table
below) has increased from £4.5m to £5.4m, an increase
of 20%.
Statement of Financial position
Cash flow from operations was strong in the period at
£5.2m (2014/5: £0.7m) leading to cash increasing from
£4.4m at the end of the last financial year to £6.6m at
31 March 2016.
The loan outstanding at the end of the previous financial
year was repaid following the agreement for a new £5m
loan that also part funded the acquisition of PSS.
The total consideration for PSS was $7.6m (approximately
£5.0m) in a mix of cash and shares. After accounting
for $1.4m (approximately £0.9m) of cash in PSS, the net
consideration comprises $6.2m (approximately £4.0m).
Year ended
31 March 2016
£'000
Year ended
31 March 2015
(restated)*
£'000
2,406
2,008
799
(500)
-
(871)
1,710
690
1,474
527
Expenses relating to share option schemes 585
204,6585
199,69939
Interest receivable
Finance expense
Adjusted EBItdA
* See note 1 in the notes to the financial statements
(11)
77
5,364
(20)
19
4,468
Strategic Report 13
Corporate Responsibility
“ OUR BUSINESS
Eckoh is committed
to running the business
in an ethical and
responsible manner and
we focus our efforts on
three distinct areas:
workplace, community
and environment..
”
By order of the Board
Adam Moloney,
Company Secretary
14 june 2016
14
Strategic Report
Annual Report 2016
In t HE WORK plACE
Eckoh believes that its employees are the source of its competitive advantage and
a valuable asset to the business. We recognise that continued and sustained improvement
in the performance of the Group depends on its ability to attract, motivate and retain
talented people of the highest calibre.
At Eckoh, we’ve created an award winning, colourful,
dynamic and collaborative working environment where
employees find flexibility, an open planned office and the
environment to thrive in their roles.
Our robust Induction programme for all new starters spans
over a number of weeks after joining to ensure that all
new employees are welcomed and receive the adequate
training and information to become successful in their role.
Eckoh is an equal opportunities employer. No applicants
or employees will be unfairly discriminated against on the
grounds of criteria unrelated to their job performance. We
are proud of our high staff retention level and we often
see people return to Eckoh after a short time of leaving
the business.
At Eckoh, we strive to create a really positive working
environment to help our employees enjoy their work, be
successful in their role and deliver on business goals.
In recognising the outstanding efforts of our employees,
we’ve introduced our recognition Scheme, Reward and
Value Everyone (“RAVE”), where each month employees are
able to nominate their peers to receive a recognition award.
Our people are very proud to work for Eckoh and this
is demonstrated in the company’s Best Companies
Accreditation status. During the year we achieved a
Good Employer status that recognises the strength of the
Company’s working practices and employee care.
We continue to look to increase the number of people
employed by the Company and are pleased to have seen
our FTE employee base increase from 116 to 195 over the
course of the year.
development
We encourage our people to develop their skills and
keep up to date with new technology, standards and
processes. To build a high performance culture at Eckoh
and support advancement, we offer a suite of training
and development that is offered to every employee
within the business. Our managers have continued to
attend a Management Development Programme enabling
them to effectively lead their teams to deliver our key
business objectives. We have introduced a regular series
of technology forums where technology experts speak to
our employees about their area of expertise. We continue
to invest in our employees by funding training that will
enable them to progress through the organisation.
We have seen in many instances that young people leaving
school have taken junior roles in the organisation and have
progressed to take influential roles in the organisation.
Our investment in staff helps to retain and motivate our
people, as well as assisting high achieving employees to
progress and flourish in their role.
Communication
We maintain our enthusiastic and motivated workforce
through effective two-way communication. Staff members
are regularly informed of matters, both positive and
negative, that are affecting the business. This news is
relayed with a feedback request through bi-monthly
presentations to staff by Directors and regular email
bulletins. Managers are also encouraged to share progress
information within team briefings. Employees attend
regular employee forum meetings at which they can
contribute suggestions for how the working environment
can be improved.
Health, Safety and Accessibility
The health, safety and wellbeing of the people on our
premises are our highest priority. We hold regular risk
management reviews that scrutinise the safety of our
working environment. We actively encourage staff to
protect each other from potential harm and be aware of
their surroundings, mitigating any risk of slips, trips or falls
and have trained First Aiders on office premises.
For employees or guests with reduced mobility, our
offices are fully accessible with elevators to each floor and
disabled parking spaces. For those who choose to cycle
or run as part of their daily commute, we have provided
showers for their use and convenience. We actively
encourage a healthy lifestyle and we have partnered with
three local fitness centres that offer Eckoh discounted
memberships. We also provide free fruit for all our staff
to encourage health and wellbeing and regularly organise
for external therapists to treat our employees to sports
massages and reflexology.
Strategic Report 15
In t HE COMMU nItY
Eckoh recognises the importance of giving something back to the local community,
as well as supporting national causes.
Gaddesden Riding School for the disabled
volunteer day
In September 2015, 25 Eckoh employees, gave up a day
out of their busy work schedules to support Gaddesden
Riding School for the disabled. By volunteering a hard
day of painting, the outside of the riding school was
weatherproofed for the winter and ready for horse riding.
text Santa
Eckoh supported Macmillan Cancer support, Make a Wish
and Save the children by joining in with the Christmas
Jumper day.
Action for Children - Byte night
Byte Night is Action for Children's biggest annual
fundraiser; a national ‘sleep-out’ event. Each year,
hundreds of like-minded people from the technology
and business arena give up their beds for one night to
help change the lives of vulnerable young people.
Eckoh supported this event by sponsoring the breakfast
provided to employees participating at the event.
diabetes UK
Eckoh participated in the Sunday Times Best Companies
Survey, where our employees are requested to complete an
employee survey to give their feedback on their experiences
on working at Eckoh.For every survey completed, we
pledged to make a £5 donation to Diabetes UK, a charity
chosen by our employees and raised £660 for the charity.
Christmas Charity – dEnS
In the lead up to Christmas 2015, the Eckoh team
were busy collecting gifts and everyday essentials from
employees to donate to a local homeless charity, Dacorum
Emergency Night Centre (“DENS”). DENS is on the
frontline, tackling homelessness and poverty in Dacorum,
Hertfordshire by giving people the chance to build a better
future.
Bake Off and Egg painting contest for Apple
down Rescue
Inspired by the Easter weekend, Eckoh held an Easter
themed bake sale and Easter Egg painting contest!
To continue the theme of the Easter Bunny, all the
proceeds went to Appledown Rescue. They are a rescue
and rehoming Kennel, who have been taking in stray dogs
from many locations.
British Heart Foundation
Eckoh put their spring cleaning to good use and cleared
out their wardrobes in aid of The British Heart Foundation.
There were around 20 bags donated to the charity and
were greatly received by the charity.
Kings langley School
Our HR team were delighted to visit Kings Langley school
in March 2016 for a careers fair. It was a great opportunity
to speak to our local community and inspire those just at
the beginning of their career paths about careers at Eckoh
and provide support and guidance to parents and students
about entering the world of work.
Janice Wright, Careers Guidance said “I am writing to say
a sincere thank you for attending our recent Careers Fair,
your time and commitment were very much appreciated.
Yet again the feedback we received from students and
parents who attended the event was very positive and
everyone felt that it was very worthwhile.”
16
Strategic Report
Annual Report 2016
In t HE EnvIROnMEn t
Although operationally we do not manufacture products, Eckoh understands the impact our
business can have on the environment. From the efficient lighting in our offices to the fair-trade
coffee in our kitchen areas, we carefully consider the purchases we make and encourage our
suppliers to be equally considerate in the way they conduct their business.
Eckoh has taken the following steps to ensure that we
are doing all we can for the environment and to set a
good example to those who we come into contact with:
• Reduced business travel through the use of
web and phone based conferencing systems
• Energy efficient and motion sensor lighting
in our offices
• Comprehensive recycling programs in all
possible locations
• photo copiers set to double-sided, black and
white printing to reduce paper/ink use
• provide reusable cups and glasses to reduce
waste associated with disposable cups
• Encourage alternative methods of transport
to travel to and from work e.g. cycle to work
scheme.
Strategic Report 17
Market Review
20 From Call Centre
to Contact Centre
02
18
Market Review
Annual Report 2016
“The role of the contact centre agent
therefore has evolved, from a call answering
service to becoming a trusted advisor.
”
Market Review 19
From Call Centre
to Contact Centre
Agent positions 1995-2018
Source: Contact Babel, 'Contact centres 2015
20
Market Review
Annual Report 2016
dO COntACt CEntRES StI ll tAKE CAllS?
Several decades ago businesses created call centres. they employed large numbers
of agents and implemented IvRs to help manage high call volumes. this was primarily
to reduce the cost of serving their customers.
Gone are the days when a customer will only
contact an organisation through phone or email.
Consumers are now in control and are defining how
and where they will be serviced - through mobile
phone and tablets apps; laptop/desktop internet
browsers; as well as traditional landlines. people
want immediate assistance when they contact a
company and expect to be dealt with quickly and
without delay.
Today they want their contact (and transactions) to be
convenient and secure. Whilst 83% of consumers still prefer
to talk over the phone, they also want to interact using:
• web chat
• social media
• video
• email
• SMS
• mobile
• apps
Across all demographics, the voice channel is still the
primary method of communication used to contact
organisations, quickly followed by self-service channels.
This doesn’t mean to say that the voice channel is
becoming less important to customers; it has just been
augmented by others ways of achieving the same or
similar goal.
People still want to want to speak to an agent, but
instead of phoning for general queries which they can
source from elsewhere, they phone for answers or
assistance to more complex enquiries. This changing
customer behaviour has had three major impacts on
organisations:
1 Consumers now expect self-service channels
to answer their basic enquiries; and
2 Call Centres are now viewed as the expert
and the hub that binds all the other channels
together.
3 As well as having a choice of contact points
to an organisation (without being particularly
loyal to any one in particular) their customers
want the option to start an interaction in one
communication channel and finish it in another.
So How Have Call Centres needed to Change?
Call centres have now become contact centres. The role of
the contact centre agent therefore has evolved, from a call
answering service into becoming a trusted advisor.
Contact centre agents now have to multi-task, using
multiple-channels. Additionally, they are taking a growing
number of credit card payments for goods and services
over the phone.
Organisations have struggled to keep up with the change
in consumer technology and need to catch up. It’s a real
challenge!
The reason why organisations seek an expert like Eckoh,
is to help them join up their consumer activity, provide
a seamless multichannel experience and enable secure
payments over the phone.
Market Review
21
Governance Report
24 Board of Directors
26 Directors' Report
30 Corporate Governance
34 Directors' Responsibilities
36 Audit Report for Eckoh plc
03
22
Governance Report
subsidiary undertakings ("the Group") is
the provision of multi-channel customer
service and secure payment solutions for
“The principal activity of Eckoh plc and its
customer contact centres. ”
Annual Report 2016
Governance Report 23
Board of directors
CHRIS BAttERHAM
Non-Executive
Chairman
ClIvE AnSEll
Non-Executive
Director
AdAM MOlOnEY
Group Finance
Director
nIK pHIlpOt
Chief Executive
Officer
24
Governance Report
Annual Report 2016
CHRIS BAttERHAM
ClIvE AnSEll
nIK pHIlpOt
AdAM MOlOnEY
non-Executive
Chairman
non-Executive
director
Chief Executive
Officer
Group Finance
director
Chris qualified as an
accountant with Arthur
Andersen and has
significant experience in the
technology based business
environment, including the
flotation of Unipalm on the
London Stock Exchange.
Currently on the boards
of a number of companies
including SDL plc, Iomart
plc, Blue Prism Group
plc and NCC Group plc,
Chris brings a wealth of
experience in the strategic
development of companies
in the IT sector.
Clive joined the Board in
July 2009 and is also senior
independent non-executive
director on the Board of
Arqiva, and works as a
senior advisor with several
major consulting firms. He
is the former CEO of Tribal
Technology at Tribal Group
plc. has held a number
of senior executive and
strategic roles at BT, worked
as a strategic consultant
to the Board of Royal Mail,
spent three years as an
executive board director
of Japan Telecom, and led
major M&A projects in
the US. Clive is an Oxford
graduate, a patron of
Crimestoppers and sits on
the boards of a number
of charities and business
representative groups.
Nik is a founder of Eckoh
and was appointed
COO and Deputy CEO in
September 2001, before
being appointed CEO in
September 2006. Nik has
29 years' experience in the
voice services industry; he
was originally at British
Telecom before establishing
a number of start-up
businesses in the telecoms
and technology sectors.
As CEO of Eckoh, he has
created a leading provider
of secure payment solutions
and customer contact
services for the contact
centre industry.
Adam has been Finance
Director at Eckoh since
2004 and has seen the
Group through a period
of continuous change
over that time. Prior to
joining the Company in
2003 he worked in senior
financial roles for a number
of organisations and
immediately prior to joining
Eckoh, was Manager of
Finance & Operations for
the UK arm of New York
based IT hardware reseller,
Resilien Inc.
Governance Report
25
directors' Report
“ The Directors of
Eckoh plc present their
annual report, together
with the audited
financial statements
of the Company and
the Group for the year
ended 31 March 2016.
By order of the Board
14 june 2016 ”
Company Secretary
Adam Moloney,
26 Governance Report
principal Activity
The principal activity of Eckoh plc and its subsidiary
undertakings ("the Group") is the provision of multi-
channel customer service and secure payment solutions
for customer contact centres. The Chairman's Statement
(page 8) and the Business Review (pages 10 to 13) report
on the progress made in the financial year under review.
The subsidiary undertakings are listed on page 64.
Results and dividends
The audited financial statements and related notes for the
year ended 31 March 2016 are set out on pages 40 to 74.
The Group's profit for the year is set out in the consolidated
statement of comprehensive income on page 40.
The Group’s financial risk management is discussed
in note 3. The Directors’ regularly assess the Group’s
key commercial risks, which are considered to be the
competitive market sector and the stability of the
infrastructure that supports the Group’s products and
services. Commercial risks are managed through the
introduction of new products and services and by
maintaining high levels of customer service. Infrastructure
stability is managed through 24 hour technical monitoring
and an approach to continuous improvements of the
operations of the Group.
post Balance Sheet Events
Post year end the Directors are recommending that a
final dividend for the year ended 31 March 2016 of 0.45
pence per ordinary share be paid to the shareholders
whose names appear on the register at the close of
business on 7 October 2016 with payment on 4 November
2016. The ex-dividend date will be 6 October 2016.
This recommendation will be put to the shareholders at
the Annual General Meeting. Based on the shares in issue
at the year end, this payment would amount to £1.1m.
Research and development
The Group capitalised £0.5m (2015: £0.4m) of
development expenditure during the year. The majority
of this cost arose from the effort required to develop the
product range along with enhancements to client services.
Financial Instruments
The financial instruments of the Group are set out in
the notes to the financial statements on pages 46 to
74. Please refer to note 2 for a summary of principal
accounting policies; to note 3 for the Group’s financial risk
management policies in relation to liquidity risk or cash
flow risk, interest rate risk and foreign currency risk, as
Annual Report 2016
well as capital management; to note 15 for credit risk and
loans and other receivables; to note 16 for cash and cash
equivalents and to note 17 for trade and other payables.
Related party transactions
Related party transactions are disclosed in note 22.
Significant Accounting policies
The significant accounting policies applied to the
consolidated financial statements are included within
note 2.
Annual General Meeting
The next Annual General Meeting of the Company will
be held at 11:00 on 29 September 2016. Details of the
business to be proposed at the Annual General Meeting
are contained within the Notice of Meeting, which
accompanies this Report.
directors
The current Directors of the Company are shown on
pages 24 to 25.
The articles of association require that at the Annual
General Meeting one third, or as near as possible, of the
Directors will retire by rotation. C Batterham will retire by
rotation and puts himself forward for re-election at the
Annual General Meeting. In addition, any Director who has
at the start of the Annual General Meeting been in office
for more than three years since his last appointment or
re-appointment shall retire. N Philpot has not been elected
to office for a period of more than three years at the start
of the Annual General Meeting and shall retire and put
himself forward for re-election at the upcoming Annual
General Meeting.
C Ansell has decided to resign from office as a non-
executive Director with effect from the date of the Annual
General Meeting. A replacement is currently being sought.
directors' Interests
The interests of the Directors in the share capital of the
Company and their options in respect of shares in the
Company are shown below. No Director has had any
material interest in a contract of significance (other than
service contracts) with the Company or with any subsidiary
company during the year.
Governance Report 27
directors' Interests in Shares
The interests, all of which are beneficial, of the Directors
(and their immediate families) in the share capital of the
Company are set out below:
n B philpot (i)
A p Moloney
C M Batterham
notes:
14 June 2016
Ordinary shares
of 0.25 pence each
5,704,873
1,250,000
950,000
31 March 2016
Ordinary shares
of 0.25 pence each
5,704,873
1,250,000
950,000
1 April 2015
Ordinary shares
of 0.25 pence each
4,704,873
722,705
950,000
(i) N B Philpot's spouse is the beneficial owner of 80,000 shares that
are included above.
directors' Share Options
The Directors' interests in share options are shown in
the following table:
Note
At 1 April
2015
(number)
Granted in
year
(number)
Forfeited
in year
(number)
Exercised
in year
(number)
n B philpot
A p Moloney
a
b
b
b
c
a
a
a
b
b
b
c
247,000
2,843,988
2,843,989
2,843,989
4,265,983
230,464
167,200
167,200
1,421,994
1,421,994
1,421,995
2,132,992
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
At 31
March
2016
(number)
-
-
-
247,000
2,843,988
2,843,989
685,998
2,157,991
-
4,265,983
230,464
167,200
167,200
-
-
-
710,997
710,997
710,997
710,997
710,998
710,997
1,066,496
1,066,496
Exercise
price
(pence)
Earliest
date for
exercise
Latest
date for
exercise
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
30.06.14
30.06.22
01.01.14
01.01.23
01.01.15
01.01.23
01.01.16
01.01.23
02.01.16
01.01.23
30.06.13
30.06.21
30.06.13
30.06.22
30.06.14
30.06.22
01.01.14
01.01.23
01.01.15
01.01.23
01.01.16
01.01.23
01.01.16
01.01.23
The information contained in this table has been audited.
notes:
a) Granted under the 2010 Eckoh plc Bonus plan. Half of the bonus
awards made to executives in respect of two recent financial years
were made in the form of deferred shares. The deferred shares
vested in tranches of 50% on the first and second anniversary of
the grant date. Further details are available in the Remuneration
report on page 32.
b) Granted under the 2012 Eckoh plc Long Term Incentive Plan
(“2012 LTIP”). The number of shares that ultimately vested was
subject to the satisfaction of share price targets. The share price
targets were comfortably exceeded and all of the shares are now
exercisable.
c) Granted under the 2012 Eckoh plc Long Term Incentive Plan
(“2012 LTIP”). The number of shares that ultimately vested was
subject to the satisfaction of share price targets. The share price
targets were comfortably exceeded and all of the shares are now
exercisable.
28 Governance Report
directors’ Indemnity and Insurance
Shareholder Relations
Annual Report 2016
The Group maintained insurance cover during the year
for its Directors and Officers and those of subsidiary
companies under a Directors and Officers liability insurance
policy against liabilities that may be incurred by them
while carrying out their duties. This policy is available for
inspection at the registered office of the Company during
business hours on any weekday except public holidays.
Share Capital and Reserves
Details of changes in the authorised and issued share
capital and reserves of the Company are shown in note 18
to the financial statements.
Share Schemes
The Directors believe that a key element in attracting,
motivating and retaining employees of the highest calibre
is employee involvement in the performance of the Group
through participation in share schemes. By doing so, the
Directors believe that employees' interests will be aligned
with those of shareholders. Details of options granted
under the share option schemes are set out in note 20 to
the financial statements. All permanent employees are
eligible to join a scheme.
payments to Creditors
The Company and its subsidiaries have a variety of
payment terms with their suppliers. The Group agrees
payment terms with its suppliers when it enters into
binding purchasing contracts for the supply of goods
and services. The Group seeks to abide by these payment
terms when it is satisfied that the supplier has provided
the goods or services in accordance with the agreed terms
and conditions. At 31 March 2016 the amount of trade
creditors shown in the balance sheet represents 46 days
of average purchases for the Group (2015: 97 days). The
Company had no trade creditors at 31 March 2016 or 31
March 2015.
Statement of disclosure of Information
to Auditors
As far as the Directors are aware there is no information
relevant to the audit of which the Company’s auditors
are unaware and the Directors have taken all steps that
they ought to have taken as Directors in order to make
themselves aware of any such relevant information and to
establish that the Company’s auditors are aware of that
information.
Auditors
In accordance with Section 489 of the Companies Act
2006, a resolution for the re-appointment of KPMG
LLP as auditor of the company is to be proposed at the
forthcoming Annual General Meeting.
The Company holds meetings with its major institutional
investors and general presentations are given covering
the interim and preliminary results. The Chairman, C M
Batterham, is available to attend presentation meetings
and other presentations on an ongoing basis. All Directors
have access to the Company's nominated advisors who
give feedback from shareholders and receive copies of
broker update documents.
All shareholders have the opportunity to raise questions
at the Company's Annual General Meeting, or leave
written questions, which will be answered in writing as
soon as possible. At the meeting the Chairman will give
a statement on the Group's performance during the year,
together with a statement on current trading conditions.
In addition to regular financial reporting, significant
matters relating to the trading or development of the
business are disseminated to the market by way of Stock
Exchange announcements. The Company's Annual
Report and Accounts, Interim Statements and other
major announcements are published on the Company's
corporate web site at www.eckoh.com.
Going Concern
Under company law, the Company's Directors are required
to consider whether it is appropriate to prepare financial
statements on the basis that the Company and the Group
are a going concern. As part of its normal business practice
the Group prepares annual and longer term plans and, in
reviewing this information, the Company's Directors are
satisfied that the Group and the Company have reasonable
resources to enable them to continue in business for the
foreseeable future. For this reason the Company and
the Group continue to adopt the going concern basis in
preparing the financial statements.
Governance Report 29
Corporate Governance
The Board of Eckoh
plc recognises its
responsibilities to
maintain high standards
of corporate governance
throughout the Group.
30 Governance Report
Compliance Statement
The Board of Eckoh plc recognises its responsibilities
to maintain high standards of corporate governance
throughout the Group. The Board continues to give careful
consideration to the principles of corporate governance as
set out in the UK Corporate Governance Code published
by the Financial Reporting Council, although as a company
listed on AIM it is not required to comply with the UK
Corporate Governance Code. The Company is committed
to complying with the UK Corporate Governance Code so
far as is practicable and appropriate for a public company
of its size and nature.
Board of directors
The Chairman is responsible for the effective running
of the Board of Directors. The Board currently has four
members, comprising the Non-Executive Chairman,
the Chief Executive, the Group Finance Director and
a Non-executive Director. The Board has considered
the independence of its Non-Executive Chairman, C M
Batterham, and after due consideration, has concluded
that he is independent. He does not have any involvement
in the day-to-day management of the Company or its
subsidiaries. The Board intend to appoint an additional
Non-executive director during the 2016/7 financial year.
Annual Report 2016
The Board and its Committees are supplied with
information and papers to ensure that all aspects of the
Company's affairs are reviewed on at least an annual basis.
Day-to-day management of the business is delegated
to the Operating Board, consisting of the two Executive
Directors and certain senior managers, which meets
monthly. The Board is dependent on the Operating
Board for the provision of accurate, complete and
timely information and the Directors may seek further
information where necessary. The Chairman is responsible
for ensuring that all Directors are properly briefed on issues
arising at Board meetings.
Under the Company's articles of association, each
year at least one third of the Directors must retire and
submit themselves for re-election by the shareholders
at the Annual General Meeting. The communication
accompanying the Company's Notice of Annual General
Meeting sets out reasons for the Board's belief that the
individual should be re-elected.
Board Committees
Certain responsibilities are delegated to the Remuneration
and Audit Committees. Both committees have written
terms of reference, which define their authorities, duties
and membership.
The biographical details of the Board members are set out
on page 25.
Audit Committee Report
There is a schedule of formal matters specifically reserved
for the full Board's consideration, including a policy
enabling Directors to take independent professional
advice in the furtherance of their duties at the Company's
expense. The Board programme is designed so that
Directors have a regular opportunity to consider the
Group's strategy, policies, budgets, progress reports and
financial position and to arrive at a balanced assessment of
the Group's position and prospects. In addition, strategic
developments are on the agenda at each Board meeting
and are subject to further ad hoc review by the Board
as triggered by relevant external factors. Also, where
appropriate, the Board programme also includes a day set
aside purely for strategic review and planning.
The Company has a clear division of responsibility between
the roles of Chairman and Chief Executive within the
business.
The Non-Executive Chairman has a responsibility to ensure
that the strategies and policies proposed by the Executive
Directors are fully discussed and critically examined,
not only with regard to the best long-term interests of
shareholders, but also having regard to the Company's
relationships with its employees, customers and suppliers.
The Audit Committee is responsible for reviewing the
following:
• accounting procedures and controls;
• financial information published by the Group,
including the Annual Report, preliminary &
Interim Statements and on the Company’s
website;
•
•
•
risk management and the effectiveness of the
Group’s system of internal financial control;
the terms of reference for the Group’s external
valuers; and
the results and effectiveness of the Company’s
external audit.
The Audit Committee formally met twice during the period
under review, with no absentees. A P Moloney, the Group
Finance Director, attends all Audit Committee meetings
by invitation and provides advice to the Committee where
appropriate. The Chief Executive was invited to and attended
the meetings. The Company's auditor attended the meetings
and the Committee considered reports issued by them.
Governance Report 31
The auditor has direct access to the Audit Committee
without the presence of an Executive Director. The
Committee reviews the effectiveness of the Company's
internal financial controls by reference to reports from
the external auditors. The Committee also reviews the
scope and results of the external audit as well as its cost
effectiveness.
The Audit Committee annually reviews the requirement
for an internal full-time audit function. The Committee
has decided that none is necessary at present. Instead,
other monitoring processes have been applied to provide
assurance to the Board that the system of internal control
is functioning satisfactorily. Internal controls are discussed
under the internal control and risk management section
below.
Internal Control and Risk Management
The Directors formally acknowledge their responsibility for
establishing effective internal control within the Company.
In this context, control is defined as those policies,
processes, tasks and behaviours established to ensure
that business objectives are achieved most cost effectively,
assets and shareholder value are safeguarded and laws,
regulations and policies are complied with.
procedures, which is supported by training, budgeting,
reporting and review procedures.
A long-term business plan and an annual operating
budget are prepared by management and are reviewed
and approved by the Board prior to the commencement
of each financial year. Monthly reporting and analysis
of results against budget, risk assessment and related
internal controls and forecasts are received, discussed by
management and reported formally to the Board. Informal
reviews take place more frequently.
There are ongoing processes for identifying, evaluating
and managing the Company's significant risks and related
internal controls that are integrated into the Company's
operations. Such processes are reported to, and reviewed
by, the Board at each meeting. These processes have
identified the risks most important to the Company
(business, operational, financial and compliance),
determined the financial implications, and assessed the
adequacy and effectiveness of their control. The reporting
and review processes provide routine assurance to the
Board as to the adequacy and effectiveness of the internal
controls.
Remuneration Committee Report
The Board has put in place a system of internal controls,
set within a framework of a clearly defined organisational
structure, with well understood lines of responsibility,
delegation of authority, accountability, policies and
The principal objectives of the Remuneration Committee
are to review the performance of the Executive Directors
and make recommendations to the Board on matters
relating to their remuneration and terms of employment.
directors’ Remuneration for the Financial year was as follows:
Name
C Ansell (i)
C M Batterham (ii)
A p Moloney (iii)
n B philpot (iv)
total
Salary and fees
£’000
Cash bonus
£’000
Other benefits
£’000
2016 Total
£’000
2015 Total
£’000
30
50
140
207
427
-
-
59
87
146
-
-
30
40
70
30
50
229
334
643
30
50
217
317
614
The information contained in this table has been audited.
notes:
(i) C Ansell was appointed as a Non-Executive Director on 7 July 2009.
(ii) C M Batterham was appointed as Non-Executive Director on 15
July 2009 and further appointed as Non-Executive Chairman on
11 September 2009.
(iii) Included within the other benefits paid to A P Moloney is an
employer pension contribution of £26,000 (2015: £26,000).
The remainder of the other benefits paid to A P Moloney relate to
private healthcare costs of £2,000 (2015: £2,000)
(iv) Included within the other benefits paid to N B Philpot is an
employer pension contribution of £35,000 (2015: £35,000).
The amount of £2,000 (2015: £2,000) paid to N B Philpot within
other benefits relate to private healthcare costs.
Share options were exercised by both directors during
the year. Share options details are disclosed in the
Director’s Report on page 28.
32 Governance Report
Remuneration and Service Contracts
The remuneration of the Executive Directors is determined
by the Remuneration Committee. Both Executive Directors
have service contracts that are terminable on twelve
months’ notice. The service contracts for both Executive
Directors have been reviewed for the 2016/7 financial
year following a benchmarking exercise against similar
companies listed on AIM markets. It was concluded that
the salary for N Philpot should be increased to £275,000
per annum and that the salary for A Moloney should be
increased to £175,000 per annum. Both increases took
effect from 1 April 2016.
Both Non-Executive Directors have service contracts
terminable on six months’ notice. No change has been
agreed for the fees received by the Non-Executive Directors
Bonus Arrangements
The Bonus plan adopted allowed for awards based on
achievement of operating profit targets.
To deliver a maximum payment bonus award of 100%
of salary, targets must be exceeded by 15%. In the year
ended 31 March 2016, performance against targets
resulted in a bonus payment of 42% of 2015/6 salary
being awarded to N B Philpot and A P Moloney.
long-term Incentive Arrangements for directors
In June 2010 a Long Term Incentive Plan (“2010 LTIP”) was
adopted by the Board.
Part 1 of the plan awarded nominal value options to
participants upon achievement of stretching earnings per
share targets over a three year period. Vesting of these
options were also subject to a Total Shareholder Return
target being achieved over the corresponding period.
Part 2 of the plan released value to participants in the
event that there is a change of control in the business at a
value which is significantly in excess of the market value of
the company at the date of the award made in June 2010.
Any change of control was required to be completed
before June 2013 otherwise the award under Part 2 of the
2010 LTIP would lapse.
During 2012, independent professional advice was
obtained to review the 2010 LTIP. The review concluded
that the 2010 LTIP strongly incentivised Management
to seek a disposal of the business before June 2013
which was not considered to be in the best interests of
shareholders. Following consultation with shareholders,
it was agreed that a replacement Long Term Incentive
Plan should be adopted which would recognise the value
created since the adoption of the 2010 LTIP when the
Annual Report 2016
share price of the company was 4.875 pence. The new
plan should also provide incentives for the generation of
further shareholder value over the next three year period.
The new Long Term Incentive Plan was adopted by the
Board on 19 December 2012 (“2012 LTIP”). All awards
made under the 2010 LTIP were forfeited by participants
and replaced by nil cost share options (“Base Awards”)
which were subject to their continued employment
and the satisfaction of certain share price performance
conditions. The Base Awards vested in two equal amounts
on the anniversary of the grant in each of the subsequent
three years and were subject to claw back under certain
events, including if the future share price on vesting has
fallen by greater than 10% on the previous year.
Executive Directors were also able to earn a maximum
of an additional 50% of the Base Award depending on
the achievement of challenging share price targets within
three years. At the date of award, the share price of the
company was 14 pence per share. The maximum award
could only be achieved in the event that the share price
met a target of 28 pence per share by 31 December 2015.
On 31 December 2015, the share price of the company
was 50.25 pence an increase of more than ten times the
share price when the original LTIP was implemented.
Towards the end of 2015 the Remuneration Committee
took professional advice on long-term remuneration
arrangements for Executive Directors beyond December
31 2015. A proposal was presented to the largest
shareholders of the company in January 2016. Following
discussions with these shareholders the company have
implemented an option scheme which will issue a
maximum of 2% of the share capital each year for the
next 3 years, options to be issued at market price. None of
these options will be awarded to the Executive Directors in
2016.
At March 31 2016, Nik Philpot holds 6,423,974 fully
vested options and 5,704,873 shares, Adam Moloney
3,199,487 fully vested options and 1,250,000 shares.
nomination Committee
The nomination committee meets at least once a year
and is responsible for reviewing the size, structure and
composition of the board and making recommendations
to the board if it considers that any changes are required.
It has a formal procedure for appointments to the board.
Governance Report 33
directors' Responsibilities
STATEMENT OF
DIRECTORS’
RESPONSIBILITIES IN
RESPECT OF THE
ANNUAL REPORT
The directors are
responsible for
preparing the Annual
Report and the group
and parent company
financial statements
in accordance with
applicable law and
regulations.
34 Governance Report
Annual Report 2016
Company law requires the directors to prepare group and
parent company financial statements for each financial
year. As required by the AIM Rules of the London Stock
Exchange they are required to prepare the group financial
statements in accordance with IFRSs as adopted by the EU
and applicable law and have elected to prepare the parent
company financial statements in accordance with UK
Accounting Standards and applicable law (UK Generally
Accepted Accounting Practice), including FRS 101 Reduced
Disclosure Framework.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the parent company’s transactions and disclose with
reasonable accuracy at any time the financial position
of the parent company and enable them to ensure that
its financial statements comply with the Companies Act
2006. They have general responsibility for taking such
steps as are reasonably open to them to safeguard the
assets of the group and to prevent and detect fraud and
other irregularities.
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
parent company and of their profit or loss for that period.
In preparing each of the group and parent company
financial statements, the directors are required to:
The directors are responsible for the maintenance and
integrity of the corporate and financial information
included on the company’s website. Legislation in the
UK governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
• select suitable accounting policies and then
apply them consistently;
• make judgements and estimates that are
reasonable and prudent;
•
•
for the group financial statements, state whether
they have been prepared in accordance with IFRSs
as adopted by the EU;
for the parent company financial statements,
state whether applicable UK Accounting
Standards have been followed, subject to any
material departures disclosed and explained in
the financial statements; and
• prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the group and the parent company
will continue in business.
Governance Report 35
Audit Report for Eckoh plc
INDEPENDENT
AUDITOR’S REPORT
TO THE MEMBERS
OF ECKOH PLC
36 Governance Report
Annual Report 2016
We have audited the financial statements of Eckoh
plc for the year ended 31 March 2016 set out on pages
40 to 86. The financial reporting framework that has
been applied in the preparation of the group financial
statements is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the EU.
The financial reporting framework that has been applied
in the preparation of the parent company financial
statements is applicable law and UK Accounting Standards
(UK Generally Accepted Accounting Practice), including
FRS 101 Reduced Disclosure Framework.
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.
Respective Responsibilities of directors and
Auditor
As explained more fully in the Directors’ Responsibilities
Statement set out on page 35, the directors are
responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view.
Our responsibility is to audit, and express an opinion on,
the financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the Audit of the Financial Statements
A description of the scope of an audit of financial
statements is provided on the Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate.
Mark Matthewman
(Senior Statutory Auditor)
For and on behalf of KpMG llp,
Statutory Auditor Chartered Accountants
Altius House, One north Fourth Street,
Milton Keynes MK9 1nE
14th June 2016
Opinion on Financial Statements
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 2016 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 EU;
the parent company financial statements have
been properly prepared in accordance with UK
Generally Accepted Accounting practice;
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
Opinion on Other Matter prescribed by
the Companies Act 2006
In our opinion the information given in the Strategic
Report and the Directors’ Report for the financial year for
which the financial statements are prepared is consistent
with the financial statements.
Matters on Which We Are Required to Report
by Exception
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
• adequate accounting records have not been
kept by the parent company, or returns adequate
for our audit have not been received from
branches not visited by us; or
•
the parent company financial statements are not
in agreement with the accounting records and
returns; or
• certain disclosures of directors’ remuneration
specified by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Governance Report 37
Financial Statements
40 Consolidated Financial
Statements
46 Notes to the Financial
Statements
76 Company Financial
Statements
80 Notes to the Company
Financial Statements
87 Shareholder Information
04
38
Financial Statements
“
Annual Report 2016
Financial Statements
39
Consolidated
Financial Statements
C OnSOlIdAtEd StAtEMEnt OF pROFIt And
lOS S And OtHER COMpREHEnSIvE InC OME
for the year ended 31 March 2016
2016
£’000
2016
£’000
2015
£’000
(restated -
see note 1)
2015
£’000
(restated -
see note 1)
notes
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses before expenses relating to share
options schemes, acquisition costs, amortisation of acquired
intangible assets and legal fees and settlement costs
profit from operating activities before expenses relating to
share option schemes, acquisition costs, amortisation of
acquired intangible assets and legal fees and settlement costs
Amortisation of acquired intangible assets
Legal fees and settlement costs
Transactions relating to acquisitions
Expenses relating to share option schemes
Total Administrative expenses
profit / (loss) from operating activities
Interest payable
Interest receivable
profit / (loss) before taxation
Taxation
profit / (loss) for the year
Other Comprehensive income
Items that will be reclassified subsequently to profit or loss:
Foreign currency translation differences -foreign operations
Other Comprehensive income for the year, net of income tax
total comprehensive income for the year attributable to the
equity holders of the parent company
Profit per share (pence)
Basic earnings per 0.25p share
Diluted earnings per 0.25p share
40
Financial Statements
4
4
11
28
4
5
8
8
9
10
22,450
(5,607)
16,843
17,158
(4,055)
13,103
(12,702)
(9,715)
4,141
(1,584)
-
500
(585)
3,388
(1,320)
(527)
(1,474)
(939)
(14,371)
2,472
(13,975)
(872)
(77)
11
2,406
(468)
1,938
101
101
2,039
0.86
0.77
(19)
20
(871)
(16)
(887)
97
97
(790)
(0.40)
(0.40)
CO nSOlIdAtEd StAtEMEnt OF FInAnC IAl pOSItI On
as at 31 March 2016
Annual Report 2016
notes
11
12
9
14
15
16
17
3
3
9
18
Assets
non-current assets
Intangible assets
Tangible assets
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
total assets
liabilities
Current liabilities
Trade and other payables
Other interest-bearing loans and borrowings
non-current liabilities
Other interest-bearing loans and borrowings
Other payables
Deferred tax liability
Provisions
net assets
Shareholders’ equity
Share capital
ESOP Reserve
Capital redemption reserve
Share premium
Merger reserve
Currency reserve
Retained earnings
total shareholders’ equity
2015
£’000
(restated -
see note 1)
2014
£’000
(restated -
see note 1)
2016
£’000
9,262
5,376
4,774
19,412
748
9,127
6,617
16,492
35,904
4,899
5,191
4,938
15,028
224
7,049
4,419
11,692
26,720
(10,676)
(6,217)
(1,000)
(636)
(11,676)
(6,853)
(3,750)
-
(1,633)
-
(5,383)
18, 18,845
600
(17)
198
2,612
2,353
157
12,942
18,845
(2,105)
-
(862)
-
(2,967)
16,900
558
(135)
198
2,561
1,081
56
12,581
16,900
6,218
862
4,267
11,347
104
3,576
7,341
11,021
22,368
(5,996)
-
(5,996)
-
(212)
(1,123)
(43)
(1,378)
14,994
540
(22)
198
1,330
1,081
(41)
11,908
14,994
The financial statements were approved by the Board of Directors on 14th June 2016 and signed on its behalf by:
Adam Moloney
Group Finance Director
Company Registration Number 3435822
Financial Statements
41
COnSOlIdAtEd StAtEMEnt OF CHAnGES In EqUItY
as at 31 March 2016
Share
capital
ESOP
reserve
Capital
redemp-
tion
reserve
£’000
£’000
£’000
198
Share
premium
Merger
reserve
Retained
earnings
Currency
reserve
Total
share-
holders
equity
£’000
2,411
£’000
£’000
£’000
£’000
-
11,197
(41)
14,283
-
(1,081)
1,081
711
-
711
198
1,330
1,081
11,908
(41)
14,994
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,189
-
42
-
-
1,231
1,231
-
-
-
-
-
-
-
-
-
-
-
(887)
-
(887)
(695)
-
(25)
-
1,370
910
1,560
1,560
-
97
97
(887)
97
(790)
-
-
-
-
-
-
-
-
(695)
1,205
(138)
44
1,370
910
2,696
2,696
198
2,561
1,081
12,581
56
16,900
Balance at 1 April 2014
Restatement (note 1)
Balance at 1 April 2014 (restated)
Loss
Retranslation
total comprehensive income (restated)
transactions with owners of the Company
Contributions and distributions
Dividends paid in the year
Shares to be issued relating to the acquisition
of Veritape Limited
Shares transacted through Employee Benefit Trust
Shares issued under the share option schemes
Share based payment charge
Deferred tax on share options
total contributions and distributions
(restated)
total transactions with owners of the
Company (restated)
Balance at 31 March 2015 (restated)
540
-
540
-
-
-
-
16
-
2
-
-
(22)
-
(22)
-
-
-
-
-
(113)
-
-
-
18
(113)
18
558
(113)
(135)
42
Financial Statements
Annual Report 2016
C OnSOlIdAtEd StAtEMEnt OF C HAnGES In EqUItY (C On t In UE d )
as at 31 March 2016
Share
capital
ESOP
reserve
Capital
redemp-
tion
reserve
Share
premium
Merger
reserve
Retained
earnings
Currency
reserve
Total
share-
holders
equity
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Balance at 1 April 2015
558
(135)
198
2,561
1,081
12,581
56
16,900
total comprehensive income
Profit
Retranslation
Total comprehensive income
transactions with owners of the Company
Contributions and distributions
Dividends paid in the year
Shares issued on acquisition of PSS Inc
Shares transacted through Employee Benefit Trust
Shares issued under the share option schemes
Share based payment charge
Deferred tax on share options
total contributions and distributions
total transactions with owners of the
Company
-
-
-
-
7
-
35
-
-
42
42
-
-
-
-
-
118
-
-
-
118
118
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29
22
-
-
51
51
-
-
-
-
1,272
-
-
-
-
(826)
-
(116)
-
(1,078)
443
1,272
(1,577)
1,272
(1,577)
1,938
-
1,938
-
1,938
101
101
101
2,039
-
-
-
-
-
-
-
-
(826)
1,279
31
57
(1,078)
443
(94)
(94)
Balance at 31 March 2016
600
(17)
198
2,612
2,353
12,942
157
18,845
Financial Statements
43
C OnSOlIdAtEd StAtEMEnt OF C ASH FlOWS
for the year ended 31 March 2016
Cash flows from operating activities
Cash generated in operations
Taxation
Net cash generated in operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchases of intangible fixed assets
Interest paid
Interest received
Acquisition of subsidiary, net of cash acquired
Net cash utilised in investing activities
Cash flows from financing activities
Dividends paid
Proceeds from new loan
Repayment of borrowings
Issue of shares
Shares acquired / sold by Employee Benefit Trust
Net cash generated in financing activities
Increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the start of the period
Cash and cash equivalents at the end of the period
notes
24
12
11
8
8
27
16
16
2016
£’000
5,227
(53)
5,174
(927)
(537)
(77)
11
(2,717)
(4,247)
(826)
5,000
(2,991)
57
31
1,271
2,198
4,419
6,617
2015
£’000
680
(101)
579
(5,019)
(391)
(19)
20
-
(5,409)
(695)
2,900
(159)
-
(138)
1,908
(2,922)
7,341
4,419
The notes on pages 46 to 74 form an integral part of these financial statements
44
Financial Statements
Annual Report 2016
Financial Statements
45
notes to the
Financial Statements
For the year ended 31 March 2016
1 . BASIS OF pREpARAtIO n
The Consolidated Financial Statements of Eckoh plc have
been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the EU
(“endorsed IFRS”). These financial statements have been
prepared in accordance with those IFRS standards and
IFRIC interpretations issued and effective or issued and
early adopted as at 31 March 2016 as endorsed by the EU.
The following Adopted IFRSs have been issued but
have not been applied by the Group in these financial
statements. Their adoption is not expected to have
a material effect on the financial statements unless
otherwise indicated:
IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations (mandatory for year
commencing on or after 1 January 2016)
IFRS 7 Financial Instruments (mandatory for year
commencing on or after 1 January 2016)
These Consolidated Financial Statements have been
prepared under the historical cost convention, as modified
by the revaluation of available-for-sale financial assets, and
financial assets and financial liabilities at fair value through
profit and loss.
Going Concern Under company law, the Company's
Directors are required to consider whether it is appropriate
to prepare financial statements on the basis that the
Company and the Group are a going concern. As part of
its normal business practice the Group prepares annual
and longer term plans and, in reviewing this information,
the Company's Directors are satisfied that the Group and
the Company have reasonable resources to enable them
to continue in business for the foreseeable future. For this
reason the Company and the Group continue to adopt the
going concern basis in preparing the financial statements.
The Consolidated Financial Statements are presented
in Pounds Sterling, which is the company's functional
currency. All financial information presented has been
rounded to the nearest one thousand.
IFRS 16 Leases (mandatory for year commencing on or
after 1 January 2019)
The principal accounting policies, which have been
consistently applied, are described opposite.
IAS 19 Employee Benefits (mandatory for year
commencing on or after 1 January 2016)
prior Year Restatement
•
•
•
•
•
IFRS 15 Revenue from Contracts with Customers
(mandatory for year commencing on or after 1 January
2017). The impact this may have on our revenue
recognition would be recognition of revenue on
project milestones completed rather than percentage
completion of each project.
• Amendments to IAS 2 Inventories (mandatory for year
commencing on or after 1 January 2017).
•
IFRS 9 Financial instruments (mandatory for year
commencing on or after 1 January 2018).
The Directors’ review newly issued standards and
interpretations in order to assess the impact (if any) on the
financial statements of the Group in future periods.
These financial statements have been prepared in
accordance with the accounting policies set out below
which are based on the recognition and measurement
principles of IFRS in issue as adopted by the European
Union (“EU”) and effective at 31 March 2016.
46
Financial Statements
This company has reviewed the way the contingent
consideration for the acquisition of Veritape Limited in
the year ended 31 March 2014 has been accounted for.
On further analysis the contingent consideration
arrangement has a continuing employment clause
which means that it should have been accounted for in
accordance with IAS 19 Employee Benefits and IFRS 2
Share Based Payments and not as contingent consideration
under IFRS 3.
As a result, contingent consideration payable recognised
on acquisition of £3,680,000 has been reversed resulting
in the reversal of goodwill originally recognised on the
Veritape Limited acquisition of £3,418,000 and the
recognition of negative goodwill, which is recognised
immediately in the income statement of £262,000. In
addition, employee remuneration charges of £1.9 million
and £1.5 million for years ended 31 March 2014 and 31
March 2015 respectively, should have been charged to
administration expenses with associated entries in equity
£1.1 million (2015:£1.1 million) and creditors £0.8 million
(2015:£0.4 million), rather than the fair value changes
recorded for the changes in the contingent consideration
of a charge of £1.2 million in interest payable in the year
ended 31 March 2014 and a credit of £1.5 million in
interest receivable in the year ended 31 March 2015.
Annual Report 2016
The above adjustments change the profit after tax for the
year ended 31 March 2014 of £298,000 to a loss after tax
of £150,000 and the profit after tax in the year ended 31
March 2015 £2,105,000 to a loss of £887,000.
In the year ended 31 March 2016 there is a credit of
£1,240,000 relating to the employee benefit expenses as
no further payment is expected.
The excess of the nominal value over the fair value of the
shares issued to acquire Veritape Limited have been moved
from share premium to a merger reserve.
There have been a number of adjustments to the balance
sheet and income statement to reflect the above which are
set out below:
Intangible assets
Current liabilities – contingent consideration
Non-current liabilities - contingent consideration
Other assets / liabilities not impacted
net assets
Shareholders’ equity
Share premium
Merger reserve
Retained earnings
Other equity entries not impacted
total shareholders’ equity
Intangible assets
Trade and other receivables
Non-current liabilities - contingent consideration
Other assets / liabilities not impacted
net assets
Shareholders’ equity
Share premium
Merger reserve
Retained earnings
Other equity entries not impacted
total shareholders’ equity
Admin expenses
Finance income
Impact on income statement for the year ended 31 March 2015
2014
(as previously
reported)
£’000
Impact of
prior period
Adjustment
£’000
9,636
(1,952)
(2,941)
9,540
14,283
2,411
-
11,197
675
14,283
(3,418)
1,400
2,729
-
711
(1,081)
1,081
711
-
711
2015
(as previously
reported)
£’000
8,317
7,033
(636)
4,952
Impact of
prior period
Adjustment
£’000
(3,418)
16
636
-
19,666
(2,766)
5,175
-
13,814
677
19,666
12,501
(1,518)
(2,614)
1,081
(1,233)
-
(2,766)
1,474
1,518
2,992
2014
(restated)
£’000
6,218
(552)
(212)
9,540
14,994
1,330
1,081
11,908
675
14,994
2015
(restated)
£’000
4,899
7,049
-
4,952
16,900
2,561
1,081
12,581
677
16,900
13,975
-
Financial Statements
47
Deferred Taxation (note 9)
Deferred tax liabilities are recognised for all taxable
temporary differences but, where there exist deductible
temporary differences, judgement is required as to
whether a deferred tax asset should be recognised based
on the availability of future taxable profits. At 31 March
2016, the Group recognised deferred tax assets of £4.8
million, including £3.1 million in respect of tax losses and
tax credits. Deferred tax assets amounting to £0.6 million
were not recognised in respect of trading losses and £5.6m
in respect of capital losses of which £4m are restricted. It
is possible that the deferred tax assets actually recoverable
may differ from the amounts recognised if actual taxable
profits differ from estimates.
Basis of Consolidation
(a) Business Combinations
Business combinations are accounted for using the
acquisition method as at the acquisition date – i.e. when
control is transferred to the Group. Control is the power to
govern the financial and operating policies of an entity so
as to obtain benefits from its activities. In assessing control,
the Group takes into consideration potential voting rights
that are currently exercisable.
The Group measures goodwill at the acquisition date as:
•
the fair value of the consideration transferred; plus
•
•
the recognised amount of any non-controlling interests
in the acquiree; plus
if the business combination is achieved in stages, the
fair value of the pre-existing equity interest in the
acquiree; less
•
the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is
recognised immediately in profit or loss.
The consideration transferred does not include amounts
related to the settlement of pre-existing relationships. Such
amounts are generally recognised in profit or loss.
Transaction costs, other than those associated with the
issue of debt or equity securities, that the Group incurs in
connection with a business combination are expensed as
incurred.
2 . SUMMARY OF pRInCIpAl
A CCOUntInG pOlICIES
Critical Accounting policies, Estimates
and judgements
The preparation of financial statements in accordance
with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise
judgement in the process of applying the Group's
accounting policies. Estimates and judgements are
continually evaluated and are based on historical
experience and reasonable expectations of future events.
Actual results may differ from those estimates.
The accounting policies cover areas that are considered by
the Directors to require estimates and assumptions which
have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the
next financial year. The policies, and the related notes to
the financial statements, are found below:
Revenue Recognition (note 2)
The Group recognises revenue on certain contracts during
the period of performance prior to an invoice being raised,
where work has been completed and where there is a high
degree of certainty of the contract being completed, the
invoice raised and cash received. In relation to Speech
Solutions build fee revenue, this involves estimating a
percentage completion based on the direct labour costs
incurred to date as a proportion of the total estimated
costs required to complete a project. Whilst these
assessments are made on a recognised and consistent
basis, variation in the total estimated costs derived from
these assessments and estimates used by the directors
could have a significant impact on the amount and timing
of revenue recognised on a project.
Share Based Payments (note 20)
The fair value of share based payments is estimated
using the methods detailed in note 20 and using certain
assumptions. Both the Black Scholes and Monte Carlo
valuation models have been used in determining the
fair value of share based payments, with management
selecting the most appropriate model for each scheme,
based on the varying performance-related or market-
related conditions within those specific schemes.
The key assumptions around volatility, expected life and
risk free rate of return are based, respectively, on historic
volatility over a similar previous period, management’s
estimate of the average expected period to exercise, and
the yield on zero-coupon UK government bonds of a term
consistent with assumed option life.
48
Financial Statements
Any contingent consideration payable is measured
at fair value at the acquisition date. If the contingent
consideration is classified as equity, then it is not
remeasured and settlement is accounted for within equity.
Otherwise, subsequent changes in the fair value of the
contingent consideration are recognised in profit or loss.
If share-based payment awards (replacement awards)
are required to be exchanged for awards held by the
acquiree’s employees (acquiree’s awards) and relate to
past services, then all or a portion of the amount of the
acquirer’s replacement awards is included in measuring
the consideration transferred in the business combination.
This determination is based on the market-based value of
the replacement awards compared with the market-based
value of the acquiree’s awards and the extent to which the
replacement awards relate to past and/or future service.
(b) Subsidiaries
Subsidiaries are entities controlled by the Group.
The financial statements of subsidiaries are included in
the Consolidated Financial Statements from the date that
control commences until the date that control ceases.
(c) loss of Control
On the loss of control, the Group derecognises the
assets and liabilities of the subsidiary, any non-controlling
interests and the other components of equity related to
the subsidiary. Any surplus or deficit arising on the loss
of control is recognised in profit or loss. If the Group
retains any interest in the previous subsidiary, then such
interest is measured at fair value at the date that control
is lost. Subsequently that retained interest is accounted
for as an equity-accounted investee or as an available-for-
sale financial asset depending on the level of influence
retained.
(d) transactions Eliminated on Consolidation
Intra-group balances and transactions, and any unrealised
income and expenses arising from intra-group transactions,
are eliminated in preparing the Consolidated Financial
Statements. Unrealised gains arising from transactions
with equity accounted investees are eliminated against
the investment to the extent of the Group’s interest in the
investee. Unrealised losses are eliminated in the same way
as unrealised gains, but only to the extent that there is no
evidence of impairment.
Annual Report 2016
Intangible Assets
(a) Goodwill
Goodwill represents the excess of the fair value of the
consideration paid over the fair value attributable to the
net assets acquired and is capitalised on the Group balance
sheet.
Goodwill is not amortised and is reviewed for impairment
at least annually. Any impairment is recognised in the
period in which it is identified.
(b) Intangible Assets
Intangible assets acquired by the Group are capitalised
at the fair value of the consideration paid and amortised
over their expected useful economic lives. The expected
useful economic life of intangible assets is assessed for
each acquisition as it arises, and is generally assumed to
be three years. Other intangibles relating to software are
amortised over the expected respective contract period.
(c) Research and development
Research costs are charged to the income statement in the
year in which they are incurred. Development expenses
include expenses incurred by the Group to set up or
enhance services to clients. Development costs that mainly
relate to staff salaries are capitalised as intangible assets
when it is probable that the project will be a success,
considering its commercial and technological feasibility,
and costs can be measured reliably. Development costs
that do not meet those criteria are expensed as incurred.
Capitalised development costs are amortised on a straight-
line basis over the estimated useful life of the asset, which
is generally assumed to be three years.
Amortisation is charged to administrative expenses in the
income statement.
The carrying value of intangible assets is assessed at the
end of each financial year for impairment. See the policy
entitled impairment of non-financial assets below.
Impairment of non-financial Assets
An impairment loss is recognised in the income statement
for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount
is the higher of the asset’s fair value less costs to sell, and
the value-in-use based on an internal discounted cash
flow evaluation. For the purpose of assessing impairment,
assets are grouped at the lowest levels for which there
are separately identifiable cash flows. All assets are
subsequently reassessed for indications that an impairment
loss previously recognised may no longer exist.
Financial Statements
49
(a) Available-for-sale Investments:
are non-derivative financial assets that are either
designated in this category or not classified in any of the
other categories. They are included within non-current
assets unless management intends to dispose of the
investment within 12 months of the balance sheet date
and they are carried at fair value.
(b) loans and Receivables:
are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active
market and with no intention of trading. They arise
principally through the provision of services to customers
(e.g. trade receivables), but also incorporate other types of
contractual monetary assets. Trade and other receivables
which principally represent amounts due from customers
and other third parties, are carried at original invoice value
less an estimate made for bad and doubtful debts. They
are included within current assets, with the exception of
those with maturities greater than one year, which are
included within non-current assets. Loans and receivables
are included within trade and other receivables in the
balance sheet.
Gains and losses arising from investments classified as
available-for-sale are recognised in the income statement
when they are sold or when the investment is impaired.
In the case of impairment of available-for-sale assets, any
loss previously recognised in equity is transferred to the
income statement. Impairment losses recognised in the
income statement on equity instruments are not reversed
through the income statement.
An assessment for impairment is undertaken annually.
Management consider the financial information in respect
of entities from which receivables are due.
A financial asset is derecognised only where the
contractual rights to the cash flows from the asset expire
or the financial asset is transferred and that transfer
qualifies for derecognition. A financial asset is transferred
if the contractual rights to receive the cash flows of the
asset have been transferred or the Group retains the
contractual rights to receive the cash flows of the asset but
assumes a contractual obligation to pay the cash flows to
one or more recipients. A financial asset that is transferred
qualifies for derecognition if the Group transfers
substantially all the risks and rewards of ownership of
the asset, or if the Group neither retains nor transfers
substantially all the risks and rewards of ownership but
does transfer control of that asset.
tangible Assets
(a) land and Buildings
Land and buildings are stated at cost or fair value at
acquisition, net of depreciation and any provisions for
impairment. Cost includes expenditure that is directly
attributable to the acquisition of the items.
(b) property, plant and Equipment
Property, plant and equipment is stated at cost or fair
value at acquisition, net of depreciation and any provisions
for impairment. Cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying
amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits
associated with the item will flow to the Group and the
cost of the item can be measured reliably. All other repairs
and maintenance are charged to the income statement
during the financial period in which they are incurred.
The gain or loss arising on the disposal of an asset is
determined by comparing the disposal proceeds and the
carrying amount of the asset and is recognised in the
income statement. Depreciation is calculated using the
straight-line method to allocate the cost of each asset to
its estimated residual value over its expected useful life,
as follows:
land – is not depreciated
Buildings – 25 years
Fixtures and Equipment – between 3 and 5 years
leasehold Improvements – over the term of the lease
Material residual values and useful lives are reviewed,
and adjusted if appropriate, at least annually. An asset’s
carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is
greater than its estimated recoverable amount.
Financial Assets
Financial assets include investments in companies other
than Group companies, trade and other receivables
(see separate policy) financial receivables held for
investment purposes, treasury shares and other securities.
A permanent impairment is provided as a direct reduction
of the securities account.
The Group classifies its financial assets in the following
categories: available for sale investments and loans and
receivables. The classification depends on the purpose for
which the investments were acquired. The classification is
determined by management at initial recognition.
50
Financial Statements
Inventories
dividends
Annual Report 2016
Inventories are valued at the lower of cost and net
realisable value. The cost of finished goods and work in
progress comprises design costs, direct labour and other
direct costs. Net realisable value is the estimated selling
price in the ordinary course of business less applicable
selling expenses.
trade and Other Receivables
Trade and other receivables are stated at amortised
cost less provision for impairment. A provision for the
impairment of trade receivables is made when there
is objective evidence that the Group will not be able
to collect all amounts due to it in accordance with the
original terms of those receivables. The amount of the
provision is determined as the difference between the
asset's carrying amount and the present value of estimated
future cash flows, discounted at the effective interest rate.
The amount of the provision is recognised in the income
statement. Other receivables are stated at amortised cost
less provision for impairment.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash in hand, deposits
held at call with banks, other short-term investments,
with maturities of three months or less that are readily
convertible into known amounts of cash and which
are subject to an insignificant risk of changes in value
and bank overdrafts. Bank overdrafts are shown within
borrowings in current liabilities on the balance sheet.
Short-term Investments
Short-term investments comprise funds which have been
invested in short-term deposit accounts with maturities
of less than twelve months and amounts held in escrow.
Credit and liquidity risk management is described in note 3.
Equity
Equity comprises the following:
Share Capital represents the nominal value of ordinary
shares.
ESOp Reserve represents the par value of ordinary shares
held by the Employee Share Ownership Plan.
Capital Redemption Reserve represents the maintenance
of capital following the share buy back and tender offer.
Share premium Reserve represents consideration for
ordinary shares in excess of the nominal value.
Merger Reserve represents consideration in excess of the
nominal value of shares issued on certain acquisitions.
Currency Reserve represents exchange differences arising
on consolidation of Group companies with a functional
currency different to the presentation currency.
Retained Earnings represent retained profits less losses
and distributions.
Final dividends are recorded in the Group’s financial
statements in the period in which they are approved by the
shareholders. Interim dividends are recognised when paid.
Foreign Currency transactions
(a) Functional and presentation Currency
Items included in the financial statements of each of
the Group’s entities are measured using the currency of
the primary economic environment in which the entity
operates (the ‘functional currency’). The Consolidated
Financial Statements are presented in Sterling, which is the
group companies functional and presentation currency.
(b) Group Companies
The results and position of all Group companies that have
a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
(i) assets and liabilities are translated at the closing rates of
exchange ruling at the balance sheet date;
(ii) income and expenses are translated at the average
exchange rates. If however the average exchange rate is
not a reasonable approximation of the exchange rates
prevailing on the date of the transactions, the income
and expenses are translated at the exchange rates at the
transaction dates; and
(iii) resulting exchange differences are recognised as a
separate component of equity.
Differences on exchange arising from the retranslation
of the net investment in foreign entities are taken to
shareholders equity on consolidation. When a foreign
entity is sold, such exchange differences are recognised
in the income statement as part of the profit or loss on
disposal.
Goodwill and fair value adjustments arising on the
acquisition of a foreign entity are treated as assets and
liabilities of the foreign entity and as such are translated at
the closing rate.
Financial Statements
51
leases
(c) Share-based payments
From time to time on a discretionary basis, the Board of
Directors award high-performing employees bonuses in
the form of share options. The options are subject to a
three year vesting period and their fair value is recognised
as an employee benefits expense with a corresponding
increase in equity over the vesting period. The fair value of
share options granted is recognised within staff costs with
a corresponding increase in equity. The proceeds received
are credited to share capital and share premium when the
options are exercised.
The fair value of share options was measured using the
more appropriate of the QCA-IRS option valuer using the
Black-Scholes formula or a Monte Carlo valuation model,
taking into account the terms and conditions upon which
the grants were made. The amount recognised as an
expense is adjusted to reflect the actual number of share
options that vest except where forfeiture is only due to
share prices not achieving the threshold of vesting.
IFRS 2 has been applied to all options granted after 7
November 2002 that have not vested on or before 1 April
2006. A deferred tax adjustment is also made relating to
the intrinsic value of the share options at the balance sheet
date (see separate policy).
As a result of the grant of share options since 6 April 1999
the Company will be obliged to pay employer’s National
Insurance contributions on the difference between the
market value of the underlying shares and their exercise
price when the options are exercised. A provision is made
for this liability using the value of the Company’s shares
at the balance sheet date and is spread over the vesting
period of the share options.
The grant date fair value of share-based payment awards
granted to employees is recognised as an employee
expense, with a corresponding increase to equity, over the
period that the employees unconditionally become entitled
to the awards. The amount recognised as an expense is
adjusted to reflect the number of awards for which the
related service and non-market vesting conditions are
expected to be met, such that the amount ultimately
recognised as an expense is based on the number of
awards that meet the related service and non-market
performance conditions at the vesting date. For share
based payment awards with non-vesting conditions,
the grant date fair value of the share-based payment is
measured to reflect such conditions and there is no true-
up for differences between expected and actual outcomes.
Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified
as operating leases.
Assets held under finance leases are recognised assets of
the Group at their fair value or, if lower, at the present
value of the minimum lease payments, each determined
at the inception of the lease. The corresponding liability
to the lessor is included in the balance sheet as a finance
lease obligation. Lease payments are apportioned
between finance charges and reduction of the lease
obligation so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance charges are
charged directly against income.
Rentals payable under operating leases are charged
to income on a straight-line basis over the term of the
relevant lease. Benefits received and receivable as an
incentive to enter into an operating lease are also spread
on a straight-line basis over the lease term.
provisions
Provisions are recognised when: the Group has a present
legal or constructive obligation as a result of past events; it
is more likely than not that an outflow of resources will be
required to settle the obligation; and the amount has been
reliably estimated. Provisions are not recognised for future
operating losses.
Provisions are measured at the present value of
management’s best estimate of the expenditure required to
settle the present obligation at the balance sheet date. The
discount rate used reflects current market assessments of
the time value of money and the risks specific to the liability.
Employee Benefits
(a) pensions
The Group operates a group personal pension scheme.
The assets of the schemes are held separately from
those of the Group in independently administered
funds. Contributions payable are charged in the income
statement in the year in which they are incurred.
(b) Bonus Schemes
The Group recognises a liability and an expense for
bonuses payable to: i) employees based on a formula
derived from management assessment of individual
performance; and ii) senior management and executive
directors based on achievement of a series of financial
and non-financial targets. A provision is recognised where
there is a past practice that has created a constructive
obligation.
52
Financial Statements
• Annual Report 2016
The fair value of the amount payable to employees in
respect of share appreciation rights, which are settled in
cash, is recognised as an expense with a corresponding
increase in liabilities, over the period that the employees
unconditionally become entitled to payment. The liability
is re-measured at each reporting date and at settlement
date. Any changes in the fair value of the liability are
recognised as personnel expenses in profit or loss.
•
In the event that multiple revenue sources are
included in the same contract, each component part
is separately fair valued and individual component
revenues are recognised when the revenue recognition
criteria for that component has been met. Neither
build fee or support and maintenance revenue are
considered to be a significant proportion of the overall
revenue, and are not separately disclosed.
(d) Employee Share Ownership plan
non-recurring Items
The Group's Employee Share Ownership Plan (‘ESOP’) is
a separately administered trust. The assets of the ESOP
comprise shares in the Company and cash. The assets,
liabilities, income and costs of the ESOP have been
included in the financial statements in accordance with SIC
12, ‘Consolidation - Special purpose entities’ and IAS 32,
‘Financial Instruments: Disclosure and Presentation’.
The shares in the Company are included at cost to the
ESOP and deducted from shareholders' funds. When
calculating earnings per share these shares are treated as
if they were cancelled.
Revenue Recognition
Revenue represents the fair value of the sale of goods and
services, net of Value-Added Tax, and after eliminating
sales within the Group. Group revenue has four elements,
being transactional, build fee, support and maintenance,
and sale of hardware. Revenue is recognised as follows:
• The majority of revenue in the Group is derived and
recognised on a transaction basis, when the Group
has determined that users have accessed its services
via a telephone carrier network and/or the Group’s
telecommunication call processing equipment
connected to that network. This is measured by the
minute when a user accesses our services and is billed
to our customer on this basis.
• Build fee revenue is recognised on delivery and
acceptance of a customer service application. In the
event that work on a project which results in a build
fee has commenced but not completed within an
accounting period, revenue is recognised in line with
the percentage that the project is complete at the
end of the accounting period. The percentage of
completion is calculated by taking the costs incurred
on the project at the end of an accounting period and
expressing that as a percentage of the total estimated
costs that are anticipated to be incurred in order to
complete the project.
• The revenue derived from the sale of hardware is
recognised when the risks and rewards of ownership
are passed to the customer.
The Group presents as non-recurring items on the face of
the income statement those material items of expenditure
which, because of their nature and/or expected
infrequency of the events giving rise to them, merit
separate presentation to allow shareholder to understand
the elements of financial performance in the period, so as
to facilitate comparison with prior periods.
Finance Fee Income
Finance fee income is credited to the income statement
and reflects movements in contingent consideration in the
year.
taxation
Current tax is the tax currently payable based on taxable
profit for the year.
Deferred taxation is provided in full, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts
in the Consolidated Financial Statements. Deferred tax
is not provided if it arises from initial recognition of an
asset or liability in a transaction, other than a business
combination, that at the time of the transaction affects
neither accounting nor taxable profit or loss. Deferred tax
is calculated at tax rates that are expected to apply to their
respective period of realisation, provided they are enacted
or substantively enacted at the balance sheet date.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profit will be available against
which the temporary differences can be utilised.
Deferred tax on temporary differences associated with
shares in subsidiaries is not provided if reversal of these
temporary differences can be controlled by the Group and
it is probable that reversal will not occur in the foreseeable
future.
Changes in deferred tax assets or liabilities are recognised
as a component of tax expense in the income statement,
except where they relate to items that are charged or
credited directly to equity in which case the related
deferred tax is also charged or credited directly to equity.
Financial Statements
53
• Financial liabilities
Financial liabilities are obligations to pay cash or other
financial assets and are recognised when the Group
becomes a party to the contractual provisions of the
instrument. Financial liabilities are stated at amortised cost.
A financial liability is derecognised only when the
obligation is discharged, is cancelled or it expires.
3 . FInAnCIA l RISK
MAnAGEMEnt
The operations of the Group expose it to a variety of
financial risks: liquidity risk, interest rate risk and foreign
currency risk. Policies for managing these risks are set by
the Board following recommendations from the Group
Finance Director. All financial risks are managed centrally.
The policy for each of the above risks is described in more
detail below.
The Group’s financial instruments comprise cash, short-
term deposits, finance leases and various items, such
as receivables and payables that arise directly from its
operations. It is, and has been throughout the year under
review, the Group’s policy that no trading in financial
instruments shall be undertaken. Similarly the Group did
not undertake any financial hedging arrangements during
the year under review. The year-end position reflects these
policies and there have been no changes in policies or risks
since the year-end.
liquidity Risk
Through detailed cash flow forecasting and capital
expenditure planning, the Group monitors working capital
and capital expenditure requirements and through the
use of rolling short-term investments ensures that cash
is available to meet obligations as they fall due. Cash at
bank is pooled and invested in overnight money market
accounts and deposits.
The contractual maturities of financial liabilities are set
out in note 19.
Interest Rate Risk
The Group principally finances its operations through
shareholders’ equity and working capital. The Group took
borrowings during the year applying variable interest rates,
and now has exposure to interest rate fluctuations on the
loan, its cash and short-term deposits.
The Group has adopted a sensitivity analysis that measures
changes in the fair value of financial instruments and
interest-bearing loans and any resultant impact on the
income statement of an increase or decrease of 2% in
market interest rates.
Impact on financial interest in the income statement: (loss)/gain
2% decrease in
interest rates
£’000
2% increase in
interest rates
£’000
(33)
33
Foreign Currency Risk
Capital Management
The Group’s principal exposure to exchange rate
fluctuations arises on the translation of overseas net
assets, profits and losses into the presentation currency.
This risk is managed by taking differences that arise on
the retranslation of the net overseas investments to the
currency reserve. Foreign currency risk on cash balances is
monitored through cash flow forecasting and currency is
held in foreign currency bank accounts only to the extent
that it is required for working capital purposes.
No sensitivity analysis is provided in respect of foreign
currency risk as due to the Group’s working capital
management practices, the risk is considered to be
immaterial.
The Board’s policy is to maintain a strong capital base
with the joint objectives to maintain investor, creditor and
market confidence and to sustain future development
of the business. Capital comprises all components of
equity (i.e. share capital, capital redemption reserve, share
premium and retained earnings). The Board manages the
capital structure and makes adjustments as required in the
light of changes in economic conditions. The Board may
return capital to shareholders, issue new shares or
sell assets in order to maintain capital.
Credit risk management is described in note 15.
54
Financial Statements
Financial Assets
Current financial assets
Trade receivables (note 15)
Other receivables (note 15)
Cash and cash equivalents (note 16)
total financial assets
Annual Report 2016
2016
£’000
5,456
79
6,617
12,152
2015
£’000
3,558
504
4,419
8,481
Financial liabilities
Other Interest-bearing loans and Borrowings
All financial liabilities held by the Group, except for
contingent consideration, are measured at amortised
cost and comprise trade payables of £1,370,000 (2015:
£2,383,000) and other payables of £3,000 (2015:
£637,000). See note 17 for further details.
Information about the contractual terms of the Group’s
interest-bearing loans and borrowings, which are
measured at amortised cost are disclosed below. For more
information about the Group’s exposure to interest rate
and foreign currency risk, see above.
non-current financial liabilities
Secured bank loans
Current financial liabilities
Current portion of secured bank loans
terms and debt Repayment Schedule
2016
£’000
2015
£’000
3,750
2,105
1,000
636
Currency
nominal
interest
rate
Maturity
date
Bank Loan
Sterling
1.25% plus LIBOR.
See note 19
The collateral to these loans is the land and buildings carrying value of £3m.
Carrying
amount
2016
£’000
4,750
4. SEGMEnt AnAlYSIS
The segmentation is based on analysing Eckoh UK
including PSS UK and Eckoh Inc (US) which also includes
PSS Inc.
Information regarding the results of each operating
segment is included below. Performance is measured
based on segment profit or loss before taxation as
included in the internal management reports provided
to the Group’s chief operating decision maker.
Financial Statements
55
Eckoh UK
£’000
Eckoh US
£’000
total 2016
£’000
total (restated)
2015
£’000
18,492
15,266
(11,019)
4,247
(1,563)
2,684
11
(77)
2,618
(468)
2,150
3,383
4,622
3,958
1,577
(1,683)
(106)
(106)
(212)
-
-
(212)
-
(212)
2,073
152
22,450
16,843
(12,702)
4,141
(1,669)
2,472
11
(77)
2,406
(468)
1,938
5,456
4,774
17,158
13,103
(9,715)
3,388
(4,260)
(872)
20
(19)
(871)
(16)
(887)
3,558
4,938
506
867
1,373
3,020
878
6,371
756
2,008
49
-
43
-
927
6,371
799
2,008
5,019
391
690
1,710
The key segments now reviewed at Board level are the
UK & US operations.
Current period segment analysis
Segment Revenue
Gross profit
Administrative expenses
Adjusted operating profit
Amortisation, acquisition costs, expenses relating
to share option schemes
Operating profit/ (loss)
Interest received
Interest payable
Profit /(loss) before taxation
Taxation
profit/(loss) after taxation
Segment assets
Trade receivables
Deferred tax asset
Segment liabilities
Trade and other payables
Capital expenditure
Purchase of tangible assets
Purchase of intangible assets
Depreciation
Amortisation
In 2015/16, no one customer individually accounted
for more than 10% of the total revenue of the continuing
operations of the company (2014/15: two customers).
In 2014/5 revenue from the largest customer totalled
£2,559,000 exclusively within the UK segment.
Eckoh UK
£’000
Eckoh US
£’000
17,714
162
616
18,492
-
3,676
282
3,958
2016
£’000
17,714
3,838
898
22,450
2015
£’000
16,770
361
27
17,158
Revenue by geography
UK
United States of America
Rest of the World
total Revenue
56
Financial Statements
prior period segment analysis
Segment Revenue
Gross profit
Administrative expenses
Adjusted operating profit
Amortisation, acquisition costs, expenses relating to share option schemes
Operating profit/ (loss)
Interest received
Interest payable
Profit /(loss) before taxation
Taxation
profit after taxation
Segment assets
Trade receivables
Deferred tax asset
Segment liabilities
Trade and other payables
Capital expenditure
Purchase of tangible assets
Purchase of intangible assets
Depreciation
Amortisation
Revenue by geography
UK
United States of America
Rest of the World
total Revenue
Annual Report 2016
Eckoh UK
£’000
Eckoh Inc
£’000
total (restated)
2015
£’000
16,983
12,952
(9,586)
3,366
(4,260)
(894)
20
(19)
(893)
(16)
(909)
3,422
4,938
175
151
(129)
22
-
22
-
-
22
-
22
136
-
17,158
13,103
(9,715)
3,388
(4,260)
(872)
20
(19)
(871)
(16)
(887)
3,558
4,938
2,967
53
3,020
4,558
337
689
1,699
461
54
1
11
Eckoh UK
£’000
Eckoh Inc
£’000
16,770
186
27
16,983
-
175
-
175
5,019
391
690
1,710
2015
£’000
16,770
361
27
17,158
Financial Statements
57
2016
£’000
7,724
799
2,008
397
2016
£’000
7,712
(369)
337
1,011
113
160
8,964
(1,240)
7,724
2015
(restated)
£’000
7,682
690
1,710
442
2015
(restated)
£’000
4,793
(232)
357
884
84
322
6,208
1,474
7,682
2016
number
2015
number
86
19
64
169
61
16
39
116
5 . p ROFIt FROM OpERAtInG ACtI vItI ES
the Group’s profit from operating activities is arrived at after charging:
Employee benefits expense (note 6)
Depreciation (note 12)
Amortisation (note 11)
Operating lease payments – property
6 . EMplOYEE BEnEFItS E xpEnSE
Wages and salaries
Less: Internal development costs capitalised in the year
Amortisation of internal development costs
Social security costs
Pension costs
Share based payments
Contingent consideration treated as employee expense
The Directors’ report on page 26 provides further details
on the Directors’ emoluments. The average number of
people (including executive directors) employed by the
Group during the year was:
Technical support
Customer services
Administration and management
Excluded from the table above are 25 (2015: 20) full
time equivalent casual call centre employees who cost
£269,269 (2015: £256,893) in the year.
58
Financial Statements
7 . A UdItOR REMUnERAtIOn
During the year the Group obtained the following services
from the Group’s auditor at costs as detailed below:
Fees payable for the audit of the parent company and consolidated accounts
Fees payable for other services:
The audit of subsidiary undertakings comprising continuing operations
Other tax advisory services
Corporate financial services
total fees payable to the Group’s auditor
8 . IntERESt RECEIvABlE And pAYABlE
Bank interest receivable
Bank interest receivable
9 . tAxAtIOn
tax recognised in profit and loss
Current tax expense
Current year
Adjustments in respect of prior periods
deferred tax credit
Origination and reversal of temporary differences
Prior year adjustment
total tax charge
Annual Report 2016
2016
£’000
15
57
-
142
214
2016
£’000
11
11
2016
£’000
11
11
2015
£’000
15
40
40
-
95
2015
£’000
20
20
2015
£’000
20
20
2016
£’000
2015
£’000
182
-
182
286
-
286
468
117
(79)
38
37
(59)
(22)
16
(£443,000) (2015: £910,000) of deferred taxation in
relation to share options was recognised directly in equity.
The tax charge for the year is different to the standard
rate of corporation tax in the UK of 20% (2015: 21%).
The differences are explained on the next page:
Financial Statements
59
Continuing operations
Profit for the year
Total tax charge
Profit excluding tax
Profit multiplied by rate of corporation tax in the UK of 20% (2015: 21%)
Effect of (income)/expenses not deductible for tax purposes
Adjustments in respect of prior periods (current and deferred)
Share scheme relief
Deferred tax not recognised
Effect of tax rate adjustment on closing recognised deferred tax balance
Fixed asset differences
Additional overseas tax
tax charge for the year
Recognition of deferred tax Assets and liabilities
Capital allowances differences
Short term timing differences
Tax losses
Intangible assets
Tax losses carried forward
Movement in deferred tax Balances during the Year
Balance at 1 April
Recognised in income statement
Recognised in Equity
Recognised through business combinations
Other
Balance at 31 March
2016
£’000
1,938
468
2,406
481
(34)
-
(38)
5
(21)
(1)
76
468
Assets
liabilities
2016
£’000
173
1,509
3,092
-
2015
£’000
376
1,901
2,661
2016
£’000
2015
£’000
-
-
-
(2)
-
-
2016
£’000
173
1,509
3,092
-
(1,633)
(860)
(1,633)
4,774
4,938
(1,633)
(862)
3,141
2016
£’000
4,076
(286)
443
(1,095)
3
3,141
2015
£’000
(887)
16
(871)
183
56
(137)
(82)
(2)
(2)
-
-
16
net
2015
£’000
374
1,901
2,661
(860)
4,076
2015
£’000
3,144
22
910
-
-
4,076
Unrecognised deferred tax Assets
There are unprovided deferred taxation assets totalling
£600,000 (2015: £662,000) in respect of trading losses
and £5,638,000 (2015: £6,265,000) in respect of capital
losses of which £4,035,000 (2015: £4,483,000) are
restricted. The trading losses have not been recognised
due to the uncertainty of the profits being available to
utilise these.
60
Financial Statements
Annual Report 2016
1 0. EARnInGS pER SHARE
Basic earnings per ordinary share is calculated on the
basis of the weighted average number of ordinary shares
of 224,936,496 (2015: 220,333,985) in issue during the
year ended 31 March 2016 after adjusting for shares held
by the Employee Share Ownership Plan of 9,156 (2015:
9,156) and shares held in the Employee Benefit Trust of
37,750 (2015: 344,750) and the profit for the period
attributable to equity holders of the parent of £1,938,000
(2015: loss of £887,000).
In calculating diluted earnings per share, the weighted
average number of ordinary shares in issue, after adjusting
for shares held by the Employee Share Ownership Plan and
Employee Benefit Trust, is further adjusted to include the
dilutive effect of potential ordinary shares. The potential
ordinary shares represent share options granted to
employees where the exercise price is less than the average
market price of ordinary shares in the period. The total
number of options in issue is disclosed in note 20.
The dilutive effect of potential ordinary shares outstanding
at the end of the year is 27,997,386 (2015: 28,847,335).
denominator
Weighted average number of shares in issue in the period
224,936
220,334
Shares held by employee ownership plan
Shares held in Employee Benefit Trust
Number of shares used in calculating basic earnings per share
Dilutive effect of share options
Number of shares used in calculating diluted earnings per share
(9)
(38)
224,889
27,997
252,886
(9)
(345)
219,980
28,847
248,827
2016
‘000
2015
‘000
Financial Statements
61
1 1. IntAnGIBlE ASSEtS
Group
Cost
At 1 April 2014 (restated)
Additions
Disposals
At 31 March 2015 (restated)
Additions
Disposals
At 31 March 2016
Amortisation
At 1 April 2014
Charge for the year
Disposals
At 31 March 2015
Charge for the year
Disposals
At 31 March 2016
Carrying amount
At 31 March 2016
At 31 March 2015
Internally
developed
computer
software
Goodwill
Customer
relationships
Intellectual
property
£’000
£’000
£’000
£’000
trade
name
£’000
-
-
-
-
2,613
-
2,613
-
-
-
-
-
-
-
2,613
-
2,461
391
-
2,852
537
-
3,389
1,863
390
-
2,253
424
-
2,677
712
599
-
-
-
-
2,565
-
2,565
-
-
-
-
211
-
211
2,354
-
6,630
-
-
6,630
385
-
7,015
1,010
1,320
-
2,330
1,352
-
3,682
3,333
4,300
-
-
-
-
271
-
271
-
-
-
-
21
-
21
250
-
total
£’000
9,091
391
-
9,482
6,371
-
15,853
2,873
1,710
-
4,583
2,008
-
6,591
9,262
4,899
On an annual basis the impairment review of goodwill is
undertaken to determine a value in use calculation for each
cash generating unit (CGU) using cash flow projections.
In this regard management has performed a profitability
forecast for PSS UK and PSS Inc over the next five years
which are based on the latest three year plan approved
by the Board, modified as appropriate to reflect the latest
conditions and are satisfied that the carrying values of
Goodwill and Other Intangible Assets are supported.
Goodwill acquired through business combinations have
been allocated to the following CGUs:
• PSS – UK
• PSS – US
These represent the lowest level within the Group at which
goodwill is monitored for internal management purposes.
PSS – UK
PSS – US
total
Goodwill
31 March 2016
£’000
Goodwill
31 March 2015
£’000
Market growth
rate %
348
2,265
2,613
-
-
-
5-10%
5-10%
discount
rate %
10%
10%
62
Financial Statements
No impairment has been recorded in the current year for
PSS. The main assumptions which related to sales volume,
selling prices and cost changes, are based on recent history
and explanations of future changes in the market for
the four main products and services provided: Support,
Professional Services, Product Resale and Coral.
No impairment has been recorded in the current year. The
discount rate applied to the cash flow forecasts is based on
a market participant’s pre – tax weighted average cost of
capital of 10% adjusted for the specific risks in the CGUs.
Sensitivity to the Changes in Assumptions
If forecast revenues fell by 30%, no impairment in the
carrying values of PSS UK and PSS Inc would be required.
1 2. tAnGIBlE ASSEtS
Cost
At 1 April 2014
Additions
Disposals
At 31 March 2015
Acquired through business combination
Additions
Foreign exchange
Disposals
At 31 March 2016
depreciation
At 1 April 2014
Charge for the year
Disposals
At 31 March 2015
Charge for the year
Disposals
At 31 March 2016
Carrying amount
At 31 March 2016
At 31 March 2015
Annual Report 2016
land and
buildings
£’000
Fixtures
and equipment
£’000
-
3,068
-
3,068
-
-
-
-
3,068
-
10
-
10
43
-
53
3,015
3,058
7,468
1,951
(95)
9,324
45
927
16
(100)
10,212
6,606
680
(95)
7,191
756
(96)
7,851
2,361
2,133
total
£’000
7,468
5,019
(95)
12,392
45
927
16
(100)
13,280
6,606
690
(95)
7,201
799
(96)
7,904
5,376
5,191
Financial Statements
63
1 3. InvEStMEnt In SUBSIdIARY UndERtAKInGS
The company has the following investments in subsidiaries,
which are included in the Consolidated Financial Statements:
Subsidiary
undertakings
Eckoh UK Limited
Veritape Limited
Eckoh LLC
Eckoh Inc
Country of
incorporation
England and Wales
England and Wales
United States of America
principal
activities
Speech Solutions
Non trading
Non trading
United States of America
Secure Payment Solutions
Eckoh France SAS
France
Eckoh Enterprises Limited
England and Wales
Eckoh Projects Limited
England and Wales
Avorta Limited
England and Wales
Eckoh Technologies Limited
England and Wales
Intelliplus Group Limited
England and Wales
Intelliplus Limited
England and Wales
Medius Networks Limited
England and Wales
Telford Projects Limited
England and Wales
Swwwoosh Limited
England and Wales
365 Isle of Man Limited
Isle of Man
Non trading
Dormant
Non trading
Dormant
Dormant
Dormant
Non Trading
Non Trading
Dormant
Dormant
Dormant
Product Support Solutions Inc
United States of America
Support Solutions
(i) Share capital held by a subsidiary undertaking.
All companies hold ordinary class shares and have March year- ends.
Information in relation to geographical operations is set out in note 4.
percentage of
share capital held
100%
100%
100%
100% (i)
100%(i)
67% & 33%(i)
100%
100%(i)
100%(i)
100%
100%(i)
100%(i)
100%
100%(i)
100%(i)
100%
2016
£’000
741
7
748
2015
£’000
224
-
224
1 4. InvEntORIES
Finished goods
Work in progress
64
Financial Statements
1 5. tRAdE And OtH ER RECEIvABlES
Current
Trade receivables
Less: provision for impairment of receivables
Net trade receivables
Other receivables
Prepayments and accrued income
Annual Report 2016
2016
£’000
5,463
(7)
5,456
79
3,592
9,127
2015
£’000
3,558
-
3,558
504
2,987
7,049
The Directors’ consider that the carrying value of the trade
and other receivables approximate to their fair value.
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails
to meet its contractual obligations. Credit risk arises
principally from the Group’s trade and other receivables.
Concentrations of credit risk with respect to trade
receivables are limited due to working capital practices of
the market sector and the Group; and the nature of the
Group’s customer base. The working capital practices of
the market sector within which the Group operates are
such that the majority of the trade receivables balance
is due from the telephony carriers under a self-bill
agreement. The reputable nature of the Group’s current
customer base limits exposure to credit risk.
1 6. CASH And CASH EqUI vAlEntS
Sterling
US dollars
Floating rate
US dollars
2016
£’000
5,310
1,307
6,617
2016
£’000
5,310
1,307
6,617
2015
£’000
4,387
32
4,419
2015
£’000
4,387
32
4,419
Cash and cash equivalents comprise cash held by the
Group. Surplus cash is placed in an interest bearing
account. The average interest rate on the interest bearing
account during the year was 0.41% (2015: 0.40%).
The Group’s financial risk management is disclosed
in note 3.
Financial Statements
65
1 7. tRAdE And OtH ER pAYAB lES
Trade payables
Other payables
Corporation tax creditor
Other taxation and social security
Accruals and deferred income
2016
£’000
1,370
3
232
4,196
4,875
10,676
2015
£’000
2,383
637
55
706
2,436
6,217
All of the amounts above are payable within one year and
trade payables that are more than three months old at the
year-end represent £26,850 (2015: £87,000).
The significant increase in other taxation and social security
is a result of income tax and national insurance arising
from share options exercised towards the end of the year.
The Group’s exposure to liquidity risk is disclosed in note 3.
1 8. SH A RE CA pI tAl
Allotted called up and fully paid
Share type
Ordinary shares of 0.25p each
At 1 April 2015
Shares issued on acquisition of PSS Inc
Shares issued under the share option schemes
At 31 March 2016
The total authorised number of shares is 1,000,000,000
ordinary shares with a nominal value of 0.25 pence per
share. All ordinary shares in issue are fully paid.
The holders of the ordinary shares are entitled to receive
dividends, if declared, and are entitled to vote at general
meetings of the Company. There were no changes to
the authorised share capital during the period. Potential
ordinary shares are disclosed in note 20.
1 9. nOn-CURREnt lIABIlItIES
At 1 April 2015
Loan drawdown
Acquired as part of business combinations
Repaid during the year
At 31 March 2016
66
Financial Statements
number of
shares
nominal value
£’000
223,081,281
2,967,084
13,882,961
239,931,326
558
7
35
600
There are currently 1,524,159 shares being held with a
nominal value of £3,810 which have been issued but
are held by Escrow for one year post the PSS acquisition
as insurance for any unexpected expenses arising post
acquisition.
loans
£’000
2,105
5,000
-
(3,355)
3,750
deferred tax
£’000
862
-
771
-
1,633
total
£’000
2,967
5,000
771
(3,355)
5,383
Annual Report 2016
loans and Borrowings
In November 2015 the Group secured a bank loan with a
carrying amount of £5m at 31 March 2016 to assist with
the purchase of PSS Inc and to repay the existing bank
loan that had a balance of £2.1m at 31 March 2015 which
was due over one year.
The loan of £5m is repayable over a period of 5
years. Twenty quarterly repayments of £250,000 have
commenced since November 2015. A fixed interest is
payable at a rate of 1.25 % per annum plus a variable
base rate currently 0.5%.
2 0. SHARE BASEd pAYMEntS
The Eckoh plc Share Option Scheme (‘the Scheme’) was
introduced in November 1999. Under the Scheme the
Board can grant options over shares in the Company to
Group employees. The grant price of share options is the
middle market quotation price as derived from the Daily
Official List of the London Stock Exchange on the date of
the grant. The contractual life of an option is ten years.
Options granted under the Scheme become exercisable
subject to the share price exceeding RPI plus 15% after the
third anniversary of the grant date. Exercise of an option is
subject to continued employment, with certain exceptions,
as specified in the Scheme rules.
The Eckoh plc Enterprise Management Incentive Scheme
(‘the EMI Scheme’) was introduced in February 2007.
Under the Scheme the Board can grant options over shares
in the Company to Group employees. The grant price
of share options is the middle market quotation price as
derived from the Daily Official List of the London Stock
Exchange on the date of the grant. The contractual life
of an option is ten years. Options granted under the EMI
Scheme become exercisable subject to the percentage
growth in earnings per share in the three years following
the year of grant being at least 5% (compounded) per
annum. Exercise of an option is subject to continued
employment, subject to certain exceptions as specified in
the EMI Scheme rules.
The Eckoh plc 2012 Long Term Incentive Plan
(“2012 LTIP”) was introduced in December 2012 and
replaced the 2010 LTIP introduced in June 2010. Base
Awards were made to participants to reflect the value
generated for shareholders since the introduction of the
2010. These awards will vest in three equal tranches of
the grant date provided share price targets are achieved
and the participant remains employed with the company.
Match awards can be further awarded three years after
the original award date provided share price targets have
been satisfied.
The fair value of share options granted under the Scheme,
the EMI Scheme and the SIP was measured using the QCA-
IRS option valuer based on the Black-Scholes formula,
taking into account the terms and conditions upon which
the grants were made. The fair value per option granted
and the assumptions used in the calculation are as follows:
Share price (pence)
Exercise price (pence)
Number of employees
26 March
2012
10.875
11.0
13
8 june
2012
11.125
11.25
2
12 june
2014
05 dec
2014
25 March
2015
23 March
2016
46.16
37.5
1
46.25
46.25
1
37.50
46.5
1
43.50
43.50
28
Shares under option
1,275,000
300,000
500,000
150,000
500,000
4,100,000
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
3
42%
10
3
3
40%
10
3
3
26%
10
3
3
20%
10
3
3
22%
10
3
3
32%
10
3
2.75%
2.75%
1.76%
1.76%
1.76%
0.78%
Expected dividends expressed
as a dividend yield
Fair value per option (pence)
-
3.15
-
3.18
-
8.89
-
6.89
-
6.08
0.89%
9.19
Financial Statements
67
The fair value of awards made under the 2012 LTIP
scheme was measured using a model using the Monte
Carlo method, taking into account the terms and
conditions upon which the awards were made. The fair
value of Match awards made under the 2013 LTIP scheme
was measured using a model based on the Black-Scholes
formula. The fair value per award granted and the
assumptions used in the calculation are as follows;
Award type
Share price (pence)
Exercise price (pence)
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividends expressed as a dividend yield
Fair value per option (pence)
1 january 2013
1 january 2013
1 january 2013
1 january 2013
LTIP
14.25
0.00
4
LTIP
14.25
0.00
4
LTIP
14.25
0.00
4
LTIP Match
14.25
0.00
5
5,687,976
5,687,977
5,687,980
9,598,463
1
28%
10
1
0.32%
0.70%
8.54
2
28%
10
2
0.39%
0.70%
9.43
3
28%
10
3
0.56%
0.70%
10.06
3
28%
10
3
0.56%
0.70%
1.57
The expected volatility is based on historical volatility
over the last three years. The expected life is the average
expected period to exercise. The risk free rate of return is
the yield on zero-coupon UK government bonds of a term
consistent with assumed option life.
A reconciliation of option movements over the year to
31 March 2016 is shown below:
2016
number of
share options
Weighted average
exercise price
number of share
options
2015
Weighted
average exercise
price
30,784,260
4,100,000
(14,189,961)
-
-
20,694,299
15,444,299
0.85
43.50
0.61
-
-
11.57
0.79
30,607,608
1,150,000
(973,348)
-
-
30,784,260
12,772,817
0.85
0.43
5.34
-
-
0.85
0.27
Outstanding at 1 April
Granted
Exercised
Lapsed
Forfeited
Outstanding at 31 March
Exercisable at 31 March
68
Financial Statements
Annual Report 2016
2015
Weighted average
remaining life
Expected
Contractual
2016
Weighted average
remaining life
Expected
Contractual
Number
of shares
(000’s)
Weighted
average
exercise
price
(pence)
-
-
-
-
2.0
3.0
1.3
6.7
3.9
1.3
5.9
9.0
10.0
8.3
-
5.13
8.75
11.05
37.5
-
46.44
27,474
0.74
460
125
1,575
500
-
650
-
-
-
3.0
-
2.3
7.7
4.9
2.3
6.8
10.0
-
0.2
Range of
exercise
prices
(pence)
Weighted
average
exercise
price
(pence)
number
of shares
(000’s)
0-0.5
4.5-6.5
8.5 – 10.5
10.5 – 12.5
37.5-39.5
42.5-44.5
44.5-46.5
-
5.13
8.75
11.02
37.5
43.5
46.44
14,156
335
25
928
500
4,100
650
The total charge for the year relating to employee share
based payment plans was £160,000 (2015: £322,000) all
of which related to equity-settled share based payment
transactions.
Financial Statements
69
2 1. pEnSIOn COMMItMEntS
The Group operates a group personal pension scheme
and, in addition, the subsidiary company Eckoh UK Limited
operates a defined contribution pension scheme. The
assets of the pension schemes are held separately from
those of the Group in independently administered funds.
The pension charge represents contributions payable by
the Group to the funds. There were no outstanding or
proposed contributions at the balance sheet date.
22. RElAtEd pARtY
tRAnSAC tIOnS
Eckoh plc is the parent and ultimate controlling company
of the Eckoh Group, the Consolidated Financial Statements
of which include the results of the subsidiary undertakings
set out in note 13.
Each subsidiary is 100% owned by the Eckoh Group and is
considered to be a related party.
Directors and key management includes the staff costs of
the Directors’ and the Management Team.
directors and other key management
Wages and salaries
Social security costs
Pension costs
Share based payments
2016
£’000
677
95
63
141
976
2015
£’000
649
81
60
303
1,093
There are 2 directors accruing benefits under the pension
scheme.
The aggregate Directors’ emoluments are shown in the
table below.
directors
Aggregate emoluments
During the year share options were exercised by Directors,
NB Philpot and AP Moloney. NB Philpot exercised
options over 6,620,975 ordinary shares making a gain of
£2,715,000. From the proceeds of the gain, NB Philpot
satisfied the income tax arising from the exercise and
retained 1m ordinary shares with a value of £0.4m.
AP Moloney exercised options over 3,764,352 ordinary
shares making a gain of £1,543,000. From the proceeds of
the gain, AP Moloney satisfied the income tax arising from
the exercise and retained 0.5m ordinary shares with
a value of £0.2m.
2016
£’000
639
639
2015
£’000
614
614
Rented Apartment
An apartment owned by Nik Philpot is rented to Eckoh
Group for use by company employees when on business.
The rent is paid on a monthly basis and was charged at
comparable market rates. The expense in the year was
£15,210 (2015: £10,800). There was no amount receivable
or payable at the end of the current or prior year. There
were no amounts written off in the current or prior year.
Chris Batterham is a director of NCC Group Security
Services Limited who provide services to Eckoh Group.
The amount outstanding to them at the end of the current
year was £9,240 (2015: £6,600). The expense in the year
was £49,793 (2015: £50,645).
70
Financial Statements
2 3. OpERAtInG lEASE COMMI tMEntS
The Group had total commitments under non-cancellable operating leases, payable as follows:
land and Buildings
Less than one year
Between one and five years
Annual Report 2016
2016
£’000
516
412
928
2015
£’000
320
401
721
The Group has an operating lease for a data centre in
Heathrow, London at which some of its call processing
platform is located. The term of the lease covers the period
to July 2017 at a cost of £320,000 per annum.
PSS Inc has an operating lease for a New York office.
The lease covers the period to May 2016 at a cost of
£24,365 per annum. A further office in Illinois covers the
period to October 2017 at a cost of £22,686 per annum
The Coventry office has a lease term to March 2018 at a
cost of £7,920 per annum.
2 4. CASH FlOW FROM OpERAtI nG ACtIvItIES
Profit / (loss) after taxation
Interest income
Interest payable
Taxation
Deferred tax
Depreciation of property, plant and equipment
Exchange differences
Amortisation of intangible assets
Share based payments
Operating profit before changes in working capital and provisions
Decrease in inventories
Increase in trade and other receivables
Increase in trade and other payables
Decrease in provisions
Net cash generated in operating activities
2016
£’000
1,938
(11)
77
468
-
799
79
2,008
(1,078)
4,280
49
(218)
1,116
-
5,227
2015 (restated)
£’000
(887)
(20)
19
278
(262)
690
-
1,710
1,796
3,324
(120)
(3,457)
976
(43)
680
Financial Statements
71
2 5. ACqUISItIOn OF
vERItApE lIMItEd
Amendment of veritape limited Contingent
Consideration
As stated in note 1, the contingent consideration relating
to the original acquisition of Veritape in June 2013 was
treated as an IFRS 3 cost of acquisition amounting to
£3.4 million. On further analysis the contingent
consideration arrangement has a continuing employment
clause which means that it should have been accounted
for in accordance with IAS 19 Employee Benefits and
IFRS 2 Share Based Payments and not as contingent
consideration under IFRS 3.
On 18 August 2014 the Company reached an agreement
to amend the contingent consideration payable in
respect of the acquisition of Veritape Limited ("Veritape")
originally announced on 11 June 2013.
Under the original share purchase agreement, the
contingent consideration was based on the financial
performance of Veritape resulting largely from the sales
of their own product lines. It has been determined that it
would be in the best interests of the Company to amend
this agreement such that the performance element
of the deferred consideration payable to the Veritape
management is based on achieving goals which are
aligned to the strategy of the Group as a whole.
Under the original agreement, contingent consideration
of up to 16,618,785 ordinary shares of 0.25 pence in
the capital of the Company ("Ordinary Shares") and cash
of up to £1.7m could be paid to the former Veritape
shareholders dependent on the achievement of certain
profit before tax targets arising from the activity of
Veritape Limited. As at 31 March 2014 it was estimated
that £1.0m of cash and 9.9m shares would be issued in
contingent consideration. For the year ended 31 March
2014 an expense of £1.9 m has been recognised in the
income statement.
Under the terms of the new agreement, agreed in
August 2014, there is no cash element and the deferred
consideration of up to a maximum of 10,739,507 Ordinary
Shares (£4.3m, based on the average share price for the
20 dealing days preceding 4 August 2014) was to become
payable as follows:
• 6,443,704 Ordinary Shares will be issued with
immediate effect to the Veritape shareholders
("First Tranche");
• Up to a further 1,073,951 Ordinary Shares can be
earned dependent on the achievement of a group
target of $3.4m of contracted revenues from activity
in the USA in the year from 1 July 2014 to 30 June
2015 (“Second Tranche”); and
• Up to a further 3,221,852 Ordinary Shares can be
earned dependent on the achievement of a group
revenue target of $7.4m from activity in the USA
in the year from 1 July 2015 to 30 June 2016
(“Final Tranche”).
At 31 March 2015 it was estimated that the targets set
for the Second Tranche of Ordinary Shares would not
be achieved and no shares would be issued with respect
to this tranche. It was estimated that the probability of
the target being achieved to release the Final Tranche
was 50%. The new agreement has been treated as a
modification under IFRS 2. For the year ended 31 March
2015 an expense of £1.5m has been recognised in the
income statement to reflect both the original agreement
and the modification to the agreement.
At 31 March 2016 it is estimated that the targets set for
the Third Tranche of Ordinary Shares will not be achieved
and no shares will be issued with respect to this Tranche
or the second tranche. As a result the amounts previously
charged to the income statement of £1.2m relating to this
element have been credited to the income statement for
the year ended 31 March 2016.
72
Financial Statements
2 6. EvEntS AF tER tH E
27. AC qUISItIOn OF pS S In C
Annual Report 2016
StAtEMEnt OF FInAnCIAl
pOSItIOn dAtE
Post year end the Directors are recommending that a
final dividend for the year ended 31 March 2016 of 0.45
pence per ordinary share be paid to the shareholders
whose names appear on the register at the close of
business on 7 October 2016 with payment on 4 November
2016. The ex-dividend date will be 6 October 2016. This
recommendation will be put to the shareholders at the
Annual General Meeting. Based on the shares in issue at
the year end, this payment would amount to £1.1m.
On 17 November 2015, the Company acquired the entire
issued share capital of PSS Inc, a provider of service and
support for Interactive Voice Response systems and other
infrastructure in contact centers of large enterprises. The
initial consideration comprised £3.7m of cash funded by
taking out a £5m loan and £1.3m payable in ordinary shares
of Eckoh Plc. This has resulted in an increase in share
capital and share premium of £1.3m during the period.
The company incurred acquisition related costs of
£474,000 relating to external legal fees, due diligence and
valuation fees, which have been included in Administrative
expenses in the Group’s Consolidated Statement of
Comprehensive Income.
Fair value on
acquisition
£000’s
Intangible assets
Tangible assets
Inventory (parts)
Deposits
Trade debtors
Prepayments and accrued income
Other current assets
Deferred revenue
Trade creditors
Taxation & Social Security
Inventory for resale
Accruals & other creditors
Cash and cash equivalents
Deferred tax liability
net assets acquired
Goodwill
Consideration paid
Satisfied by
Cash
Shares
total purchase consideration
Net cash flow on acquisition
Cash consideration paid
Cash acquired
Cash flow on acquisition
3,221
45
573
7
1,501
299
53
(2,094)
(372)
(68)
(99)
(533)
940
(1,095)
2,378
2,613
4,991
3,657
1,334
4,991
3,657
(940)
2,717
Financial Statements
73
28. tRAnSAC tIO nS RE lAtI nG
tO ACq UISItIOnS
The company incurred acquisition related costs of
£500,000 credit to the income statement relating to
external legal fees, due diligence, valuation fees and the
share based payment charges relating to the acquisition
of Veritape, which have been included in exceptional
expenses in the Group’s Consolidated Statement of
Comprehensive Income. £266,000 of these costs related
to the aborted projects, £474,000 were in relation to
costs associated with the PSS acquisition and a credit of
£1,240,000 relates to the Veritape share based payment.
In the year ended 31 March 2015, the company incurred
acquisition related costs of £1,474,000 charge to the
income statement relating to the Veritape share based
payment.
Goodwill arising from the acquisition is attributable to the
expected synergistic benefits expected from combining
the operations of Eckoh and PSS, including the workforce
acquired which will support the anticipated growth of the
company in the US.
On acquisition of PSS, all assets were fair valued and
appropriate intangible assets recognized following
the principles of IFRS 3. Management identified three
intangible assets:
i. Customer Relationships
With regards to sales, PSS has long standing customer
relationships, with c.22% of the FY 16 sales forecast being
from a single customer (Telstra) which Management advise
are of 5 years standing since 2011. The overall customer
base has a low level of churn as advised by Management.
These customer arrangements give rise to the requirement
under IFRS 3 to recognize PSS’s customer relationships as
intangible assets. The fair value for this was £2,565,000.
ii. trade name
PSS had developed distinct branded maintenance services,
which are recognized by customers and which are likely
to have some influence in purchasing. Hence we consider
there is value in the trade name and as such it is necessary
to recognize the trade name as an intangible asset. The
fair value of this was £271,000.
iii. Intellectual property
Approximately 10% of non- Telstra sales are generated
from PSS’s own intellectual property and therefore we
consider there is value in the Intellectual Property. The fair
value of this was £385,000.
The acquired business contributed to revenues of £4m
and net profit of £0.5m to the Group for the period 17
November 2015 to 31 March 2016. If the acquisition of
PSS had occurred on 1 April 2015, management estimates
that consolidated revenues would have been £9.2m and
consolidated profit for the year would have been £0.4m.
74
Financial Statements
Annual Report 2016
Financial Statements
75
Company Financial
Statements
C OMpAnY BAlAnCE SHEEt
as at 31 March 2016
notes
ii
iii
iv
iv
vi
non-current assets
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
total assets
Current liabilities
Trade and other payables
non-current liabilities
Other interest-bearing loans and borrowings
total liabilities
net assets
Equity attributable to equity holders of the parent
Share capital
ESOP Reserve
Capital redemption reserve
Share premium
Merger reserve
Share based payment
Currency reserve
Profit and loss account
Shareholders’ funds
2016
£’000
19,856
19,856
17
5,093
5,110
24,966
(7,245)
(7,245)
(3,750)
(10,995)
13,971
600
(17)
198
2,612
2,353
1,783
56
6,386
13,971
2015
£’000
15,954
15,954
30
2,503
2,533
18,487
(3,339)
(3,339)
2014
£’000
14,157
14,157
28
5,784
5,812
19,969
(6,438)
(6,438)
-
(212)
(3,339)
15,148
558
(135)
198
2,561
1,081
1,621
33
9,231
15,148
(6,650)
13,319
540
(22)
198
1,330
1,081
1,299
-
8,893
13,319
The financial statements were approved and authorised for issue by the Board of Directors
on 14th June 2016 and signed on its behalf by:
76
Financial Statements
Adam Moloney
Group Finance Director
Company Registration Number 3435822
S tAtEMEnt OF CHAnGES In EqUItY
Annual Report 2016
Share
capital
ESOp
reserve
Capital
redemp-
tion
reserve
Merger
reserve
Share
premium
account
Share
based
payment
Currency
reserve
account
profit
and loss
account
total
share-
holders’
equity
£’000
£’000
£’000
£’000
Balance @ 1 April 2014
Restatement (note 1)
Balance at 1 April 2014
(restated)
total comprehensive income
Profit for the year
total comprehensive income
540
-
540
-
-
transactions with owners of the company
Contributions and distributions
Dividends
Shares to be issued relating to
the acquisition of Veritape Ltd.
Shares issued under the share
option schemes
Shares acquired by Employee
Benefit Trust
Currency reserve
Share option charge
total contributions and
distributions
total transactions with
owners of the company
Balance at 31 March 2015
(restated)
-
16
2
-
-
-
18
18
(22)
-
(22)
-
-
-
-
-
(113)
-
-
(113)
(113)
£’000
2,411
198
-
-
1,081
(1,081)
£’000
1,299
-
198
1,081
1,330
1,299
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,189
42
-
-
-
1,231
-
-
-
-
-
-
-
322
322
1,231
322
558
(135)
198
1,081
2,561
1,621
£’000
£’000
£’000
-
-
-
-
-
-
-
-
-
33
-
33
33
33
6,534
10,960
2,359
2,359
8,893
13,319
9
9
9
9
(695)
-
-
(695)
1,205
44
(25)
(138)
-
1,049
329
33
1,371
1,820
329
1,820
9,231
15,148
Financial Statements
77
StAtEMEnt OF CHAnGES In Eq UItY (CO ntInUEd)
Share
capital
ESOp
reserve
Capital
redemp-
tion
reserve
Merger
reserve
Share
premium
account
Share
based
payment
Currency
reserve
account
profit
and loss
account
total
share-
holders’
equity
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
558
(135)
198
1,081
2,561
1,621
33
9,231
15,148
Balance at 1 April 2015
(restated)
total comprehensive income
-
-
-
-
-
-
23
-
23
56
(663)
(663)
(663)
(663)
(826)
-
-
(116)
-
(826)
1,279
57
31
23
(1,240)
(1,078)
(2,182)
(514)
6,386
13,971
Loss for the year
total comprehensive income
-
-
transactions with owners of the company
Contributions and distributions
Dividends
Shares issued on acquisition
of PSS Inc.
Shares issued under the share
option schemes
Shares acquired by Employee
Benefit Trust
Currency reserve
Share option charge / (credit)
total contributions and
distributions
-
7
35
-
-
-
-
-
-
-
-
118
-
-
42
118
-
-
-
-
-
-
-
-
-
-
-
-
1,272
-
-
-
-
1,272
-
-
-
-
22
29
-
-
51
-
-
-
-
-
-
-
162
162
Balance at 31 March 2016
600
(17)
198
2,353
2,612
1,783
The shares issued as part of the acquisition of PSS but held
under the Escrow had a value of £654,321.
78
Financial Statements
Annual Report 2016
Financial Statements
79
notes to the Company's
Financial Statements
For the year ended 31 March 2016
principal Accounting policies
The following accounting policies have been applied
consistently in dealing with items which are considered
material in relation to the financial statements, except as
noted below.
Basis of preparation
In the transition to FRS 10, the Company has applied IFRS
1 whilst ensuring that its assets and liabilities are measured
in compliance with FRS 101. An explanation of how the
transition to FRS 101 has affected the reported financial
position, financial performance and cash flows of the
Company is provided in note ix.
In these financial statements, the company has applied
the exemptions available under FRS 101 in respect of the
following disclosures:
• A Cash Flow Statement and related notes;
• Comparative period reconciliation for share capital;
• Disclosures in respect of transactions with wholly
owned subsidiaries ;
• Disclosures in respect of capital management;
• The effects of new but not yet effective IFRSs;
• Disclosures in respect of the compensation of Key
Management Personnel; and
As the consolidated financial statements include the
equivalent disclosures, the Company has also taken the
exemptions under FRS 101 available in respect of the
following disclosures:
•
IFRS 2 Share Based Payments in respect of group
settled share based payments
The Company proposes to continue to adopt the
reduced disclosure framework of FRS 101 in its next
financial statements.
The accounting policies set out below have, unless
otherwise stated, been applied consistently to all periods
presented in these financial statements and in preparing
an opening FRS 101 balance sheet for the purposes of the
transition to FRS 101.
No judgements made by the directors, in the application
of these accounting policies have a significant effect on
the financial statements.
prior Year Restatement
This company has reviewed the way the contingent
consideration for the acquisition of Veritape Limited in the
year ended 31 March 2014 has been accounted for. On
further analysis the contingent consideration arrangement
has a continuing employment clause which means that it
should have been accounted for in accordance with IAS 19
Employee Benefits and IFRS 2 Share Based Payments and
not as contingent consideration under IFRS 3.
As a result, contingent consideration payable recognised
on acquisition of £3,680,000 has been reversed resulting
in the reversal of an investment originally recognised
on the Veritape Limited acquisition of £3,418,000. In
addition, employee remuneration charges of £1.9 million
and £1.5 million for years ended 31 March 2014 and
31 March 2015 respectively, should have been charged
to investments with associated entries being a credit to
equity of £1.1 million (2014: £1.1 million) and creditors
£0.8 million (2014: £0.4 million) rather than, the fair
value changes recorded for the changes in the contingent
consideration of a charge of £1.2 million in interest
payable in the year ended 31 March 2014 and a credit
of £1.5 million in interest receivable in the year ended 31
March 2015.
In the year ended 31 March 2016 there is a credit of
£1,240,000 relating to the employee benefit expenses and
the investment as no further payment is expected.
80
Financial Statements
There have been a number of adjustments to the balance
sheet and income statement to reflect the above which are
set out below:
Investments
Current liabilities – contingent consideration
Non-current liabilities - contingent consideration
Other assets/liabilities not impacted
net assets
Shareholders’ equity
Share premium
Merger reserve
Retained earnings
Other equity entries not impacted
total shareholders’ equity
Investments
Trade and other receivables
Non-current liabilities - contingent consideration
Other assets/liabilities not impacted
net assets
Shareholders’ equity
Share premium
Merger reserve
Retained earnings
Other equity entries not impacted
total shareholders’ equity
Finance income
Annual Report 2016
2014
£’000
(as previously
reported)
Impact of
prior period
Adjustment
£’000
2014
£’000
(restated)
15,927
(1,952)
(2,941)
(74)
10,960
2,411
-
6,534
2,015
10,960
(1,770)
1,400
2,729
-
2,359
(1,081)
1,081
2,359
-
2,359
14,157
(552)
(212)
(74)
13,319
1,330
1,081
8,893
1,015
13,319
2015
£’000
(as previously
reported)
Impact of
prior period
Adjustment
£’000
2015
£’000
(restated)
16,249
14
(636)
(836)
14,791
5,175
-
7,341
2,275
14,791
(295)
16
636
-
357
(2,614)
1,081
1,890
-
357
1,518
15,954
30
-
(836)
15,148
2,561
1,081
9,231
2,275
15,148
Financial Statements
81
non-derivative Financial Instruments
non-derivative Financial Instruments
Interest-bearing Borrowings
Interest-bearing borrowings are recognised initially at fair
value less attributable transaction costs. Subsequent to
initial recognition, interest-bearing borrowings are stated
at amortised cost using the effective interest method, less
any impairment losses.
Going Concern
Under company law, the Company's Directors are
required to consider whether it is appropriate to prepare
financial statements on the basis that the Company is a
going concern. As part of its normal business practice,
the Company is included within annual and longer term
plans prepared by management, and, in reviewing this
information, the Company's Directors are satisfied that the
Company has reasonable resources to enable it to continue
in business for the foreseeable future. For this reason, the
Company continues to adopt the going concern basis in
preparing these financial statements.
The principal accounting policies adopted by the Company
are described opposite.
Non-derivative financial instruments comprise investments
in equity, cash and cash equivalents and loans and
borrowings.
Investments
Investments in subsidiaries are stated at amortised cost
less impairment.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and
call deposits. Bank overdrafts that are repayable on
demand and form an integral part of the Company’s cash
management are included as a component of cash and
cash equivalents for the purpose only of the cash flow
statement.
deferred taxation
Deferred taxation is recognised in respect of all timing
differences that have originated but not reversed at the
balance sheet date, where transactions or events that
result in an obligation to pay more tax in the future or
a right to pay less tax in the future have occurred at the
balance sheet date.
A net deferred tax asset is regarded as recoverable and
therefore recognised only when, on the basis of all
available evidence, it can be regarded as more likely than
not that there will be suitable taxable profits against which
to recover carried forward tax losses and from which the
future reversal of underlying timing differences can be
deducted.
Deferred tax is measured at the average tax rates that
are expected to apply in the periods in which the timing
differences are expected to reverse, based on tax rates
and laws that have been enacted or substantively enacted
by the balance sheet date. Deferred tax is measured on a
non-discounted basis.
82
Financial Statements
Related party transactions
IAS 24 Related Party requires to disclose related party
transactions entered into between two or more members
of a group, provided that any subsidiary which is a party to
the transaction is wholly owned by such a member. There
is an exemption in the reduced disclosure framework from
disclosing a related party transaction where the related
part as entered into between two or more members of a
group, provided that any subsidiary which is a party to a
transaction is wholly owned by such a member.
Own Shares Held by ESOp trust
Transactions of the Company-sponsored Employee Share
Ownership Plan (‘ESOP’) trust are treated as being those of
the Company and are therefore reflected in the Company’s
financial statements. In particular, the trust’s purchases
and sales of shares in the Company are debited and
credited directly to equity.
Share Based payments
The Company operates a share option scheme which
allowed certain Group employees to acquire shares in
the Company. The fair value of share options granted is
recognised within the staff costs of the relevant group
company with a corresponding increase in equity. The fair
value is measured at grant date and spread over the period
up to the date when the recipient becomes unconditionally
entitled to payment.
The fair value of share options was measured using either
a Monte Carlo valuation model or the QCA-IRS option
valuer using the Black-Scholes formula, taking into account
the terms and conditions upon which the grants were
made. The amount recognised as an expense is adjusted to
reflect the actual number of share options that vest except
where forfeiture is only due to share prices not achieving
the threshold of vesting.
The Company also operates a long term incentive plan.
The fair value of the conditional awards of shares granted
under the long term incentive plan determined at the date
of grant. The fair value is then expensed on a straight
line basis over the vesting period based on an estimate
of the number of shares that will eventually vest. At each
reporting date, the non-market based performance criteria
and total shareholder return defined in the long term
incentive plan will be reconsidered and the expense will be
revised as necessary.
IFRS 2 has been applied to all options granted after 7
November 2002 which have not vested on or before 1
January 2006. A deferred tax adjustment is also made
relating to the intrinsic value of the share options at the
balance sheet date.
Annual Report 2016
As a result of the grant of share options since 6 April 1999
the Company will be obliged to pay employer’s National
Insurance contributions on the difference between the
market value of the underlying shares and their exercise
price when the options are exercised. A provision is made
for this liability using the value of the Company’s shares
at the balance sheet date and is spread over the vesting
period of the share options. The provision is held by the
relevant group company who employs the share option
holders.
The grant date fair value of share-based payment awards
granted to employees is recognised as an employee
expense, with a corresponding increase to equity, over the
period that the employees unconditionally become entitled
to the awards. The amount recognised as an expense is
adjusted to reflect the number of awards for which the
related service and non-market vesting conditions are
expected to be met, such that the amount ultimately
recognised as an expense is based on the number of
awards that meet the related service and non-market
performance conditions at the vesting date. For share
based payment awards with non-vesting conditions,
the grant date fair value of the share-based payment is
measured to reflect such conditions and there is no true-
up for differences between expected and actual outcomes.
The fair value of the amount payable to employees in
respect of share appreciation rights, which are settled in
cash, is recognised as an expense with a corresponding
increase in liabilities, over the period that the employees
unconditionally become entitled to payment. The liability
is re-measured at each reporting date and at settlement
date. Any changes in the fair value of the liability are
recognised as personnel expenses in profit or loss.
dividends
Final dividends are recorded in the financial statements in
the period in which they are approved by the shareholders.
Interim dividends are recognised when paid.
Cash Flow Statement
The cash flows of the Company are included in the
Consolidated Cash Flow Statement on page 44.
Financial Statements
83
i. Operating Expenses
Staff Costs
Details of the Directors’ emoluments are given in the
Directors’ Report on page 26. The Director’s remuneration
costs are borne by a subsidiary undertaking. The Company
did not incur any staff costs during the year (2015: £nil).
The average number of employees employed by the
company during the year was 4 (2015: 4).
Services provided by the Group’s auditor
Fees payable for the audit of the parent company and
consolidated accounts of £15,000 (2015: £15,000) were
borne by a subsidiary undertaking.
ii. Fixed Asset Investments
At 1 April 2014 (restated)
Additions
Disposals
At 31 March 2015 (restated)
Additions
Disposals
At 31 March 2016
Impairment
At 1 April 2014
Charge for the year
Disposals
At 31 March 2015
Charge for the year
Disposals
At 31 March 2016
net Book value
At 31 March 2016
At 31 March 2015
Shares in
subsidiary
undertakings
£’000
Other
investments
£’000
17,899
-
-
17,899
4,982
-
22,881
(6,986)
-
-
(6,986)
-
-
(6,986)
15,895
10,913
3,244
1,797
-
5,041
(1,080)
-
3,961
-
-
-
-
-
-
-
3,961
5,041
total
£’000
21,143
1,797
-
22,940
3,902
-
26,842
(6,986)
-
-
(6,986)
-
-
(6,986)
19,856
15,954
The Directors have assessed the carrying values of
the Company’s investments, and concluded that
no impairment triggers exist that would require the
Company’s investments to be impaired. The investment in
Eckoh Projects Limited has been fully returned in previous
years and therefore has no current value.
Other investments represent additional investments in
Eckoh UK Limited as a result of the share-based payments
arrangements in place. As the Company grants options
over its shares to employees of Eckoh UK Limited, the
Company records an increase in its investment in Eckoh UK
Limited, the details of which are disclosed further in note
20 of the consolidated financial statements. The disclosure
of these amounts has been reclassified between categories
during the year.
Other investment movements include contingent
consideration in respect of the acquisition of Veritape
Limited is detailed in note 25 to the consolidated
accounts. This consideration is in the form of employee
share based payments being issued to the previous owners
of Veritape. As such, this has been accounted for in line
with IFRS 2.
84
Financial Statements
• £’000 iii. trade and Other Receivables
Prepayments and Accrued income
Amounts due within one year
iv. trade and Other payables
Current
Amounts owed to group undertakings
Other creditors and accruals
Loan due within one year
Amounts due within one year
non-Current
Loan due over one year
Loan due over one year
The loan is detailed further note 3 to the consolidated accounts.
v. deferred taxation
Total unprovided deferred tax assets are as follows:
Tax losses available
Unprovided deferred tax asset
Annual Report 2016
31 March 2016
£’000
17
17
31 March 2015
(restated)
£’000
30
30
31 March 2016
£’000
6,199
46
1,000
7,245
3,750
3,750
31 March 2015
(restated)
£’000
3,330
9
-
3,339
-
-
10,995
3,339
31 March 2016
£’000
31 March 2015
£’000
1,960
1,960
2,172
2,172
Financial Statements
85
• £’000 number of
shares
nominal value
£’000
223,081,281
2,967,084
13,882,961
239,931,326
558
7
35
600
x. Events After the Balance Sheet date
Post year end the Directors are recommending that a
final dividend for the year ended 31 March 2016 of 0.45
pence per ordinary share be paid to the shareholders
whose names appear on the register at the close of
business on 7 October 2016 with payment on 4 November
2016. The ex-dividend date will be 6 October 2016. This
recommendation will be put to the shareholders at the
Annual General Meeting. Based on the shares in issue at
the year end, this payment would amount to £1.1m.
vi. Share Capital
Allotted, called up and fully paid
Share type
Ordinary shares of 0.25p each
As at 1 April 2015
Shares issued on acquisition of PSS Inc
Shares issued under the share option schemes
As at 31 March 2016
There are currently 1,524,159 shares being held with a
nominal value of £3,810 which have been issued but are
held by Escrow for one year post the PSS acquisition.
vii. Share Options and Share Based payments
Share options and share based payments are disclosed in
note 20 to the consolidated financial statements.
viii. Related party transactions
The Company has taken advantage of the exemption
conferred by IAS 24 that transactions between wholly
owned Group companies do not need to be disclosed.
ix. transition note
In the transition to FRS 101, the Company has applied
IFRS 1 whilst ensuring that its assets and liabilities are
measured in compliance with FRS 101. No adjustments
as a result of the transition to FRS 101 have affected
the reported financial position. IFRS 1 grants certain
exemptions from the full requirements of Adopted IFRSs
in the transition period. The following exemptions have
been taken in these financial statements:
• Business combinations- Business combinations that
took place prior to transition date have not been
restated.
• Fair value or revaluation as deemed cost - At first day
of comparative period, fair value has been used as
deemed cost for properties previously measured at fair
value.
• Share based payments- IFRS 2 is being applied
to equity instruments that were granted after 7
November 2002 and that had not vested by first
day of comparative period.
86
Financial Statements
Shareholder Information
Dealings permitted on Alternative Investment Market (AIM) of the London Stock Exchange.
Annual Report 2016
directors and
Company Secretary
C.M. Batterham -
Non-executive Chairman
C. Ansell -
Non-executive Director
n.B. philpot -
Chief Executive Officer
A.p. Moloney -
Group Finance Director
and Company Secretary
Registered Office
Eckoh plc
Telford House
Corner Hall
Hemel Hempstead
Hertfordshire
HP3 9HN
nominated Advisor
and nominated Broker
Nplus1 Singer Capital
Markets Limited
One Barthlomew Lane,
London
EC2N 2AX
Registrar
Solicitor
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Mills & Reeve LLP
Botanic House
100 Hills Road
Cambridge
CB2 1PH
Banker
Barclays Bank plc
11 Bank Court
Hemel Hempstead
Hertfordshire
HP1 1BX
Auditor
KPMG LLP
Altius House
One North Fourth Street
Milton Keynes
MK9 1NE
www.eckoh.com
Registered in England and Wales, Company number 3435822
Financial Statements
87
Eckoh UK plc
Telford House
Corner Hall
Hemel Hempstead
Herts HP3 9HN
08000 630 730
tellmemore@eckoh.com
www.eckoh.com
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