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SysGroup plcAnnual Report 2022 2 2 Strategic Report | Contents 3 3 Contents 01 Strategic Report Highlights of the Year 05 Chairman’s Statement 08 Chief Executive’s Review 10 Principal Risks & Uncertainties 20 Financial Review 24 Sustainability Report Board of Directors 28 34 02 Corporate Governance Chairman’s Statement on Corporate Governance 36 Audit Committee Report 42 Remuneration Committee Report 46 Director’s Report 53 Independent Auditors’ Report 56 03 Financial Statements Consolidated Statement of Total Comprehensive Income 64 Consolidated Statement of Financial Position 65 Company Statement of Financial Position 66 Consolidated Statement of Changes in Equity 67 Company Statement of Changes in Equity Consolidated Statement of Cash Flows 68 69 Notes to the Financial Statements 70 Shareholder Information 102 4 04 Strategic Report | Eckoh Annual Report 2022 5 05 Strategic Report Eckoh plc (AIM:ECK), the global provider of Customer Engagement Security Solutions, is pleased to announce results for the 12 months to 31 March 2022. Highlights of the Year REVENUE £31.8m £18.6m UK REVENUE Up 4% from FY21 Up 3% from FY21 UK 61% US 39% US REVENUE $13.8m Up 8.1% from FY21 TOTAL CONTRACTED BUSINESS NET CASH £22.5m £2.8m GROUP ANNUAL RECURRING REVENUE Up 48% £25.2m US SECURE PAYMENT ANNUAL RECURRING REVENUE $11.9mUp 82% £5.2m ADJUSTED OPERATING PROFIT 10% Up from FY21 ADJUSTED EARNINGS PER SHARE pence 1.57 per share 5% Up from FY21 6 08 Strategic Report | Highlights of the Year 7 09 Highlights of the Year Revenue Gross profit US Secure Payments ARR ($m)1 Total ARR1 Adjusted EBITDA2 Adjusted operating profit3 Profit before taxation Adjusted earnings pence per share4 Adjusted diluted earnings pence per share4 FY22 31.8 25.4 11.9 25.2 6.8 5.2 2.3 1.57 1.34 FY21 30.5 24.2 6.5 17.0 6.4 4.7 3.5 1.49 1.45 Change +4% +5% +82% +48% +7% +10% (34%) +5% (8%) 1 ARR is the annual recurring revenue of all contracts billing at the end of the period Included within Group ARR is all revenue that is contractually committed and an element of UK revenue that has proven to be repeatable, but not contractually committed 2 Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) is the profit from operating activities adjusted for depreciation of owned and leased assets, amortisation, expenses relating to share option schemes, restructuring costs and transactional costs 3 Adjusted operating profit is the profit from operating activities adjusted for amortisation of acquired intangible assets, expenses relating to share option schemes, restructuring and transactional costs 4 Adjusted earnings pence per share – the Group issued 36 2m new Ordinary Shares during the year in connection with the acquisition of Syntec which results in an increase in the weighted average shares in issue across the period Strategic highlights Financial highlights • Strong ARR1 growth, especially in the US market, driven primarily • Strong performance, as previously announced in Trading by our clients’ need to protect data and comply with increasing Update on 17 May 2022 regulation without compromising customer experience • UK business returned to growth with strong second half shift to cloud revenues as most client activity recovered – Adjusted operating profit3 up 10% with successful pivot • Group ARR1 up 48%, reflecting market opportunity and ongoing • Transformational Syntec acquisition performing in line with our expectations with integration on track – Unification and enhancement of product offering on track to higher quality earnings following the completed exit from US and UK Support, which contributed £2m to FY21 adjusted operating profit3 for go-to-market launch in 2022 • US Secure Payments performed strongly: • As part of our long-term strategic direction, multi-platform – Revenue up 8%, underlying growth stronger – US ARR1 increased 82% to $11 9m (FY21 $6 5m), up 38% cloud-enablement of our offering is driving: on an organic basis – Market leadership and competitive advantage – Scalability into larger client opportunities on an • UK revenues returned to growth with transactional volumes international basis, characterised by recent contracts largely returned to pre-pandemic levels – Significant cross-sell opportunities and faster deployments will drive increased client value – Revenue up 9%, excluding third-party Support or 3% total – UK ARR1 of £16 5m, up 8% on an organic basis and up 36% • Realignment of sales capability and go-to-market proposition including Syntec to drive top-line growth, and restructuring of cost base to • Profit before taxation includes £1.0m of transactional costs (in create greater operational efficiency connection with the acquisition of Syntec) and £0 9m of one- off restructuring costs • Balance sheet remains strong following the Syntec acquisition with net cash of £2 8m (FY21: £11 7m) • Increased final proposed Dividend at 0.67p per share (FY21: 0.61p), demonstrating increasing confidence in the ongoing growth opportunity Current trading and Outlook • Current order levels already substantially exceed FY22’s • First client deployed and live on our new Azure Cloud first quarter outcome platform signed new 3-year contract worth $1 5m and a further contract worth $0 6m to secure live chat agents • Significant strengthening of Eckoh’s new business pipeline with digital payments in the first quarter, including major opportunities for large blue-chip organisations • As previously indicated, the Board expects FY23 revenue – Progress reflects success with our strategy to pursue larger, higher quality opportunities through and profit to be significantly higher than FY22, driven by benefits of the Syntec integration, strong organic ARR1 management action to improve sales function and growth, operational efficiencies and synergistic benefits – Renewals post-period end includes our largest of the Syntec integration contract scheduled for FY23, worth £2 1m • The Board is confident of further progress in the year ahead, supported by an encouraging pipeline, a model with high recurring revenues and a robust balance sheet 8 08 Strategic Report | Chairman’s Statement 9 Chairman’s Statement The economic backdrop over the last few years has proven Eckoh has a resilient business model. In the first half of the year, the business was still impacted by the COVID-19 pandemic, but as we exited from the first half, we saw both new business and the UK volumes returning to normal levels pre the pandemic. In the last quarter of the year the uncertain macro-economic conditions have impacted the new business contracted, but I am pleased to report that since the end of the financial year business contracted has been encouraging. During the year the planned exit from the third-party Support business in the UK and US has been completed. This allows the team to focus on the Customer Engagement Security portfolio, which is of a higher quality of earnings and which will drive the growth expectations both in the UK and US. The majority of the enhanced products and services are available globally and we have the capability to offer our clients a choice of cloud platform, allowing us to better service global contracts. he business acquired Syntec Holdings limited in December and since acquisition it has performed as expected and with our strong organic growth, it will further strengthen our market-leading position The Board expects revenue and profit for FY23 to be significantly higher than FY22. This will be driven by synergistic benefits of the T Dividend The Board has increased the proposed dividend by 10% to 0 67 pence per share (FY21: 0 61 pence per share) Board Syntec integration, ongoing momentum in the US market, and expected normal trading activity in the UK; supported by long- term structural growth drivers and cloud adoption In the financial year ended 31 March 2022, there were no significant changes to the Board. Full details of the current Directors are on pages 34 to 35 Results Total revenue for the year was £31 8 million, an increase year on year of 4% (FY21: £30 5 million) or 6% adjusting for constant exchange rates Excluding the third-party Support business in FY22 and FY21, revenue was £31 2 million, an increase of 11% A year ago, I committed to introducing an ARR1 metric for the entire Group which we have delivered, initially with the US Secure Payments ARR1 in November results and in this set of results for the Group Group ARR1 was £25 2 million as at 31 March 2022, a 48% increase year on year (FY21: £17 0 million), a very strong outcome demonstrating the high level of visibility we have in our business model The Eckoh US Secure Payments ARR1 is $9 0m, an increase of 38% from the same time last year, demonstrating the strong underlying growth in the business and the strong visibility of revenues When the Syntec US activity is included, the combined ARR1 is $11 9 million, an increase year on year of 82% Corporate Governance As a Board of Directors, we feel the Quoted Companies Alliance Corporate Governance Code (QCA Code) is the most appropriate code for Eckoh plc to apply, given the Group’s size, risk, complexity and stage of maturity In the Governance section of this report on page 36, we outline the Company’s approach to Corporate Governance and how we have complied with the QCA code The Board considers that it does not depart from any principles of the QCA code Our Sustainability Report on pages 28 to 31 provides an update on our approach to Eckoh’s Environmental, Social and Governance strategy (ESG) This is an evolving process and we aim to further develop and evolve our strategy, refine our targets and deliverables and enhance our reporting in FY23 Full details of the Company’s Principal Risks and Uncertainties are on pages 20 to 23 People The prudent cost control the management achieved in FY21 continued into FY22. Adjusted operating profit3 was £5 2 million, The Board and I would like to welcome the employees from Syntec to the Group We would also like to thank all employees an increase of 10% year on year (FY21: £4 7 million) for their continued commitment and resilience through what has been a challenging and busy year The collaboration across the The Group continues to have a strong balance sheet with a year- team in both the UK, US and Syntec has been exceptional and end net cash balance of £2 8 million (FY21: £11 7m) The change has resulted in the significant strides being made in the product reflects the acquisition of Syntec in December 2021, which was enhancements and the multi-cloud capability part-funded by cash In addition, to fund the acquisition, we also raised funds from Shareholders, and entered into new banking The whole Board plan to attend the AGM on 26 September 2022 arrangements of £10 million and we look forward to the opportunity to meet with as many Shareholders as possible on the day Going Concern The Board has carried out a going concern review and concluded Christopher Humphrey that the Group has adequate cash to continue in operational Chairman existence for the foreseeable future The Directors have prepared 15 June 2022 cash flow forecasts for a period in excess of 12 months from the date of approving the financial statements. In all scenarios tested, the Directors were able to conclude that the Group has adequate cash to continue in operational existence for the foreseeable future Further information is included in the Directors Report on page 53 10 Strategic Report | Chief Executive Review 11 09 Chief Executive Review Eckoh has made significant progress in the last 12 months. We have shown the resilience of our business model, with growth in revenue and operating profit and improved quality of earnings with the completed exit from our Support activity. Our momentum is underpinned by fast-growing recurring revenues, with an excellent performance in our US business and a return to growth in the UK. We successfully completed the transformational acquisition of Syntec, which enhanced our position as the largest provider in our industry. The integration is progressing well and our unified product suite will extend our market-leading position in Customer Engagement Security Solutions. Our new multi- platform, cloud delivery has created differentiation within our industry by offering greater customer choice, enabling us to deliver our services efficiently and at scale, and address significantly larger and global mandates. We have started the year strongly, and looking ahead the Board expects FY23 revenue and profits to be significantly higher than FY22, reflecting our ongoing organic growth, continued momentum in the US market, a sustained recovery in UK trading, and the integration of Syntec. In addition, we expect our progress to be supported by long-term structural growth drivers and increasing cloud adoption, coupled with the benefits of new products and operational gearing. ckoh has had a successful year consolidating our Gross profit was £25.4 million, an increase year on year of 5% position as leaders in the growing Customer Engagement Security market Our new metric of Group ARR1 shows extremely strong progress and we delivered a robust level of adjusted operating profit, £5.2 million, an increase of 10% year on year (FY21: £4 7 million) and ahead of consensus market E expectations (FY21 £24.2 million), with gross profit margin 80%, (FY21: 79%). US gross profit was £8.5 million (FY21: £8.9 million), with gross profit margin increasing as expected to 74% (FY21: 71%) The growth in gross profit margin in the US is aligned with our expectations as US clients successfully renew their contracts, most new client deployments are on the cloud platform and there is continued growth in the Secure Payments activity. UK gross profit was £15.6 We acquired Syntec Holdings Limited in December 2021 and million (FY21: £15.3 million), an increase of 2% with gross profit are pleased with our current performance The acquisition, margin decreasing by 1% to 84%. Syntec gross profit was £1.4 alongside our organic business growth, will further strengthen million, with an 80% gross profit margin, in line with the Group’s our market-leading position gross profit margin. In our trading and product update in April, we announced the The prudent cost control we achieved in FY21 has continued significant enhancements to our Customer Engagement Security into FY22 We made structural changes to the US Sales team portfolio, the majority of which are available globally in the second half and increased our focus on ‘vertical selling’ Our performance shows the resilience of our model and the our model) We have introduced a global Network Operations merit of our long-term strategy, given the remaining challenges Centre (NOC) and also streamlined the US operational team, presented by the pandemic, the uncertain macro-economic following the planned and completed exit from the third-party (targeting sectors such as healthcare, which are well suited to climate and the planned and completed exit from US and UK Support business Support, which had contributed £2 million to the previous year’s profit. As a result, the Board has increased the proposed dividend Adjusted operating profit3 was £5 2 million (FY21: £4 7 million), by 10% to 0 67 pence per share (FY21: 0 61 pence per share) an increase of 10% year on year After adjusting for the planned exit from third-party Support, FY22 adjusted operating profit was Our strong performance reflects ongoing progress in our US £4 8 million, a year on year improvement of 81% (FY21: adjusted Secure Payments operation, which now accounts for nearly 90% operating profit excluding third party Support £2.7 million). of total US revenues (FY21: 80% of total US revenues) and with the enhanced global product offerings provides the platform for Total contracted business for the financial year at the Group level continued growth and additional cross-selling into our existing was £22.5 million (FY21: £30.7 million). The first half of the year was clients, a significant part of our strategy. During the year the UK challenging for new business and particularly large enterprise division has continued to recover and the momentum we saw at contracts with the ongoing impact of the pandemic at the time the end of the first half has continued into the second half, with We started to see improvements as the second half started, but revenue up 9% year on year in the second half, demonstrating the usual strong final quarter of the year was then impacted the resilience of our business model unexpectedly with the global macro-economic challenges arising from the ongoing conflict in Ukraine. New business won A year ago, we said we would introduce an ARR1 metric, which we in the year was £10 8 million (FY21: £15 7 million), an unsatisfactory did for the US Secure Payments business in our interim results outcome, but with the continued pandemic challenges in the first in November At that time, we also committed to include an ARR1 metric for the entire Group with our full year results, and half and the macro-economic challenges in the last quarter it was an understandable result We are, however, very encouraged we are pleased to have been able to fulfil that commitment. by trading in the first quarter of the new year, with order levels Given the transactional nature of some UK revenues, we have slightly updated our definition of ARR1 since our trading update in May Group ARR 1 was £25 2 million as at 31 March 2022, a already significantly higher than last year, and with a much stronger pipeline 48% increase year on year (FY21: £17 0 million), a very strong Our balance sheet remains robust with a strong net cash position outcome demonstrating the high level of visibility we have in of £2.8 million (FY21: £11.7 million). In the first half of the financial our business model year, we repaid the final instalment of the term loan with Barclays Bank and in December we utilised some of our cash reserves to Total revenue for the year was £31 8 million, an increase year part-fund the acquisition of Syntec In addition, and as a result on year of 4% (FY21: £30 5 million) or 6% adjusting for constant of the acquisition of Syntec, the Group entered into new banking exchange rates Excluding the third-party Support business arrangements with Barclays Bank for a £5 0 million Revolving in FY22 and FY21, revenue was £31 2 million, an increase of 11% Credit Facility (RCF) and a £5 0 million overdraft facility As at Included within these results are three months of revenue 31 March there was no debt drawn under either facility The RCF from Syntec, which is performing in line with our expectations is secured against the Group’s UK head office which is an asset at acquisition we own outright 12 Strategic Report | Chief Executive Review 13 A clear growth strategy Our strategic objectives reflect our primary goal to become the global leader in our areas of expertise, and in particular, Customer Engagement data and payment security Being the market leader for Customer Engagement data and payment security Maximise client value and retention through cross-selling to generate higher levels of recurring income Capitalise on the fast-growing global market for technology solutions that help protect customer data Our strategic objectives include: Evaluate acquisition Make cloud our primary platform opportunities that can support and use cloud technologies our growth strategy in Customer to develop and enhance our Engagement security proprietary solutions Highly complementary products and attractive proposition Historically Eckoh’s go-to-market proposition encompassed two highly complementary areas: Secure Payment products and Customer Engagement solutions The overlap between these two areas has always been significant hardware costs associated with larger customer premise and has led us to update and unify our proposition into a new deployments will be reducing, leading over time to an increase go-to-market vision of Customer Engagement Security Solutions in operating margin Going forward all of our customer engagement offerings will be underpinned with security features and capabilities to assist our clients to address security concerns and increasing regulation, New growth drivers in a broadening but to do so in a way that doesn’t compromise the quality of their customer’s experience An example of this is our live chat global market offering which incorporates our patented and unique ChatGuard Our target market both in the UK and US for our Secure Payments capability, that enables payment or personal information to be proposition has, up to now, been any sizeable enterprise or entered by a customer in a live chat session without any of that organisation that either transacts or engages with its customers information traversing our client’s environment or being shared at scale and at volume This activity will usually be supported with an advisor either by an in-house or outsourced contact centre provider The greater the volume of payment transactions or customer In the past our UK operations sold our entire product portfolio, engagement activity that the organisation has, the more but in the US - a territory that Eckoh entered six years ago - the attractive they are to Eckoh, and the larger the contact centre focus has been on Secure Payments, where we had the greatest operation supporting the organisation is likely to be differentiation and the least competition Going forward this distinction will no longer be the case, with our new product However, with the advent of a unified go-to-market proposition of proposition being available to any client in any territory Our Customer Engagement Security Solutions, enhanced by the new solutions, which will enable our clients to ‘Engage, Secure products and delivered through our expanding cloud platforms, and Protect’ their customers, will all be delivered through our not only will this naturally extend our reach geographically but multi-vendor and global cloud platforms, allowing us to better it will also increase the opportunity within every client account service international contracts The procurement of security and With regulation tightening and the financial impact of data payment solutions to be deployed across multiple territories breaches and fraud growing, organisations are increasingly is certainly increasing, and we will continue to invest in and looking for ways to move beyond the requirement of merely extend our cloud platforms to support this growth This trend being compliant to secure themselves more comprehensively, will broaden our market further and inevitably lead to us having leading to broadening information security budgets and remits a blurring of our geo-graphical target markets with Rest of World (‘ROW’) becoming a more important component of our future The contact centre industry in both the UK and US is extremely revenue streams large, representing around 4% of the entire workforce in both markets However, the pandemic and the current economic The growing proportion of cloud deployments we have already climate is fundamentally changing the way that the contact seen occur in the US market, alongside the acquisition of Syntec, centre industry operates and the pressures it has to deal with means our ability to sell and deliver additional services to clients is very much enhanced With our product roadmap extending • The pandemic has forced contact centres to adopt hybrid our security remit beyond payments and into a broader data working, increasing security concerns security proposition we expect to be able to increase the lifetime • Recruitment and churn are huge problems, making it very value of our clients and continue to have very low levels of churn challenging to properly service clients’ needs • The cost-of-living crisis will accelerate levels of fraud and As part of the integration of Syntec we have formed a cross- increase collection issues company technical group who are working on the unification of the security product proposition, a project that we have named In the aftermath of the pandemic there is now a much greater Syntegration This will lead us to have the ability to deliver all reliance on contact centre agents working remotely, usually our Customer Engagement Security Solutions from a combined from their homes, and that is only going to accentuate security cloud native code base and have the flexibility of seamlessly concerns and requirements The trend of remote working adding new functionality or additional services as desired for managing customer engagement is almost certainly • The Group’s patented Secure Payment products help • The Group’s Customer Engagement Solutions help organisations by the client, reducing the time to revenue considerably The a permanent feature, and this can only benefit Eckoh as our organisations to reduce the risk of fraud; secure sensitive transform the way they engage with their customers Eckoh’s first instantiation of this new unified offering is expected to be security proposition enables companies to effectively further data; comply with the Payment Card Industry Data Security proposition enables enquiries and transactions to be performed available in this calendar year reduce or remove the risk of data breaches arising from one of Standard (PCI DSS) and wider security regulations such as the on whatever device the customer chooses, through any inbound the most challenging parts of their businesses General Data Protection Regulation (GDPR) or the US Consumer communication channel and allows customers to self-serve or to Client contracts are typically multi-year in length and have a Privacy Acts Eckoh prevents sensitive personal and payment engage with a customer service advisor It enables our clients to high proportion of recurring revenues, usually underpinned by Furthermore, the contact centre industry is now battling data from entering IT and contact centre environments when increase efficiency, lower operational costs and increase customer minimum commitments With a greater proportion of contracts with a huge problem of churn and recruitment challenges customers make payments for goods and services satisfaction by providing a true Omnichannel experience being delivered through the cloud the initial set up fees and as a consequence of the realignment of employees’ career 14 Chief Executive Review 15 aspirations coming out of the pandemic This is unlikely to be The revenue growth has been tempered in this period by the three solved easily or quickly and organisations will be looking even secure payment contracts that successfully renewed for the more acutely at the utilisation of their human agents and turning first time during the year, one of which was our largest contract increasingly to technology to maximise first contact resolution to date, a $7 4 million 2-year contract that went live in 2019 At levels and the average handling time for each contact Eckoh’s the point of renewal, the hardware fees and implementation new product portfolio will ensure that customers can be dealt fees are fully recognised and as we see more clients go through with swiftly and effectively, without compromising their customer their first renewal, we will see the overall percentage of recurring experience or the security of their data revenue continue to increase This is illustrated by the progress in Lastly, the cost-of-living crisis will inevitably lead to an increase of 13%, demonstrating both the successful renewals achieved in in fraud, both from internal employees and external organised the year and the increased number of clients who deploy on our recurring revenue, which was 65% (FY21: 52%), an improvement The ability to offer our clients a choice of cloud platform External factors, such as the impending change to version 4 of strengthens our position in the market and the expansion the Payment Card Industry Data Security Standard (PCI DSS), the globally of our cloud platforms and capabilities remains one of implementation of new data laws such as US Consumer Privacy our key strategic goals One of the big advantages this brings Acts and significant fines levied on US organisations through is the speed and ease with which multiple parts of our secure the GDPR legislation, are undoubtedly helping raise awareness engagement portfolio can be deployed The client who is now live of the risks of not protecting sensitive data properly This will on our Azure platform has entered into two separate contracts assist us in continuing to build our pipeline which is substantial with us. The first worth $1.4m over three years is for securing and growing Our focus on these larger contracts means that in We continue to see, as expected, the general acceleration towards cloud deployments and with our recently announced implementation of a new Microsoft Azure Cloud platform with a Fortune 100 US retailer now live, this makes Eckoh the only provider in our industry to offer alternative cloud providers. future periods the timing of contract wins continues to be hard to predict given the typically longer sales cycle In the year Coral and Support had a combined revenue of $1 8 million (FY21: $3 5 million) and accounted for 12% of the revenues (FY21:22%) A proportion of the restructuring costs incurred in the US in the first half relate to the third-party Support area of the business and the last criminals Contact centres are a relatively low paid sector and it global cloud platform We expect the level of cloud deployments their voice agents, the second worth $0 6m is to allow them stage of the restructuring took place in October as we merged is this tier of employees who arguably will be most badly hit by to continue at the current level, which will continue to improve the to securely take digital payments across other engagement the UK and US Customer Support desks to a global Network the economic pressures, which may lead to a greater propensity recurring revenue and the gross profit of the business. channels, notably live chat This is a good illustration of how Operations Centre (NOC) for them to commit criminal acts, whether independently or on we expect new and existing clients to take multiple parts of our behalf of organised crime The same economic challenges will The planned transition to Secure Payments and ultimate exit portfolio and extend the reach of their overall solution over time Coral is a browser-based agent desktop that increases efficiency also lead to greater numbers of consumers becoming either from the Support activity is now completed, with only $0 5m of by bringing all the contact centre agent’s communication tools unwilling or unable to pay off charges for services Managing revenue in this financial year coming from Support. Over the last While cloud deployment remains a key goal and advantage, into a single screen It also enables organisations, particularly those customers and trying to successfully and sensitively collect five years Secure Payments has grown at a compound annual we still expect that many of the largest enterprises will take many those who have grown by acquisition, to standardise their contact their payments will require more innovative and effective use of growth rate of 30% and the quality of earnings going forward years to achieve that objective, so retaining the capability to centre facilities, as Coral can be implemented in environments technology, and Eckoh’s security proposition has proven success will be enhanced by the exit from the shorter-term Support deploy as required in a client’s own data centres and environment that operate on entirely different underlying technology In the and a demonstrable return on investment in this area Operational review US Division (39% of group revenues) The US business, including the Syntec US activity, represented 39% of Group revenues in 2022 (FY21: 41%) In the US, the Group’s focus has remained on the US Secure Payments opportunity, where we deliver a patented solution through the Eckoh CallGuard brand or Syntec CardEasy brand The product enables enterprises to take card payments securely within their contact centre operations and the growth opportunity is underpinned by long-term structural drivers of tightening regulation, the need to mitigate the risk of data breaches (and fraud) within our clients’ IT and Contact centre operations and the migration to a greater level of remote working As the more extensive Customer Engagement Security offering delivered through our global cloud platforms is introduced to the US this year, there is a huge opportunity to cross-sell to our existing enterprise clients, many of which are the largest brands in the US market This approach has proven to be highly successful with our UK clients and will drive continued growth In the US, Secure Payment revenue was $13 8 million an increase of 8 1% (FY21 $12 8 million) and 88% of total US revenue (FY21: 78%) contracts The growth of the US business is further demonstrated in the new ARR1 metric The Eckoh US Secure payments ARR1 is $9 0m, an increase of 38% from the same time last year When the Syntec US activity is included, the combined ARR1 is $11 9 million, continues to give us a tactical advantage over our competitors prior period, we secured additional licences and functionality of The launch of CallGuard Express in the second half, which is fees, however as we have indicated previously, the timing of Coral deliberately designed for smaller customers, will see smaller orders remains hard to forecast and they will be lumpy in nature $1 0 million in the year In FY22, there were no incremental licence an increase year on year of 82% contracts being targeted and won for the first time. This product is extremely quick to deploy, with very limited operational overhead This will be the last time that the US is reviewed in the context Total contracted business was $10 6 million a decrease of 35% associated with it, so the conversion of a sale into revenue will of Secure Payments only. With the shift to a unified Customer (FY21 $15 5 million) The level of new contracts was lower in the be much faster than on our larger contracts, and margin higher Engagement Security Solutions proposition we will be second half than expected, reflecting an unusually quiet fourth We expect most of these deals to be won through partners and commenting on our progress across this broader offering and quarter due to macro-economic conditions and ramifications more broadly our sales channels continue to strengthen, so will be able to assess progress in our ability to cross-sell new of the Ukraine situation The Company remains focused on large the share of pipeline and revenue from partners is expected to services into existing clients as well as on boarding new clients enterprise contracts, and whilst deals were slow to close at the increase over time Partner sales opportunities now represent end of the year, the pipeline is stronger than a year ago and 30% of our total pipeline UK Division, including Syntec UK and Rest of World encouragingly we have seen much higher levels of activity and (61% of group revenues) value of deals closing in Q1 of the new year compared to last The average length of new contracts for Secure Payments is During the year the UK division has continued to recover We continue to see, as expected, the general acceleration typical in the US for renewals to be annual, often on an auto- continued into the second half, with revenue up 9% year on towards cloud deployments and with our recently announced renew. During the year there were five contracts that successfully year in the second half, demonstrating the resilience of our implementation of a new Microsoft Azure Cloud platform with renewed, one of which was our largest contract signed to date business model. This provides us with continued confidence a Fortune 100 US retailer now live, this makes Eckoh the only ($7.4 million over 2 years). There was a significant level of one-off for the new year coupled with the strong contracted business provider in our industry to offer alternative cloud providers fees in this contract, which were fully recognised in the first half. already achieved in the first quarter to date. This particular client actively chose to deploy onto the Azure In the second half of the year there were two contracts, which platform, illustrating that there are sensitivities and preferences are both on an annual auto-renew as described above, they are Revenue in the year was £18 6 million (FY21 £18 0 million) an that clients will have that will influence their choice of now in their fourth and fifth year showing similar lifecycle values increase of 3%, this is particularly pleasing given the challenging cloud provider to our UK clients beginning to the year, when the country remained impacted by three years which is comparable to the UK, however, it is more and the momentum we saw at the end of the first half has 16 Strategic Report | Chief Executive Review 17 the pandemic When the third-party Support revenue is excluded increase the lifetime value of the Group’s customers £3 6 million in FY22 and FY21, the underlying growth was 9% from £16 8 million of the new business secured in the year (FY21: £3 5 million) was Digital Payments to £18 3 million Recurring revenue has decreased to 80% from 84% contracted with existing customers for delivery of new solutions Blending digital security with live person interaction, Eckoh’s Digital in FY21 partly due to the planned exit from third-party Support or modifications. Our strong track record with existing clients has Payments can be extended to any customer engagement channel also continued to be demonstrated through the extremely high Organisations can now provide their customers with a secure payment UK clients are contracted through a range of commercial models proportion of clients that are successfully renewed that have evolved over time, unlike the newer US business link triggered by the agent from an engagement on a chat or messaging session or via an email The agent can monitor the progress of the (including Syntec US activity), which operates entirely on fixed New business wins, consistent renewals of existing clients and the payment process in a similar way to our voice security product, and fee contracts Where the commercial model is transactional, improved transactional volume from our long-standing clients without any exposure to any of the data It also offers the consumer which is common, it is usual for a client to commit to a high give us high revenue visibility and our UK clients are underpinned traditional card payment or popular alternative payment methods percentage of its expected volumes and in so doing achieve by contractual fees or minimum transaction levels We expect like PayPal, ApplePay or GooglePay Digital Payments is now available the most competitive buying rate The portion of a client’s the improvement in transactional revenues seen in the second globally through Eckoh’s multi-cloud platforms, the latest addition revenue that is not committed is generally repeatable, even quarter to continue into the second half, subject to no further to the broadening security product range that is facilitating greater as we saw in the pandemic, where the UK activity levels were lockdowns being implemented opportunities for cross-selling into Eckoh’s extensive client base very significantly impacted but the revenue impact was only around 10% In introducing the Group ARR1 metric, we have had Syntec contributed £1 7 million of revenue and £0 3 million of to make an assumption on the revenue that is not contractually operating profit in the final quarter of the financial year. This was committed but is, and has been, repeatable Based on this view UK ARR1 at the end of the period was £16 5 million, a 36% increase consistent with our expectations at the time of the transaction, and the integration of the businesses is proceeding on plan including Syntec, 8% of which was organic Unification of the technology and product offering is making progress and we expect to deliver a unified and enhanced go- Gross profit in the year was £15.6 million, an increase of 2% (FY21: to-market proposition in 2022 £15 3 million) and gross margin in the UK decreased in the period by 1% to 84% (FY21: 85%) Total contracted business was £13 3 million compared to £18 9 million in the prior year and new contracted business was £5 0 million compared to £5 9 million, a 14% decrease year on year Total contracted business can be impacted by the timing of particularly large renewals, for example, in FY21 we completed a six-year contract renewal with Capita for the provision of services for the Congestion Charge to Transport for London, at a minimum contract value of £4 million In FY22 we completed important renewals with amongst others Premier Inn, Rail Delivery Group, Thames Water and Boots, but these were comparatively smaller than the Capita agreement. There was only one significant client that was not renewed in the period, who were contracted through a partner, and migrated to a different solution, this was the first such non-renewal for many years. Since the financial year end, Product update In April we announced significant enhancements to our Customer Engagement Security portfolio to assist organisations in protecting their customers’ payment and personal data in more efficient and diverse ways The enhancements support Eckoh’s strategic goals to capitalise on the structural developments in the global market and to use cloud technologies to develop and enhance our proprietary solutions while maintaining a market leading position for Customer Engagement data and payment security These new enhancements included: Secure Chat we have successfully renewed our largest contract scheduled for Eckoh’s Live Chat product is used by large enterprises this financial year, a contract through Capita for a large public that need the most versatile customisations and service organisation, which was £2 1 million over the term integrations plus the ability to scale to support the largest and most demanding requirements – something that Looking at the segmentation of UK revenue, 28% came from Secure off-the-shelf Chat products cannot provide With a new Payment services (FY21: 27%), 32% from Customer Engagement redesigned interface based on extensive client feedback, Solutions (FY21: 36%) and the remaining 40% from clients where agents and customers can now enjoy an even slicker we provide a combination of both solutions (FY21: 37%) The shift and more convenient experience that is fully cloud- from Customer Engagement Solutions to clients with combined hosted, allowing for sudden and significant fluctuations solutions is principally due to the improving volumes from our in demand With Eckoh’s unique and patented product larger clients who take both the Secure Payments solution and ChatGuard built-in as standard, organisations can take the Customer Engagement Solution fast in-chat payments with the reassurance of full PCI DSS compliance Eckoh’s Secure Chat is the only service Our model of cross-selling to existing clients remains a key part of to offer this capability and this updated version is now the Eckoh strategy, not just to generate incremental revenue but available globally and is expected to add significant value also to continue the trend of strong client retention and to further to the security proposition Speech technology expansion Eckoh has a long and successful history of speech- based applications and is leveraging that knowledge by enabling even more languages for the speech option in our security solutions. A new five-year contract, which was a significant cross-sell into a Syntec account, will see 18 different languages being implemented across the global estate of an international travel business CallGuard Express CallGuard Express is designed to make compliance and security straightforward for any business It offers companies of any size the same security functionality and credentials of CallGuard, but without the customisation and managed service that larger companies often require This enables CallGuard Express to be quick to deploy, simple to use and with a lower-cost entry point CallGuard On-Demand As well as standalone businesses, this new proposition In response to the increasingly rigorous Payment Card is also available to resellers through a partner program, Industry Data Security Standards (“PCI DSS“), Eckoh has enabling them to switch on new clients within days with developed an on-demand option for organisations who may have low or variable volumes of payments but still require the reassurance of full compliance This enhancement gives the contact centre agent the ability to invoke CallGuard only when a payment is taken, rather than all calls needing to traverse through the system no integration required Amazon Connect During FY22 we have invested in progressing the delivery of Eckoh solutions that include Amazon Connect as the cloud telephony layer When combined with Eckoh’s Customer Engagement Security Solutions this creates a compelling bundled solution that will enable Eckoh clients to have complex and feature-rich cloud customer engagement but delivered in a truly flexible, agile and most importantly secure way 18 Strategic Report | Chief Executive Review 19 Syntegration Outlook Creating a new cloud delivered Customer Engagement The balance sheet remains strong with net cash of £2 8m (FY21: Security offering £11 7m), well ahead of expectations The reduction from last year ‘Syntegration’ is an in-flight project to bring the best of Eckoh and reflects the completed acquisition of Syntec in December 2021, Syntec’s existing products and technologies together, and build which was part funded from our cash reserves a unified platform and roadmap for future new capability. Both companies core development teams have been working as one The Board expects revenue and profit for FY23 to be significantly cohesive unit to take all the best elements of each product and higher than FY22. This will be driven by synergistic benefits of bring them together into a truly world-class product suite It will the Syntec integration, ongoing momentum in the US market, provide a seamless upgrade path for current clients to benefit and expected normal trading activity in the UK; supported by from all the same capabilities as future clients long-term structural growth drivers and cloud adoption The Board is confident of further progress in the year ahead, with Both Eckoh and Syntec already had well-established, successful an encouraging pipeline, a model with high recurring revenues products in the market, having benefitted from many man-years and a robust balance sheet, coupled with the benefits of new of initial development coupled with subsequent enhancements products and operational efficiencies. These expectations are and fine tuning based on feedback from some of the world’s subject to ongoing uncertainty in the macro-economic climate largest brands The combination of the two products not only enhances the core security aspects of the platform, but Nik Philpot also extends capability to new features almost immediately Chief Executive Officer and creates an extensive roadmap for future innovation 15 June 2022 The Board expects revenue and profit for FY23 to be significantly higher than FY22. This will be driven by synergistic benefits of the Syntec integration, ongoing momentum in the US market, and expected normal trading activity in the UK; supported by long-term structural growth drivers and cloud adoption. With each solution having its own unique strengths, Eckoh has capitalised on these, bringing them together in a re-worked code base, plugging in additional capabilities and deployment models, and leveraging advances in cloud technology that have emerged in the last five years. As Eckoh’s CallGuard and CardEasy brands will now both benefit from the cross-pollination of features, many near-term roadmap items will be brought to fruition via this ‘Syntegration’ rather than net-new development Further, our long-term roadmaps now culminate into a single vision where new features can be developed and released on an accelerated timeline with the larger and more integrated research and development team The benefits of Syntegration are wide ranging, not only strengthening Eckoh's product proposition and partner integrations, but also delivering a significant number of operational efficiencies and reduced cost of ownership. Some key benefits of the new offering will be: • Best of both product sets • Cloud agnostic • Increases automation and agent efficiency • Seamless upgrade path for all customers • Reduces the total cost of ownership by lowering the cloud footprint (less computing power) • Brings together an unrivalled stable of out-the-box integrations • Fits any deployment model we have encountered • Delivery through configuration rather than bespoke development • Provides the backbone for our Customer Engagement Security roadmap • Combines architectural and engineering expertise with a growing patent portfolio 20 Strategic Report | Principal Risks & Uncertainties 21 Principal Risks & Uncertainties The Group’s approach is to minimise exposure to reputational, financial and operational risk, while accepting and recognising a risk/ reward trade-off in the pursuit of its strategic and commercial objectives. The nature of the products and services the Group provides, means that the integrity of the business is crucial and cannot be put at risk. The Group has a framework for reviewing and assessing these risks on a regular basis and has put in place appropriate processes and procedures to mitigate against them. However, no system of control or mitigation can completely eliminate all risks. The Board has determined that the following are the principal risks facing the Group. Specific Risk Mitigation Cyber, technology & processes Loss or inappropriate usage of data The Group has established physical and logical security The Group’s business requires the appropriate and secure usage of client, consumer and other sensitive information Fraudulent activity, cyber-crime or security breaches in connection with maintaining data and the delivery of our products and services could harm our reputation, business and operating results controls across all operating locations with rigorous cyber security controls In addition, a dedicated Security Operations Centre function provides Group wide monitoring, recruitment and training schemes and active threat hunting During the year, and as a result of the Ukraine/ Russia conflict, the Group signed up to the National Cyber Security Centre which aided the monitoring of increased cyber activity Continued investments are made in cyber security, infrastructure, monitoring and services, improvements in email and web filtering as well as the introduction of enhanced data loss prevention tools The Group also screens new employees carefully Eckoh has maintained its program of PCI DSS, ISO27001 and Cyber Essentials Acquired in the year, Syntec also operate to these same standards However, Eckoh will integrate our programs for efficiency. Interruptions in business processes or systems Comprehensive business continuity plans and incident The Group’s ability to provide reliable services largely depends on the efficient and uninterrupted operation of our platforms, network systems, data and contact centres as well as maintaining sufficient staffing levels. System or network interruptions, recovery from fraud or security incidents or the unavailability of key staff or management resulting from a pandemic outbreak could delay and disrupt our ability to develop, deliver or maintain our products and services This could cause harm to our business and reputation, resulting in loss of customers or revenue management programmes are maintained to minimise business and operational disruptions, including system or platform failure Testing and confirmation of plans is performed to ensure business continuity relevance and training is maintained In addition, and as a result of the COVID-19 pandemic, the business operates a hybrid working policy, where all staff who were previously office-based, now work regularly between office and home as required. This provides greater resilience to the business and ensures we are able to maintain high service levels at all times We continually monitor our suppliers to ensure the components we require for our on-site solution in the US are available Legal, regulatory and industry standards Risk of non-compliance with legal and industry standards We continually audit, review and enhance our controls, The Group’s operations require it to be compliant with certain standards including Payment Card Industry Data Security Standard (PCI DSS) and wider security regulations such as the General Data Protection Regulation (GDPR) or the US Consumer Privacy Acts Failure to comply with such regulations and standards could significantly impact the Group’s reputation and could expose the Group to fines and penalties. processes and employee knowledge to maintain good governance and to comply with legal requirements and industry standards Our new employees are carefully screened 22 Strategic Report | Principal Risks & Uncertainties 23 Specific Risk Mitigation Specific Risk Mitigation Legal, regulatory and industry standards Economic growth Loss or infringement of intellectual property rights The Group, where appropriate and feasible, relies upon Executing the US opportunity a combination of patent and trademark laws to protect our intellectual property The Group also continues to monitor competitors in the market to identify potential infringements of our intellectual property rights The Group would vigorously defend all third-party infringement claims The Group’s success depends, in part, upon proprietary technology and related intellectual property rights Some protection can be achieved but, in many cases little protection can be secured Third parties may claim that the Group is infringing their intellectual property rights or our intellectual property rights could be infringed by third parties If we do not enforce or defend the Group’s intellectual property rights successfully, our competitive position may suffer, which could harm our operating results We may also incur cost from any legal action that is required to protect our intellectual property HR & personnel Dependence on recruitment and retention of highly The Management team reviews key individuals skilled personnel The ability of the Group to meet the demands of the market and compete effectively is, to a large extent, dependent on the skills, experience and performance of its personnel Demand is currently exceptionally high for individuals with appropriate knowledge and experience in payment security, IT development, telecoms and support services The inability to attract, motivate or retain key talent could have a serious consequence on the Group’s ability to service client commitments and grow our business Products & clients regularly and career development plans are put in place for individuals. Compensation and benefits programmes have been reviewed and during 2022 a larger number of Managers and employees than previously have been granted share awards to ensure Eckoh remains competitive in the marketplace Employee feedback is encouraged and an employee engagement survey has been undertaken in the year Technological & product development The Group is committed to continued research and The Group provides technical solutions for clients and their end customers As customer preferences and technology solutions develop, competitors may develop products and services that are superior to ours, which could result in the loss of clients or a reduction in revenue investment in products and technology to support its strategic plan Product development roadmaps for Secure Payment and Customer Engagement solutions are managed centrally in the UK Dependence on key clients While the Group has a wide customer base, the loss of a key customer, or a significant worsening in their success or financial performance, could result in a material impact on the Group’s results Eckoh’s largest customer accounted for less than 10% (2021: 11 6%) of total revenue We mitigate this risk by monitoring closely our contract performance, churn and renewal success with all customers by maintaining strong relationships We continue to expand our customer base, particularly in the US business The Group sets clear targets for growth expectations for the US business We continually assess our performance and adapt our approach, taking into account our actual and anticipated performance Product offerings are being extended to expand the reach of the services offered in the US Cloud-based solutions have been adopted to ensure Eckoh offer all potential solutions that clients may demand We regularly review and assess our exposure to changes in exchange rates The Group does not hedge the translation effect of exchange rate movements on the Income Statement or Balance Sheet of the US division The Group has a low market share in the US, where there is significant market opportunity for its Secure Payments products The inability to execute in the US, winning new clients and implementing Secure Payment solutions for clients, could have a material impact on the Group’s results Exchange rate The Group is exposed to the US dollar and the translation of net assets and income statements of its US division and, following the acquisition of Syntec, is also exposed to client contracts denominated in US dollar and Euros Reputation of the Eckoh Group Damage to our reputation and our brand name can We address this risk by recognising the importance of our arise from a range of events such as poor solution reputation and attempting to identify any potential issues design or product performance, unsatisfactory client quickly and address them appropriately We recognise services and other events either within, or outside, our the importance of providing high quality solutions, good control client services and managing our business in a safe and professional manner Eckoh has concluded its program of ISO 9001:2015 certification to further audit these measures. Unchanged risk Increased risk 24 Strategic Report | Financial Review 25 Financial Review Eckoh has had a successful year and delivered a robust level of adjusted operating profit, £5.2 million, an increase of 10% year on year (FY21: £4.7 million) and ahead of consensus market expectations. We acquired Syntec Holdings Limited in December 2021 and their results for the three months to 31 March 2022 are included in the below review. evenue for the year increased by 4% to £31 8 million (FY21: £30 5 million) and at constant exchange3 rates by 6%. Adjusted operating profit1 was £5 2 million an increase of 10% year on year (FY21: £4.7 million). Profit after tax for the year was £1 6 million, compared to £2 8 million in FY21. In the current year profit after tax of £1.6 million, there are £1.0 million of transaction costs relating to the acquisition of Syntec R Divisional performance Revenue in the UK, which represents 59% (FY21: 59%) of total group revenues, increased by 3 1% to £18 6 million (FY21: £18 0m) The US represented 36% (FY21: 41%) of total group revenues and revenues decreased in the period by 7 7% to £11 5 million (FY21: £12 4m) After excluding the exited third-party Support business in prior years, and restructuring costs of £0 9 million The restructuring costs revenues increased by 4 9% Syntec revenue was £1 7 million, or include redundancy and contract termination costs following the 5% of total group revenues, in line with expectation at acquisition acquisition of Syntec and redundancy costs in Eckoh US following Revenues in local currency grew by 5 7% year on year the restructuring of the Sales team and the completion of the exit of the third-party Support business Following the acquisition of Syntec, whose business is split across the US, UK and Rest of World (ROW), the increasing frequency Basic earnings per share for the year ended 31 March 2022 was of contracting on a global basis with clients and the increased 0 59 pence per share (FY21: 1 09 pence per share) Adjusted global deployment of our products as we increase our product earnings per share for the year ended 31 March 2022 was 1 57 availability globally through our multi-cloud offering, we will pence per share (FY21: 1 49 pence per share) review the most appropriate and meaningful approach to Including the Syntec US revenues with Eckoh’s US division, means US measure the success of our business Including the Syntec US revenues with Eckoh’s US division, means US revenues account for 39% of revenues, the UK and ROW 61% revenues account for 39% of revenues, Further explanations of movements in revenue between the US and UK divisions, including Syntec have been addressed in the the UK and ROW 61%. Operational Review above FY22 (UK) £'000 FY22 (US) £'000 FY22 (Syntec) £'000 FY22 Total £'000 FY21 (UK) £'000 FY21 (US) £'000 FY21 Total £'000 Revenue Gross Profit Gross Profit % 18,596 15,593 84% 11,487 8,473 74% 1,697 1,357 80% 31,780 25,423 80% 18,037 15,299 85% 12,449 8,896 71% 30,486 24,195 79% Gross profit The Group’s gross profit increased to £25.4 million (FY21: £24.2 margin is expected to remain at 84-85% In the US, we would million). Gross profit margin was 80% for the year, an increase of expect the gross profit margin to continue to increase from 1% year on year (FY21: 79%). The UK gross profit margin decreased 74% to approx 76% over the next two years This is driven by the by 1% to 84% In the US, the full year margin increased from 71% continued growth of the Secure Payments’ activities for cloud to 74% as previously indicated, due to the continued increase in solutions coupled with clients renewing their contracts without Secure Payments and particularly in the cloud environment, the additional significant hardware. Syntec has a mixture of business planned transition away from the third-party Support business delivered in the US, UK and ROW, with deployments typically and the impact of one-off Coral licences in the prior year through its hosted cloud platform for its UK and ROW business, with the US business having a mixture of on-site deployments In the UK, as the service is hosted on an Eckoh platform, there is and more lately cloud deployments, the gross profit margin is typically no hardware provided to clients and the gross profit expected to remain at approx 80% 26 Strategic Report | Financial Review 27 Administrative expenses Finance charges Cashflow and liquidity Dividends Total administrative expenses for the year were £23 0 million (FY21: £20 6 million) Adjusted administrative expenses4 for the For the financial year ended 31 March 2022, the interest payable Gross cash at 31 March 2022 was £2 8 million (FY21: £12 7 million), Post year end the Directors are recommending that a final charge was £74k (FY21: £87k) The interest charge is made up of as at 31 March 2022 there was no drawdown of debt (FY21: dividend for the year ended 31 March 2022 of 0 67 pence per year were £20 2 million (FY21: £19 4 million) The prudent cost bank interest of £23k (FY21: £54k) and interest on leased assets of £1 0 million debt) In April and July 2021, the Company made Ordinary Share be paid to the Shareholders whose names the two final quarterly repayments of £1.0 million of the loans appear on the register at the close of business on 23 September outstanding to Barclays Bank in accordance with the terms of 2022, with payment on 21 October 2022 The ex-dividend date will the term loan During the second half of the year and as a result be 22 September 2022 This recommendation will be put to the of the acquisition of Syntec, we utilised our cash reserves to Shareholders at the Annual General Meeting Based on the shares part-fund the acquisition, raised funds from Shareholders and in issue at the year end, this payment would amount to £2 0m the Group secured a new £10 million debt facility with Barclays Bank, which comprises a £5 0 million overdraft and a £5 0 million Revolving Credit Facility During the year, there has been a net Chrissie Herbert cash outflow from working capital of £1.7 million (FY21: £2.3 million Chief Financial Officer cash outflow) due to the timing of invoicing and cash receipts 15 June 2022 and as the deferred revenue for the US large on-site deployments has been recognised over the term of the contract, generally three years 1 Adjusted operating profit is the profit before adjustments for expenses relating to share option schemes, amortisation of acquired intangible assets, restructuring costs and costs relating to business combinations 2 Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) is the profit from operating activities adjusted for depreciation of owned and leased assets, amortisation, expenses relating to share option schemes, restructuring costs and costs relating to business combinations 3 At constant exchange rates (using last year exchange rates) 4 Adjusted administrative expenses are administrative expenses excluding expenses relating to share option schemes, depreciation of owned and leased assets, amortisation of acquired intangible assets, restructuring costs and costs relating to business combinations 5 Total contracted business includes new business from new clients, new business from existing clients as well as renewals with existing clients control achieved in FY21 has continued into FY22, we made £51k (FY21: £33k) structural changes to the US Sales team at the end of the first half and increased our focus on ‘vertical selling’ (targeting sectors such as healthcare, which are well suited to our model), we have introduced a global Network Operations Centre (NOC) and also streamlined the US operational team, following the planned and completed exit from the third-party Support business Included in administrative expenses is a trading foreign currency loss of £0 1 million (FY21: £0 4million loss) Profitability measures Adjusted operating profit1 was £5 2 million, an increase of 10 1% year on year (FY21: £4 7 million) Included in the year was a foreign currency loss of £0 1 million (FY21: loss £0 4 million) and nil Coral licences (FY21 £0 3 million) Adjusted EBITDA2 for the year was £6 8 million, an increase of 7 6% year on year (FY21: £6 4 million) Year ended 31 March 2022 £'000 Year ended 31 March 2021 £'000 Profit from operating activities 2,386 3,550 Amortisation of acquired intangible assets Expenses relating to share option schemes Restructuring costs Costs relating to business combinations Adjusted operating profit1 Amortisation of other intangible assets Depreciation of owned assets Depreciation of leased assets 751 241 866 985 5,229 392 680 495 663 536 - - 4,749 398 704 505 Taxation For the financial year ended 31 March 2022, there was a tax charge of £743k (FY21: £717k charge). The effective tax rate in the financial year ended 31 March 2022 was 43 8% (FY21: 20 4%) The current year tax rate is impacted by the non-deductible nature of the fees relating to the transaction of Syntec and the reversal of deferred tax on the share options for the Exec Directors which are unlikely to vest in July 2022 Earnings per share Basic earnings per share was 0 59 pence per share (FY21: 1 09 pence per share) Diluted earnings per share was 0 51 pence per share (FY21: 1 06 pence per share) Adjusted diluted earnings per share was 1 34 pence per share (FY21: 1 45 pence per share) Contract liabilities and contract assets Contract liabilities and contract assets relating to IFRS 15 Revenue from Contracts with Customers have decreased in the current year, principally as new contracted business in the US has been predominantly for cloud-based solutions Where clients contract for their services to be provided in the cloud or on our internal cloud platform, the level of hardware is significantly reduced and implementation fees are typically lower This reduces the level of upfront cash received but drives a greater level of revenue visibility and earnings quality Total contract liabilities were £12 5 million (FY21: £11 3 million), included in this balance are £9 5 million of contract liabilities relating to the Secure Payments’ product, hosted platform product or Syntec’s CardEasy Secure Payments product, a decrease of £1 8 million at the same time in the previous year Contract assets as at 31 March 2022 were Adjusted EBITDA2 6,796 6,356 £3 8 million (FY21: £4 4 million) Statement of financial position While Eckoh continues to innovate by developing new products and features such as those detailed in the Chief Executive Officer’s review, little of this is capitalised on the balance sheet with only £0 3 million (FY21: £0 4m) added in the year to the value of the intangible assets of the Company While taking a prudent approach to capitalising salary cost, which reduces reported profit, management believes this approach gives an accurate reflection of the trading performance of the Company. 28 Strategic Report | Sustainability Report 29 Sustainability Report Social Fundamentally we are committed to running our business in a sustainable Our employees are central to the long-term success and sustainability of our manner, which allows us to meet the needs of our stakeholders, have a positive business. impact on the communities in which we operate and through the products and solutions we deliver for our clients have a positive impact on the wider society by securing and protecting payment and personal data. Over the last year we have been formulating our Environmental, We all have a part to play and the Board and I are firmly committed Social and Governance strategy (ESG) This is an evolving process to ensuring that Eckoh enhances its sustainability initiatives and we aim to further develop and evolve our strategy, refine our There are also continuing issues around inclusivity, diversity and targets and deliverables and enhance our reporting in FY23 opportunity in wider society to which Eckoh can contribute Governance We aim to attract and retain the best and most engaged people We have a talented mix of employees from diverse backgrounds, in our industry and we recognise the value of all our employees which brings a high level of innovation and collaboration and that the success of Eckoh is due to their efforts Our values sit at the heart of the culture at Eckoh and are summarised below E ncourage C hallenge K nowledge O wnership H umanity Encourage Challenge We Encourage and support everyone to grow with Eckoh We Challenge, listen, and are open minded to change and suggestions from others Our purpose, business model, strategy and Board operations are focused on delivering long-term benefits for all of our stakeholders while maintaining a Knowledge Ownership Humanity high standard of ethical business conduct. These responsibilities are embedded in our culture, our values As we operate in the UK, US and Europe, we process data and our purpose We are committed to conducting our business compliantly with data privacy legislation, this covers principally with honesty, integrity, trust and respect and it is expected that the General Data Protection Regulation ("GDPR") in the EU and these high standards be maintained throughout the organisation the UK and the California Consumer Privacy Act ("CCPA") in North As a UK company, we are bound by the laws of the UK, including America the Bribery Act 2010, in respect of our conduct within and outside Eckoh has been a PCI-DSS Level 1 Service Provider for 12 successive As trusted advisors, we use our We take personal Ownership We are welcoming, embrace of the UK In addition, we uphold all laws relevant to countering years Our Secure Payments products and solutions, provide a Knowledge to solve challenges to strive for excellence in diversity and respect each other bribery and corruption in all the jurisdictions in which we operate robust and secure payments solution for our clients, enhancing and deliver the best for our clients whatever we do in a spirit of true Humanity their governance, enabling our clients' contact centre agents to With respect to The Modern Slavery Act, neither the Company take payments securely and preventing the exposure of sensitive or any of its subsidiaries permit, condone or otherwise accept any customer data to contact centre agents Our products keep form of human trafficking or slavery in its business or supply chains. payment data out of our clients' processes and systems, which not only lessens the burden of compliance for them, but also Through our whistle-blowing policy, we encourage our reduces fraud risk, the impact of a data breach and in turn makes employees to raise any instances of irregular conduct in the the world a safer place to live in workplace and thus supporting our commitment to ensuring that all practices and procedures in respect of all employees, partners, clients and suppliers are of the highest quality 30 Strategic Report | Sustainability Report 31 We draw on our humanity value in the way we treat each other, We encourage young school leavers, who may have been our clients, partners and suppliers and also how we interact working in our UK contact centre, to progress from their roles as with our local community. We recognise the significant benefits agents to junior roles in the organisation In the last year we have of a diverse workforce and we do not tolerate discrimination, had a number of success stories where employees have been harassment, or victimisation in the workplace, instead we appointed into junior roles or have progressed from these junior encourage an inclusive workplace where all staff can feel roles into more senior positions within the organisation comfortable about who they are Throughout the year we communicate through informal and our people, as well as enabling high achieving employees to Our investment in our employees helps to retain and motivate formal channels to keep employees across the business up to progress and flourish in their role. date on business strategy and our goals, business performance and more day-to-day initiatives and we organise fun, team A fair remuneration policy is adopted across Eckoh and we offer building events a comprehensive benefits package to our employees, based on the local market conditions We strongly believe our employees are a valuable resource and should be listened to Through the pandemic we ran regular surveys focusing on our employees' well- being and challenges they were facing through the pandemic On returning to the office on a more permanent basis, we listened to our employees and as a result adopted a balanced hybrid work We strongly believe our employees are a valuable resource and should be listened to. We carry out an annual survey allowing employees to feedback on a broad basis. We take their feedback seriously and work with them on action plans for improvement. approach between the office and home, ensuring there is In order to provide a wider population of employees with an sufficient time in the office for collaboration for the benefit of the opportunity to become Eckoh Shareholders, which promotes business, but also listening and understanding our employees' alignment to Shareholder interests and aids recruitment and requests for working from home We also carry out an annual retention, we operate a Share Incentive Plan (SIP) for UK employees employee survey, which allows our employees to provide and an Employee Stock Purchase Plan (ESPP) for US employees feedback on a broader basis We take the feedback seriously These share option plans were launched in the financial year and work with employees through focus groups on action plans ended 31 March 2017 for the SIP and 31 March 2019 for the ESPP for improvements At Eckoh, our employees are encouraged and supported to give Eckoh’s strength lies in the expert knowledge of our people It is something back to our local community We do this through vital that our employees understand, and are passionate about, supporting local and national causes, raising money for charity our products and technologies Every new employee to Eckoh Each Christmas, Eckoh employees choose a charity they would undergoes a detailed and thorough induction plan The induction like to support Last Christmas the UK team chose to support DENS, not only welcomes them to the business, but it provides them helping build lives, which is a charity for people local to the UK with a comprehensive overview of Eckoh, insight into our market office in Hemel Hempstead. The aim of the charity is to be the first proposition, our range of products, the security requirements of port of call for people in Dacorum who are facing homelessness, the Payment Card Industry Data Security Standard (PCI DSS), poverty and social exclusion The US team chose to support The the organisational structure and our commercial model Every Salvation Army, whose services are diverse and responsive to the induction plan is tailored to the individual’s role, setting them up realities of life in the communities we serve In total the money to be successful in their new role donated through money raised by employees and a Company contribution was £1,538 for DENS and $1,500 for The Salvation We encourage our people to continue to develop their skills and Army. A number of employees based in the US Omaha office also keep up-to-date with new technology, standards and processes adopted a family at Christmas through The Salvation Army Training needs are identified through the regular check-in that team members have with their line managers Training can be In addition, and in response to the humanitarian crisis in Ukraine a mixture of on-the-job training, external courses and internally in March, Eckoh contributed £10,000 to the Disasters Emergency run management development courses Committee (DEC) and also matched contributions made by employees, giving a total donation from Eckoh and our employees Given the nature of our business there are regular security of £26,900 awareness initiatives and training sessions for employees across the business Environment ckoh aims to minimise the environmental impacts of We do not provide company vehicles to employees or Directors E its business activities and its employees Sustainable business practices will play an increasingly important part of our ability to grow and continue to be successful As a technology company we are not involved in any energy- intensive manufacturing processes nor do we generate significant waste Our services are provided to our clients either through the or operate any form of vehicle fleet and offer our UK employees a cycle to work scheme to promote healthy living practices and further reducing pollution from daily commuting Within our offices, we engage in recycling programmes, wherever possible, within the parameters of our offices. All our offices and cloud or via our hosted platform, our largest energy consumption communal working areas lights are LED, with energy efficient and comes from our data-centres rather than our offices. Whilst our motion sensor lighting, thus reducing the electricity the Company environmental impact is low compared with other sectors, we do uses on an on-going basis recognise that sustainability is a constantly evolving issue and we recognise the need to respond appropriately and reduce our We encourage our teams to adopt digitalisation and go paperless contribution to global climate change and we have reduced the usage of printers and photocopiers The COVID-19 pandemic brought with it a number of operational In the year to 31 March 22 we have started to measure our changes, including many that reduced our environmental energy use and impact under the Standard Energy and Carbon impact. These included a significant reduction in business Reporting (SECR) regulations From next year we will be required travel, especially trans-Atlantic flights or inter-state flights in to report our usage and will do so with our comparatives for the the US. We have developed a more flexible hybrid working model year just finished. Through this energy reporting we will look to since returning to our offices both in the UK and US, which will identify ways of reducing and offsetting our carbon emissions enable employees to work from home more of the time, thereby reducing the impact of commuting upon the environment and Nik Philpot we will ensure that we continue as a business to adopt, where Chief Executive Officer possible, the behaviours that make a difference 15 June 2022 32 Corporate Governance | Eckoh Annual Report 2022 33 Corporate Governance The Board has overall responsibility for establishing and maintaining sound risk management and internal control systems, and for the monitoring of these systems to ensure that they are effective and fit for purpose. 34 Corporate Governance | Board of Directors 35 Board of Directors Independent Directors Executive Directors Christopher Humphrey BA MBA FCIMA Nik Philpot Executive Director - Chief Executive Officer Appointed to the Board – 2 February 1999 Appointed to Chief Executive Officer – September 2006 Skills & Experience: Nik is a founder of Eckoh with over 20 technology sectors Nik's focus on innovation years' service, and he has over 30 years’ and growth has driven the Company to experience in the Customer Engagement become a global leader in Customer industry Prior to Eckoh he was at British Engagement Security Solutions and his Telecom before establishing several insight and vision is transforming the way start-up businesses in the telecoms and customers and brands are protected Chrissie Herbert Executive Director – Chief Financial Officer & Company Secretary Appointed to the Board – 2 May 2017 Skills & Experience: Chrissie has held several senior finance she has gained payments experience positions with both publicly listed from PayPoint plc, where she was UK & and privately held businesses Her Ireland Finance Director. Chrissie qualified considerable background in high growth, as a Chartered Accountant with KPMG consumer facing organisations includes and is a Fellow of the ICAEW Collect+ and Travelodge Hotels Ltd and Non-Executive Chairman Committee Membership: Appointed to the Board – 21 June 2017 Nominations (Chair), Audit, Remuneration Appointed Chairman – 21 September 2017 Skills & Experience: Christopher is currently Senior Non- Anite in 2003 as Group Finance Director Executive Director and Audit Chairman He has held senior positions in finance at of both AVEVA Group plc and The Vitec Conoco, Eurotherm International plc and Group plc Christopher was formerly Group Critchley Group plc He was previously a Chief Executive Officer of Anite plc from Non-Executive Director at Alterian plc and 2008 until August 2015, having joined SDL plc Guy Millward Non-Executive Director Committee Membership: Appointed to the Board – 1 October 2016 Audit (Chair), Nominations, Remuneration Skills & Experience: Guy is currently Chief Financial Officer Group plc, Advanced Computer Software at Wilmington plc He has extensive Group plc, Quixant plc, Metapack Limited experience in senior finance positions and Bighand Limited, Group Finance at several publicly and privately held Director at Alterian plc, Morse plc and companies in the electronics, software Kewill plc Guy is a Fellow of the Institute and IT sectors His previous roles include of Chartered Accountants in England and that of CFO at Imagination Technologies Wales (ICAEW) David Coghlan Non-Executive Director Committee Membership: Appointed to the Board – 1 December 2017 Remuneration (Chair), Audit, Nominations Skills & Experience: David is currently Chairman of Synectics Director, and Chairman of the Audit plc, an AIM-quoted provider of high-end Committee, of SCISYS plc, a software electronic security systems and Chairman company quoted on AIM He has extensive of Quadrant Group Limited, a leading experience with technology companies in independent supplier of aviation simulation the business-to-business field. David was and training, with subsidiaries in the UK previously a partner at Bain & Company, and US Until its takeover in December a leading strategy consulting firm. 2019, David was also a Non-Executive 36 Corporate Governance | Chairman’s Statement 37 Chairman’s Statement on Corporate Governance Dear Shareholder, As a Board of Directors, we feel the Quoted Companies Alliance Corporate Governance Code (QCA Code) is the most appropriate code for Eckoh plc to apply, given the Group’s size, risk, complexity and stage of maturity The QCA Code follows 10 basic principles that requires companies to provide an explanation of how they consider that they are meeting those principles through a set of disclosures on their website and in their Annual Report As Chairman of Eckoh plc, I am ultimately responsible for the Corporate Governance of the Group but the Board as a whole considers that good corporate governance is a key driver in the success of the business and accountability to the Company’s stakeholders, including Shareholders, customers, suppliers and employees is a vital element in that governance In this Governance section we outline the Company’s approach to Corporate Governance and how we have complied with the QCA Code The Board considers that it does not depart from any principles of the QCA code It is the intention that the information contained within the report will be updated annually alongside the publication of the Group’s Annual Report or more frequently for any fundamental changes During the year we have been working on our ESG strategy Our progress to date can be found in the Sustainability Report on pages 28 to 31, this will be further developed in the new year I am also pleased that we have included the key performance indicator Group Annual Recurring Revenue for the Group in this set of results Christopher Humphrey Chairman 15 June 2022 Quoted Companies Alliance Code Compliance The following paragraphs set out the 10 QCA Code principles and how Eckoh has complied with those principles Establish a strategy and business model which Take into account wider stakeholder and promotes long-term value for Shareholders social responsibilities and their implications The strategy and business model which explains the strategic for long-term success 3. 1. objectives of the Group and how the Company generates and Eckoh’s Sustainability Report focuses on our environ- preserves value over the longer term are set out in the Strategic mental, social and governance strategy and is found on pages Report on pages 4 to 31 of this Annual Report 28 to 31 The Board is collectively responsible for the long-term success In addition to the stakeholders covered in the Sustainability of the Company and provides effective leadership by setting Report, our customers are also important stakeholders, whose the strategic aim of the Company and overseeing the efficient opinions and voice Eckoh values highly We have various implementation of these aims in order to achieve a successful channels for customers and prospects to communicate with the and sustainable business In practice the Executive Directors Group, through regular business reviews, which are conducted by prepare and present the strategic plan to the Board which the our Client Services team, to post project reviews In the UK there Board challenges in order to determine the strategic priorities is an annual Customer Satisfaction survey which we are in the On an ongoing basis the Board ensures that the strategic plan is process of rolling out to our US customers taken into consideration in its decision-making process 2. and expectations Seek to understand and meet Shareholders’ needs opportunities and threats, throughout the organisation The Board has overall responsibility for establishing and 4. Embed effective risk management, considering both The Directors consider that the Annual Report and Financial maintaining sound risk management and internal control Statements play an important role in providing Shareholders systems, and for the monitoring of these systems to ensure with an evaluation of the Company’s position and prospects The that they are effective and fit for purpose. The Audit Committee Board aims to achieve clear reporting of financial performance provides support to the Board in this regard and overseas the to all Shareholders The Board acknowledges the importance monitoring process Further information on the risk management of an open dialogue with its institutional Shareholders and and internal control system is set out in the Audit Committee welcomes correspondence from private investors report on page 42 The Executive Directors have an ongoing programme of meetings The Directors have carried out a robust assessment of the with institutional investors and analysts twice a year for up to principal risks facing the Group and how these risks could affect two weeks at a time Feedback from these meetings is reported the business, financial condition or operations of the Group. The to the Board The Non-Executive Chairman has held meetings explanation of these principal risks, including how they are being during the year with the major Shareholders, independently of mitigated, can be found on pages 20 to 23 the Executive Directors In addition to the Annual Report and the Company’s website, the Annual General Meeting (AGM) is an ideal forum at which 5. Maintain the Board as a well-functioning, balanced team led by the Chair The Board, led by the Chairman, has a collective responsibility to communicate with investors, and the Board encourages and legal obligation to promote the interests of the Group The Shareholder participation All Board members are planning to Chairman is ultimately responsible for Corporate Governance be present at the AGM and are available to answer questions However, the Board is responsible for defining the Corporate from Shareholders Governance policies The articles of association require that at the AGM one third, or as The Board is made up of three Non-Executive Directors and near as possible, of the Directors will retire by rotation Nik Philpot two Executive Directors and has delegated certain roles and and Guy Millward will retire by rotation and put themselves responsibilities to its Audit, Nomination and Remuneration forward for re-election at the AGM Committees while retaining overall responsibility 38 Corporate Governance | Chairman’s Statement on Corporate Governance 39 Non-Executive Directors are all independent and are expected corporate calendar There were twelve scheduled meetings to devote sufficient time to the Company to meet their during the year and seven meetings at short notice Directors responsibilities in principle attend all meetings either in person or by video or telephone conference arrangements The table below shows The Board and its Committees met regularly throughout the year Directors’ attendance of Board and Committee meetings with the meetings scheduled around key dates in the Company’s Directors’ meeting attendance 2021/22 Board Audit Remuneration Nomination Scheduled Short notice Scheduled Short notice Scheduled Short notice Scheduled Short notice Executive Directors Chrissie Herbert Nik Philpot Non-Executive Directors Christopher Humphrey David Coghlan Guy Millward 12 12 12 12 12 7 7 7 7 7 31 31 3 3 3 - - - - - 51 51 5 5 5 3 3 3 3 3 11 11 1 1 1 - - - - - 1 By invitation. The Executive Directors are not members of any of the Board Committees and they attended only the committee meetings to which they were specifically invited. At Board meetings the Chairman ensures that effective decisions are reached by facilitating debate and consultations with management and external advisors as necessary The work undertaken by the Board during the year is set out in the table below: Divisions of roles and responsibilities The Chairman is responsible for the leadership of the Board and ensuring the effectiveness on all aspects of its role There is a clear division of responsibility between the Chairman and the Chief Executive, which is as follows: Chairman Chief Executive Christopher Humphrey is the Non-Executive Chairman Nik Philpot is the Chief Executive and he is responsible and he is responsible for managing the Board and for running the Group’s business by proposing ensuring it works effectively Below are the roles and and developing the Group’s strategy and overall responsibilities of the Chairman for the financial year commercial objectives, which he does in close ended 31 March 2022 consultation with the Chairman and the Board • Setting the Board’s agenda and ensuring the Board • Providing input to the Board’s agenda and ensuring receives accurate, timely and clear information on that reports provided to the Board are accurate, all matters reserved to its decision and the Group’s timely and include accurate information The agenda for each Board meeting includes the following as standing items: performance and operations • Risk analysis, including by risk, the risk factor and the • Finance report, which is prepared and presented • Ensuring compliance with the Board’s approved Company Secretary as appropriate, compliance monitoring mechanism by the Chief Financial Officer and includes the management accounts and business performance, procedures with the Board’s approved procedures • Management report which is prepared and presented including forecast as appropriate • Chairing the Nomination Committee and facilitating • Ensuring that the Chairman is alerted to forthcoming • Ensuring, in consultation with the Chairman and the by the Chief Executive Officer Other matters which are covered by the Board routinely during the year include: the appointment of effective and suitable members complex, contentious or sensitive issues affecting and Chairman of Board Committees the Group of which he might not otherwise be aware • Ensuring that there is effective communication • Providing information and advice on succession • Review of Annual Report and preliminary • Review and approval of the interim management by the Group with its Shareholders, including by planning to the Chairman, the Nomination announcement statements for release to the market the Chief Executive and Chief Financial Officer Committee, and other members of the Board, ensuring that members of the Board develop an particularly in respect of Executive Directors • Review of Executive Directors' presentation of the full • Recommendation of the final dividend understanding of the views of the major investors in year results to analysts and investors the Group • Leading the communication programme with • Strategy session at which the Board considers • Promoting the highest standards of integrity, probity management’s presentation of the Strategic Plan and • Setting of the Board calendar for the year and corporate governance throughout the Group • Promoting and conducting the affairs • Company secretarial & legal Shareholders gives its approval and particularly at Board level of the Group with the highest standards of integrity and corporate governance 40 Corporate Governance | Chairman’s Statement on Corporate Governance 41 6. 9. Ensure that between them, the Directors have the Maintain governance structures and processes that necessary up-to-date experience, skills and capabilities are fit for purpose and support good decision-making All members bring different experiences and knowledge to by the Board the Board and between them they provide a blend of business The Board provides the strategic leadership for the Company understanding, technical knowhow, experience of public and ensures that the business operates within the Corporate markets and financial expertise. The Board consider that this is Governance framework that has been adopted Its prime appropriate to enable it to successfully execute its long-term purpose is to ensure the delivery of Shareholder value in the long strategy term by setting the business model and defining the strategic All members of the Board attend seminars and regulatory events goals to achieve this to ensure that their knowledge is up-to-date and relevant Where The Board is supported by a Remuneration Committee, Audit the Board considers it does not possess the necessary expertise Committee and Nomination Committee Each Committee has or experience it will engage the services of professional advisors formally delegated duties and responsibilities and the terms The Board considers that the three non-Executive Directors, of reference for the Committees are reviewed annually The including the Chairman, are independent Committee Chair is responsible for reporting, throughout the year, The biographies of each of the Directors can be found on pages consideration by the Board The Board reviews annually the list of to the Board any recommendations or issues which require further Committees of the Board Nomination Committee The Nomination Committee currently comprises David Coghlan, Guy Millward and Christopher Humphrey, who is the Committee Chairman It met once during the period and the details of meeting attendance are set out on page 38 The Committee is responsible for considering and making recommendations on the appointment of additional Directors, the retirement of existing Directors and for reviewing the size, structure and composition of the Board and membership of Board Committees, which are considered against objective criteria Section 172(1) Statement – For further details of how the Board operates and the way in which it makes decisions, including key activities during the financial year ended 31 March 2022 and Board governance, see pages 36 to 41 and the Board Committee reports thereafter The Board regularly receives reports from Management on issues concerning customers, the environment, communities, suppliers, employees, regulators, governments and investors, which it takes into account in its decision-making process under section 172 In addition to this, the Board seeks to understand the interests and views of the Group’s stakeholders by engaging with them directly as appropriate The Board regularly receives updates on feedback from investors from the Executive Management In addition, the Chairman, CEO and CFO meet frequently with institutional investors to discuss and provide updates about – and seek feedback on – the business, strategy, long-term financial performance, 34 and 35 matters that are reserved for the Board Board engagement with our stakeholders Directors’ remuneration policy and dividend policy to the Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement During the financial year ended 31 March 2022, the Chairman 7. The report on the Nomination Committee is set out below and Company to act in the way he or she considers, in good faith, Shareholders, the Directors are focussed on growing the US the reports of the Audit Committee and the Remuneration would be most likely to promote the success of the Company for Secure Payments’ business and enhancing our market leader Committee are set out on page 42 and page 46 respectively the benefit of its members as a whole. In doing this, section 172 position for contact centre security into the cloud The Group Section 172 of the Companies Act 2006 requires a Director of a extent appropriate Considering the capital growth aims of led a formal review of the Board, its Committees and each requires a Director to have regard, among other matters, to: the successfully acquired 100% of the Share Capital of Syntec Director The performance evaluation of the Chairman was The role and responsibilities of the Chairman, Chief Executive and likely consequences of any decision in the long-term; the interests Holdings Limited in December 2021, which alongside our organic undertaken by the Chair of the Remuneration Committee, other Directors have been set out under principle 5 on pages 37 of the Company’s employees; the need to foster the Company’s growth will further strengthen our market leading position in the David Coghlan The review centred on the following areas to 39 of the Annual Report business relationships with suppliers, customers and others; the Customer Engagement Security Payments market Going forward • the Board’s role and scope of its authority, how it is led by the Chairman, the frequency and time allotted to the Board meetings and their agendas 10. Communicate how the Group is governed and is performing by maintaining a dialogue with Shareholders and other relevant stakeholders • the Committees’ terms of reference, leadership, the The Company is committed to open communication with frequency and time allotted to the Committee meetings and all its Shareholders Communication with Shareholders is their agendas predominantly through the Annual Report and AGM The • the Directors’ feedback was free-ranging and unstructured last AGM results can be found on the Group’s website Other with guidance on areas to consider communications are in the form of full-year and half-year announcements, periodic market announcements (as A Board evaluation process will be carried out annually appropriate) one-to-one meetings and investor roadshows The Promote a corporate culture that is based on ethical 8. values and behaviours Our Sustainability Report on page 28 sets out our ESG strategy, Remuneration Committee report is included on pages 46 to 52 The Group’s website www.eckoh.com is regularly updated Annual Reports and Notices of Meetings can be found on the which includes our approach to governance and the way we do Group website business The Social section of our ESG strategy focuses on the value we place on our employees and the culture we drive in the UK and US business, with our Humanity value playing a significant part in the way we operate both internally with our employees and also with the communities we operate impact of the Company’s operations on the community and the we will continue to evaluate acquisition opportunities that can environment; the desirability of the Company maintaining a support our growth strategy in Customer Engagement Security Relationships with customers are fostered and we listen to feedback through customer surveys. We also develop the relationships with clients through cross-selling appropriate additional product and services, which maximises client value and also ensures high retention of clients. Relationships with customers are fostered and we listen to feedback through customer surveys We also develop the relationships with clients through cross- selling appropriate additional product and services, which maximises client value and also ensures high retention of clients It is the Group’s policy to manage and operate worldwide business activities in conformity with applicable laws and reputation for high standards of business conduct; and the need regulations as well as with the highest ethical standards Both to act fairly with members of the Company The Directors give the Group’s Board of Directors and Executive Management careful consideration to the factors set out above in discharging are determined to comply fully with the applicable law and their duties under section 172 The stakeholders we consider in regulations, and to maintain the Company’s reputation for this regard are the people who work for us, buy from us, supply integrity and fairness in business dealings with third parties to us, own us, regulate us, and live in the societies we serve and the planet we all inhabit The Board recognises that building strong relationships with our stakeholders will help us deliver our strategy in line with our long-term values and operate the business in a sustainable way The Board is committed to effective engagement with all its stakeholders 42 Corporate Governance | Audit Committee Report 43 Audit Committee Report In the year under review the Audit Committee’s activities were as follows: Topic Actions Dear Shareholder, On behalf of the Audit Committee, I am pleased to present our report for the year ended 31 March 2022. The Committee has considered the integrity of the Group’s financial reporting and provided advice to the Board that the 2022 Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable, providing Shareholders with the necessary information to assess the Company’s position, performance, business model and strategy The activities of the Committee are kept under review in line with regulatory and market developments The Audit Committee currently comprises myself, David Coghlan and Christopher Humphrey The Board considers that I have recent and relevant financial experience in accordance with the Code Full biographical details of each of the current Committee members, including relevant financial experience are set out on pages 34 and 35. The key responsibilities of the Audit Committee are as follows: • monitoring the financial reporting process, including the integrity of the Financial Statements of the Company and any formal announcements relating to the Company’s financial performance including reviewing significant financial reporting judgements contained therein • reporting to the Board on the appropriateness of the significant accounting policies and practices of the Group • risk management and the effectiveness of the Group’s system of internal financial control • overseeing the external auditors including its scope and cost effectiveness and monitoring and reviewing the independence of our external auditors and the provision of non-audit services to the Group • overseeing the quality of the internal and external audit processes • monitoring and reviewing the scope and areas internal audit should cover alongside the other programmes and process reviews the Company has The Committee has met three times during the year inviting the external auditors, the Chief Financial Officer and the Chief Executive Officer to each of these meetings. During one of the Audit Committee Meetings, the auditors were present, without the Chief Financial Officer or the Chief Executive Officer being present Details of meeting attendance are set out on page 38 Guy Millward Chairman Audit Committee 15 June 2022 Assessed and reported to the Board on whether the Annual Report and Accounts were fair, balanced and understandable Reviewed and discussed with the external auditors the key accounting considerations and judgements reflected in the Group’s results for the year to 31 March 2022 (as reported below) Financial reporting Reviewed, together with the Board, the Risk Assessment and the going concern basis for preparation of the Financial Statements and recommendation of the going concern statement to the Board On-going financial monitoring through the COVID-19 pandemic, ensuring financial reporting is relevant and timely and covering revenue, debtors, cost control and cashflow Assessed and reported to the Board the change of Accounting Policies required for Syntec Holdings Limited on acquisition and the impact on financial performance. Audit plans and audit Reviewed and agreed the external auditors’ plan in advance of their audit for the year ended 31 March 2022 Discussed the report received from the external auditors regarding their audit in respect of the year ended 31 March 2022 which included comments on their findings on internal control and a statement of their independence and objectivity Risk management and internal controls Review of the principal risks and the mitigation of these risks as set out on pages 20 to 23 Review and monitor the effectiveness and robustness of the Company’s internal financial controls and processes and determine whether an internal audit function is required Committee governance Review and update of the Audit Committee terms of reference The significant issues considered by the Committee in relation to the 2022 Financial Statements, and how these were addressed, were: • Risk of fraud in revenue recognition (including contract • Acquisition accounting accounting) As a result of the successful acquisition of Syntec Holdings Revenue recognition is complex, involves calculation Limited, acquisition accounting has been included as a schedules and can be judgemental Controls are in place to significant issue for the year ended 31 March 2022. Acquisition ensure revenue is only recognised for product solutions such accounting involves a significant degree of judgement and as the hosted Customer Engagement solutions and Secure estimation when assessing the overall deal consideration Payment solutions, which are in effect a hosted solution, and valuing the purchased assets and liabilities and in when the client accepts the service The provision of the particular valuing the intangible assets solution is deemed to be one single performance obligation, which includes the hardware revenue, the implementation • Management override of controls fees and ongoing support and maintenance revenue We are satisfied adequate controls are in place and use which are spread evenly over the term of the contract once the monthly management reporting and the results of the the solution has been delivered to the client The costs external audit to assess this on an on-going basis directly attributable to the delivery of the hardware and the implementation fees will be capitalised as ‘costs to fulfil a contract’ and released over the contract term, thereby also deferring costs to later periods 44 Corporate Governance | Audit Committee Report 45 External audit Based on the Committee’s assessment, the Committee has Risk management and internal control Internal audit An annual review of the effectiveness of the external audit is provided the Board with its recommendation to the Shareholders The review of risks facing the Group is shown on pages 20 to The Audit Committee annually reviews the requirement for an undertaken by the Committee on the re-appointment of PricewaterhouseCoopers LLP 23. The Group has clearly defined lines of accountability and internal audit function Eckoh Group is subject to a number of No significant issues were raised with respect to the audit process for the financial year ended 31 March 2022 and the quality of the audit process was assessed to be good. as external auditors for the year ending 31 March 2023 delegation of authority which are closely adhered to and include externally audited certifications which were updated this year PricewaterhouseCoopers LLP will be appointed as auditors to policies and procedures that cover financial planning and as well as the external audit of its financial statements; the Audit the newly acquired Syntec Holdings Limited and its subsidiaries reporting, accounts preparation, information security, project Committee has therefore not needed to recommend that the There are no contractual obligations restricting the Committee’s governance and operational management The reporting and Board requires an internal audit function choice of auditors A resolution for appointment of the auditors review processes provide regular assurance to the Board as to will be proposed at the forthcoming Annual General Meeting the adequacy and effectiveness on internal controls and is included in the Notice of Meeting which accompanies Guy Millward this report Non-audit services There are ongoing processes for identifying, evaluating and Chairman Audit Committee managing the Company’s significant risks and related internal 15 June 2022 controls that are integrated into the Company’s operations Such The effectiveness of the audit process is underpinned by the The Committee reviews the level of non-audit fees for services processes are reported to, and reviewed by, the Board at each appropriate audit planning and risk identification at the outset provided by the auditors in order to satisfy itself that the auditors’ meeting. These processes have identified the risks most important of the audit cycle The auditors provide a detailed audit plan, independence is safeguarded There were no non-audit fees to the Company (business, operational, financial, security and which includes the level of materiality and its assessment of paid to PricewaterhouseCoopers LLP in the year ended 31 March compliance), determined the financial implications, and assessed the risks and other key matters for review For the year ended 2022 the adequacy and effectiveness of their control The reporting and 31 March 2022, the primary risks identified were: risk of fraud in In determining the most appropriate provider of non-audit review process provide routine assurance to the Board as to the revenue recognition (including contract accounting), acquisition services, the Committee will consider the knowledge and adequacy and effectiveness of the internal controls accounting risk and management override of controls The expertise of the potential providers and the proposed costs Committee reviews and challenges the work undertaken by the Non-audit services will only be undertaken by the auditors where auditors to test management’s assumptions on these matters it is deemed to be the preferred provider and the provision of An assessment of the effectiveness of the audit process in services poses no threat to its independence addressing these items is performed through the reporting received from the auditors at the year end The Committee seeks Details of the remuneration paid to the auditors for the statutory feedback from management on the effectiveness of the audit audit are set out in note 7 process. No significant issues were raised with respect to the audit process for the financial year ended 31 March 2022 and the quality of the audit process was assessed to be good 46 Corporate Governance | Remuneration Committee Report 47 Remuneration Committee Report Dear Shareholder, On behalf of the Remuneration Committee, I am pleased to present our Remuneration Report for the financial year ended 31 March 2022, which has been approved by the Board. This report is divided into two sections: • The annual statement setting out the work of the Remuneration Committee in the financial year ended 31 March 2022: and • The Remuneration Report, which sets out the Company’s Remuneration Policy for Executive Directors and the Annual Remuneration Report detailing remuneration paid to Directors in the year ended 31 March 2022 The membership and responsibilities of the Remuneration Committee are set out on page 48 of this report Amongst its objectives, the Committee strives to ensure the Executive Directors’ remuneration is aligned with the interests of Shareholders The Remuneration Committee believes that Shareholders’ interests are best served by linking a significant proportion of total potential remuneration to long-term performance The intention of the Remuneration Committee is to structure • The Remuneration Committee has also reviewed the the short and long-term incentives to reward executives for Remuneration Policy for senior management and key enhancing Shareholder value and ensuring that substantial employees, given the current and on-going difficult rewards will be received only if substantial value has been employment market in the technology sector As a result, PSP created for our Shareholders However, given the impact of Share Option awards were made to key individuals in March unforeseen global events the indications show the Initial Awards 2022, in addition to the normal three-year cycle of Share made to the Executive Directors five years ago are unlikely to Options awarded in July 2022 The awards in March 2022 also vest in 2022 In order to retain and incentivise the CEO and CFO included awards granted to employees acquired through the a review of the Executive Directors’ remuneration arrangements Syntec acquisition was undertaken during the year In respect of the year under review the Remuneration Officer’s and Chief Financial Officer’s salaries with effect from Committee’s activities were as follows: 1st April 2022 of 4%, reflecting pay increases within the Group’s • The Committee approved an increase in the Chief Executive workforce and current market conditions • The Remuneration Committee sought advice from FIT Remuneration Consultants LLP given indications showed the • The Base and Committee Chair fee of the Chairman and Non- Initial Awards granted to the Executive Directors are unlikely to Executive Directors have also been increased by 4% from 1st vest in 2022 As part of the review the Remuneration Committee April 2022 took into consideration the following objectives: – Respecting the Company’s existing Shareholder senior management for the financial year ended 31 March • Bonus payments were accrued for the Executive Directors and authorities 2022 Those relating to the Executive Directors are set out on pages 49 and 50 Bonus payments for staff members were – Honouring the terms of the existing 2017 Initial Awards as accrued at an average of 5% of salary (FY21: discretionary present to Shareholders payments only) – Retaining the Executives and incentivising them to deliver • During the year under review, there has been significant Eckoh’s growth strategy, especially given the acquisition of change in the management structure of the US business Syntec following the ceasing of the third-party Support business The Committee continues to assess the succession plans for • While the proposals put forward by the Remuneration senior management reporting to the Executive Directors This Committee were permitted under the Company’s existing will be continued into the new financial year and take into Shareholder approved long-term incentive plan, the consideration the integration of the Syntec team following the Remuneration Committee consulted with major Shareholders acquisition of Syntec Holdings Limited in respect of the long-term incentive provision for the CEO and CFO going forward The proposal was implemented The Remuneration Report in respect of the financial year ended as follows: 31 March 2022, which includes the Remuneration Policy as set out below, will be put to the Company’s Shareholders for an advisory – In January 2022 the Committee granted nominal cost PSP vote at the AGM to be held on 26 September 2022 I encourage all awards to the CEO and CFO equal to 200% of their respective Shareholders to vote in favour of this resolution and I look forward salaries (in line with the exceptional grant limit) (the FY22 to the opportunity to meet with Shareholders at the AGM Awards) In the unlikely event that a portion of the 2017 Initial Awards were to vest, any value the Executive Directors receive would be offset pound for pound against any vesting David Coghlan of the new FY22 Awards to ensure management wouldn’t be Chairman Remuneration Committee rewarded twice 15 June 2022 – In addition, a further award of shares up to 200% of salary will be granted to the CEO and CFO in July 2022, in respect of FY23 (the FY23 Awards) – From FY24 on, further annual awards will be considered per the scheme rules up to the normal 120% of salary award level Further details of the award targets are on page 50 48 Corporate Governance | Remuneration Committee Report Remuneration Policy Report 49 The following is a summary of the Policy that covers remuneration for Executive Directors of the Company. Purpose and link to strategy Operation Performance measures Base salary is set at a level to secure the service of talented Executive Directors with the ability to develop and deliver a growth strategy. Fixed contractual cash amount usually paid monthly in arrears Not applicable Reviewed annually, with any increases taking effect from 1 April each year This review is dependent on continued satisfactory performance in the role of an Executive Director It also includes a number of other factors, including experience, development and delivery of Group strategy and Group profitability, as well as external market conditions and pay awards across the Company To provide Executive Directors with ancillary benefits to assist them in carrying out their duties effectively. Executive Directors are entitled to a range of benefits including car allowance, private health insurance and life assurance Executive Directors are entitled to participate on the same terms as all UK employees in the UK Share Incentive Plan, the maximum contribution being £1,800 pa Not applicable To provide a material incentive to drive Executive Directors to deliver stretching strategic and financial performance and to grow long-term sustainable Shareholder value. Paid annually and based on performance in the relevant financial year. Measurement criteria and targets for the annual bonus are set annually by the Committee Award levels for Executive Directors are up to 50% of the Executive’s base salary The performance measures are reviewed annually and the Committee ensures that performance measures remain aligned to the Company’s business objectives and strategic priorities for the year Currently, up to 60% of the annual bonus is based on the achievement of annual targets set against the Group’s adjusted earnings before interest, tax, depreciation and amortisation The remainder is based on the new business target in the year and the achievement of annual personal objectives To provide a long-term performance and retention incentive for the Executive Directors involving the Company’s shares. To link long-term rewards to the creation of long-term sustainable Shareholder value by way of delivering on the Group’s agreed strategic objectives. Under the PSP, the Initial Awards were made over a fixed number of shares, which will vest based on the achievement of performance conditions over a performance period of approximately 5 years from the 2017 AGM, ending 30 days after the announcement of the 2022 Full Year Financial Results FY22 Award granted to Executive Directors, awards equal to 200% of the CEO’s and CFO’s respective salaries FY23 Awards are expected to be granted over shares up to 200% of the CEO’s and CFO’s respective salaries The FY22 and FY23 Awards will vest three years from the respective grant dates, subject to continued service and certain performance targets From FY24 on, further annual awards will be considered per the scheme Rules at up to the normal 120% of salary award level The Committee reserves the right to vary the measurement criteria and targets annually to ensure the annual bonus remains appropriate and challenging Targets are measured over a one-year period Payments range between 0% and 50% of base salary for threshold and maximum performance Initial Awards • 25% vesting for compound growth in Total Shareholder Return (“TSR”) of 10% pa • 100% vesting for compound growth in TSR of 25% pa or greater Straight line vesting for intermediate performance between threshold and maximum performance Below threshold none of the award will vest FY22 Awards: 50% based on three-year TSR Return targets • 25% vesting for compound growth in TSR of 7 5% pa • 100% vesting for compound growth in TSR of 15% pa or greater Straight line vesting for intermediate performance between threshold and maximum performance 50% based on three-year adjusted Earnings Per Share (EPS) growth targets • 25% vesting for compound growth in EPS of 7 5% pa • 100% vesting for compound growth in EPS of 15% pa or greater Straight line vesting for intermediate performance between threshold and maximum performance To provide a benefit comparable with market rates, helping with the recruitment and retention of talented Executive Directors able to deliver a long-term growth strategy. Usually paid monthly in arrears Not applicable Executive Directors receive a contribution of 10% of base salary into the Company’s Defined Contribution Plan, a personal pension arrangement and/or a payment as a cash allowance l y r a a S e s a B s t fi e n e B s u n o B l a u n n A l ) ” P S P “ ( n a P e r a h S e c n a m r o f r e P n o i t u b i r t n o c n o i s n e P Annual Report on Remuneration The following section provides details of how Eckoh’s Chief Executive Officer and the Chief Financial Officer were not Remuneration Policy was implemented during the financial year present for any discussions that related directly to their own ended 31 March 2022 The following pages contain information remuneration that is required to be audited in compliance with the Directors’ Remuneration requirements of the Companies Act 2006 All In undertaking its responsibilities, the Committee seeks narrative and quantitative tables are unaudited unless otherwise independent external advice as necessary To this end, for the stated year under review the Committee has received advice from FIT Remuneration Consultants LLP Remuneration Committee membership in 2021/22 The Remuneration Committee currently comprises myself, Summary of Shareholder voting at the 2021 AGM Christopher Humphrey and Guy Millward The Committee The following table shows the results of the Shareholder advisory members are all independent Directors and are responsible for vote on Annual Remuneration Report: developing policy on remuneration for the Executive Directors The Remuneration Committee is formally constituted with written Total number of votes % of votes cast terms of reference which set out the full remit of the Committee For (including discretionary) 145,710,144 99 98% The Remuneration Committee met three times during the year The details of meeting attendance are set out on page 38 During the year, the Committee sought internal support from the Chief Executive Officer and Chief Financial Officer, who attended Committee meetings by invitation from the Chairman, to advise on specific questions raised by the Committee. The Against 30,229 0 02% Total votes cast (excluding withheld votes) Total votes withheld Total votes cast (including withheld votes) 145,740,373 11,186 145,751,559 Directors’ single figure of total remuneration (audited) The following table sets out the single figure of total remuneration for Directors for the financial year ended 31 March 2022 and 2021: Base salary/fees Benefits1 Pension Annual bonus Total 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Executive Directors Chrissie Herbert Nik Philpot2 Non-Executive Directors David Coghlan Christopher Humphrey Guy Millward Total 189 326 37 64 37 187 322 36 63 36 653 644 14 17 - - - 31 13 16 - - - 29 19 - - - - 19 18 - - - - 18 55 48 - - - 103 - - - - - - 277 391 37 64 37 806 218 338 36 63 36 691 1 Benefits includes car allowance, healthcare cover & death in service. 2 N Philpot has elected to have all his Company pension contribution added to his salary The pension contribution has been reduced by the employer’s national insurance that is payable by the Company for the amount added to his base salary 50 Corporate Governance | Remuneration Committee Report 51 Incentive outcomes for the year ended Scheme interests awarded in the year 31 March 2022 ended 31 March 2022 Annual bonus in respect of 2021/22 performance Performance Share Plan (“PSP”) (audited) Payments to past Directors (audited) Directors’ shareholdings (audited) The annual bonus for the Executive Directors and Senior The table below provides details of the Initial Awards made under In the financial year ended 31 March 2022 and 2021, there were The shareholdings of the Directors and their connected persons Management for the year ended 31 March 2022 was based on the PSP on 23 November 2017 to Nik Philpot and Chrissie Herbert no payments made to past Directors in the Ordinary Shares of the Company against their respective the achievement of Adjusted Operating Profit before interest, and the FY22 Awards Performance for these awards is measured shareholding requirement as at 31 March 2022 tax, depreciation and amortisation (AOP), new business targets over approximately five years from the 2017 AGM and will end 30 Chairman and Non-Executive Director fees and personal objectives Bonus payments were accrued for days after the announcement of the 2022 Full Year Financial Results The Chairman and Non-Executive Directors were paid the the Executive Directors at 16% of their base salary (FY21: nil%), following fees in the financial year ending 31 March 2022: compared to a maximum potential of 50%. The profit related In the ten-year period from the 2017 AGM, the Company may not issue element of the bonus was based on a sliding scale formula under the PSP and any other employees’ Share plan adopted by the for achieving AOP in excess of a threshold established at the Company, interests in shares comprising in aggregate more than 10% beginning of the year New business threshold targets were not of the issued Ordinary Share Capital of the Company met, so no bonus was accrued in that respect Because of a cap on total bonuses paid across the Company, the personal Except for the Initial Awards, awards will normally vest on the later objectives element of the Executive Directors’ bonus was of the expiry of the third anniversary of the date of grant of the subsumed within the profit-based element and no additional award and the date that the Committee determines the extent personal objectives bonus will be paid In addition, the CFO to which the applicable performance criteria have been satisfied Role Chairman Non-Executive Director Chairman of a Committee 2022 Annual fee £k Nik Philpot1 7,051,285 7,001,285 64 32 5 Chrissie Herbert 35,000 35,000 Christopher Humphrey 525,000 525,000 David Coghlan 200,000 - 31 March 2022 Ordinary Shares of 0.25 pence each 31 March 2021 Ordinary Shares of 0.25 pence each received a one-off bonus of £25,000 for the additional and and provided in normal circumstances that the participant is still Fees for the Chairman, Non-Executive Directors and 1 Nik Philpot’s spouse is the beneficial owner of 80,000 shares included above. intensive work during and immediately following the acquisition a Director or employee of the Company’s Group of Syntec Bonus payments for staff members were accrued Committee Chairmen are reviewed annually Both the fees for the Chairman and Non-Executive Directors base salaries and at an average of 5% of salary (FY21: small level of discretionary During the financial year ended 31 March 2022, awards were made the Committee Chairman fee for the Audit Committee and bonuses paid to staff) to Senior Management and key individuals of Eckoh UK, Eckoh US Remuneration Committee were increased by 4% from 1 April and Syntec Details of awards can be found in note 23 2022 (FY21: 2% from 1 January 21) During the year, 100% of the 2018 Awards to Senior Management vested The performance target for the awards was 10% pa total Shareholder return, for the July 2018 awards the performance was 20 95% and for the September 2018 awards the performance was 19 57% Executive Director Face value (% of salary) Number of shares awarded Face value3 £ Potential award for minimum performance Performance measures Nik Philpot 140% 3,750,0001 1,921,875 Chrissie Herbert 112% 2,250,0001 1,153,125 25% of face value Nik Philpot 73% 1,190,4432 601,174 Chrissie Herbert 73% 749,9852 378,742 25% of face value • 25% vesting for compound growth in TSR of 10% pa • 100% vesting for compound growth in TSR of 25% pa Straight line vesting for intermediate performance between threshold and maximum performance 50% based on three-year TSR Return targets • 25% vesting for compound growth in TSR of 7 5% pa • 100% vesting for compound growth in TSR of 15% pa or greater 50% based on three-year adjusted Earnings Per Share (EPS) growth targets • 25% vesting for compound growth in EPS of 7 5% pa • 100% vesting for compound growth in EPS of 15% pa or greater Straight line vesting for intermediate performance between threshold and maximum performance 1 Initial Awards made under the PSP on 23 November 2017 2 FY22 Awards made under the PSP on 17 January 2022 3 Face value has been calculated using the Company’s closing share price on the date of the Initial Award of £0 5125 and for the FY22 Award the 3-day average immediately prior to the award of £0 505 Directors’ interests in shares in Eckoh’s long-term incentive plans and all-employee plans Directors’ share options (audited) The Directors’ interests in share options are shown in the following table: Note At 1 April 2021 (number) Granted in year (number) Forfeited in year (number) Exercised in year (number) At 31 March 2022 (number) Exercise price (pence) Nik Philpot Nik Philpot Chrissie Herbert Chrissie Herbert Chrissie Herbert 1 1 2 1 1 3,750,000 - - 1,190,443 500,000 2,250,000 - - - 749,985 - - - - - - - - - - 1 Granted under the 2017 Eckoh plc Performance Share Plan (“PSP”), as approved at the 2017 AGM 2 Granted under the 2016 LTIP (see below) Earliest date for exercise 15 07 22 17 01 25 Latest date for exercise 22 11 27 17 01 32 3,750,000 1,190,443 0 00 0 00 500,000 47 50 21 06 20 21 06 27 2,250,000 749,985 0 00 0 00 15 07 22 17 01 25 22 11 27 17 01 32 52 Corporate Governance | Remuneration Committee Report 53 Long-Term Incentive arrangements for Directors In addition to the PSP described above, the Company operates March 2017 to a total of 34 Senior Management employees The an additional long-term share incentive scheme for Directors Chief Executive Officer was not awarded any share options in the and Senior Managers (“the 2016 LTIP”) The 2016 LTIP was years ended 31 March 2016 and 31 March 2017 implemented following prior discussions with major Shareholders Directors’ Report of the Company Under this scheme, the Company may issue a Share options of 500,000 were awarded under the 2016 LTIP to The Directors present the Directors’ Report, together with the audited Financial maximum of 2% of the share capital each year for the three years Chrissie Herbert, Chief Financial Officer following her appointment Statements for the year ended 31 March 2022 Principal activities, results and likely future developments The principal activities of the Group are: • Secure Payment products, which help organisations reduce the risk of fraud; secure sensitive data, comply with the Payment Card Industry Data Security Standard (“PCI DSS”) and wider security regulations such as the General Data Protection Regulation (“GDPR”) • Customer Engagement Solutions, which help organisations transform the way they engage with their customers The overlap between the two areas has always been significant and has led us to update and unify our proposition into a new go-to-market vision of Customer Engagement Security Solutions Going forward all of our customer engagement offerings will be underpinned with security features and capabilities to assist our clients to address security concerns and increasing regulation, but to do so in a way that doesn’t compromise the quality of their customers’ experience In addition, our solutions, which will enable our clients to ‘Engage, Secure and Protect’ their customers, will all be delivered through our multi-vendor and global cloud platforms Further comments on the development of the business are included in the Chairman’s Statement, Chief Executive’s Report and Financial Review on pages 4 to 27 The profits for the year after taxation amounted to £1.6 million (2021: £2.8 million). ending 31 March 2019 to the Senior Managers of the business on 2 May 2017 These are disclosed in the above and below tables All options granted under this scheme carry an exercise price Total grants under the 2016 LTIP have been as follows: equal to the market price at the date of grant and are subject to vesting based on achievement of performance criteria Grants of options under this arrangement were made in March 2016 and Number of Senior Management Granted in year (number) Exercise price (pence) Earliest date for exercise Latest date for exercise 23 March 2016 2 May 2016 13 October 2016 31 March 2017 21 June 2017 28 1 2 21 1 4,100,000 500,000 500,000 4,000,000 500,000 43 5 43 5 38 875 39 5 47 5 23 03 19 02 05 19 13 10 19 31 03 20 21 06 20 23 03 26 02 05 26 13 10 26 31 03 27 21 06 27 The Company does not intend to grant any further awards under the 2016 LTIP Share Incentive Plan (audited) The Group operates a Share Incentive Plan (SIP) in the UK The scheme and plan are open to all UK employees, including the Executive Directors As at 31 March 2021 and 2022, Chrissie Herbert participates in the UK scheme and the details are shown below: Number of Partnership Shares purchased at 31 March 2021 Number of Matching Shares purchased at 31 March 2021 Dividend Shares1 acquired at 31 March 2021 Total Shares at 31 March 2021 Number of Partnership Shares2 purchased during the year Matching Shares3 awarded during the year Dividend Shares acquired during the year Dates of release of Matching Shares4 Total Shares at 31 March 2022 Chrissie Herbert 14,262 28,524 831 43,617 3,030 6,060 540 Dec 21 53,247 1 Dividend Shares are Ordinary Shares of the Company purchased with the value of dividends paid in respect of all other shares held in the plan 2 Partnership Shares are Ordinary Shares of the Company purchased, every six months by the Company with the monthly contributions made by the employee, during the period (at prices from £0 56 to £0 61) 3 Matching Shares are Ordinary Shares of the Company awarded conditionally in line with the purchase of the matching shares every six months, during the period 4 The dates used are based on the earliest allocation of the Matching Shares Matching Shares will be released as each six-month Partnership Agreement matures, 3 5 years after commencing Executive Directors’ service contracts External advisors Nik Philpot has a service contract that is terminable on twelve The Committee receives independent advice from FIT months’ notice by either party while Chrissie Herbert has a service Remuneration Consultants LLP as the Committee’s appointed contract that is terminable on nine months’ notice by either party remuneration advisor during the financial year ended 31 March 2022 During the year the level of fees paid to remuneration Chairman and Non-Executive Directors advisors totalled £11k (2021: £nil) The Chairman and Non-Executive Directors do not have service contracts but serve under letters of appointment terminable by David Coghlan six months’ notice on either side Chairman Remuneration Committee 15 June 2022 54 Corporate Governance | Directors Report 55 Statutory information Financial instruments Subsequent events Under company law, Directors must not approve the Financial Eckoh plc (The Company) is a Public Limited Company The financial risk management objectives and policies of the There were no events after the balance sheet date Statements unless they are satisfied that they give a true and incorporated in the United Kingdom (Registration number Group and the exposure of the Group to foreign currency risk, fair view of the state of affairs of the Group and Company and 03435822) The Company’s Ordinary Shares are traded on the interest rate risk, and liquidity risk are outlined in note 3 to the Disclosure of information to the auditors of the profit or loss of the Group for that period. In preparing the Alternative Investment Market of the London Stock Exchange (AIM) Consolidated Financial Statements The Directors who held office at the date of approval of this Financial Statements, the Directors are required to: Directors’ Report confirm that, so far as they are each aware, there The Company has a trading subsidiary, located in the USA, whose Political contributions is no relevant audit information of which the Company’s auditors • select suitable accounting policies and then apply them operations and results are included in the Financial Statements Neither the Company nor any of its subsidiaries made any are unaware; and each Director has taken all the steps that they consistently; of the Company The subsidiary undertakings are listed in note 16 political donations or incurred any political expenditure during ought to have taken as a Director to make themselves aware of Share capital The Company has only Ordinary Shares of 0 25 pence nominal Going concern the year (2021: nil) any relevant audit information and to establish that the Company’s • state whether applicable UK adopted international auditors are aware of that information accounting standards in conformity with the requirements of the Companies Act 2006 have been followed for the Group Financial Statements and United Kingdom Accounting value in issue along with 1,851,056 of shares held in treasury In determining the appropriate basis of preparation of the Dividends Note 21 to the Consolidated Financial Statements summarises Financial Statements, the Directors are required to consider No interim dividend was paid during the year (2021: nil) Standards, comprising FRS 101, have been followed for the the rights of the Ordinary Shares as well as the number issued whether the Group and Company can continue in operational Company Financial Statements, subject to any material during the year ended 31 March 2022 existence for the foreseeable future The Directors recommend the payment of a final dividend departures disclosed and explained in the Financial of 0 67p (2021: 0 61p) per Ordinary Share amounting to £2 0 Statements; Substantial shareholdings The Board has carried out a going concern review and concluded million (2021: £1 6 million) to be paid on 21 October 2022 This As at 31 March 2022, the Company had been advised under the that the Group and Company have adequate cash to continue recommendation will be put to the Shareholders at the Annual • make judgements and accounting estimates that are Disclosure Guidance and Transparency Rules, or had ascertained in operational existence for the foreseeable future General Meeting reasonable and prudent; and from its own analysis, that the following held more than 3% of the issued capital: The Directors have prepared cash flow forecasts for a period in Independent Auditors • prepare the Financial Statements on the going concern basis Name of holder No. of Ordinary Shares/ voting rights % of issued capital/ voting rights Canaccord Genuity Wealth Mgt 48,554,136 Liontrust Asset Mgt Chelverton Asset Mgt Herald Investment Mgt 39,457,720 18,250,000 16,048,723 Blackrock Investment Mgt 14,060,033 16 61 13 50 6 24 5 49 4 81 excess of 12 months from the date of approving the Financial The independent auditors, PricewaterhouseCoopers LLP, have unless it is inappropriate to presume that the Group and Statements As at 31 March 2022, the £10 million of funding expressed their willingness to continue as the Company’s Company will continue in business (£5 million RCF and £5 million overdraft) from Barclays Bank auditors As outlined in the Audit Committee report on page 42, is undrawn Bank covenants have been reviewed and are resolutions proposing their appointment and to authorise their The Directors are responsible for safeguarding the assets of the comfortably achieved for the year to 31 March 2022 remuneration will be proposed at the 2022 AGM Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities Our US operation is underpinned completely by fixed contractual Statement of Directors’ responsibilities fees In the UK, clients have a variety of commercial models The Directors are responsible for preparing the Annual Report The Directors are also responsible for keeping adequate including fixed fees and transactional arrangements, with and the Financial Statements in accordance with applicable accounting records that are sufficient to show and explain varying levels of commitment law and regulation the Group’s and Company's transactions and disclose with reasonable accuracy at any time the financial position of the In addition to our key business indicators, total orders and new Company law requires the Directors to prepare Financial Group and Company and enable them to ensure that the Annual General Meeting (AGM) business orders, we have also introduced Annual Recurring Revenue (ARR1) to measure the health of the business, which Statements for each financial year. Under that law the Directors Financial Statements comply with the Companies Act 2006 have prepared the Group Financial Statements in accordance The 2022 AGM will be held at 10:00 on 26 September 2022 includes all clients that we are billing In the US, we continue to with UK-adopted international accounting standards and The Directors are responsible for the maintenance and integrity see the majority of the Secure Payments contracts won and the company financial statements in accordance with United of the Company’s website Legislation in the United Kingdom The notice of the AGM and an explanation of the resolutions delivered through Eckoh’s cloud platforms, as large enterprises Kingdom Generally Accepted Accounting Practice (United governing the preparation and dissemination of Financial to be put to the meeting are set out in the Notice of Meeting have accelerated their move into the cloud Following the Kingdom Accounting Standards, comprising FRS 101 “Reduced Statements may differ from legislation in other jurisdictions accompanying this Annual Report The Board fully supports pandemic we do not anticipate this trend to reverse and whilst Disclosure Framework”, and applicable law) all the resolutions and encourages Shareholders to vote in this reduces the upfront payments (and cash received) for favour of each of them as they intend to in respect of their own implementations, it increases the proportion of recurring revenue shareholdings and improves the operational gearing, earnings quality and visibility in the business We anticipate the renewal rate for the Directors’ and Officers’ liability insurance and UK and US businesses to remain unchanged during this period indemnification of Directors When preparing the cash flow forecasts the Directors have The Group has purchased and maintained throughout the year reviewed a number of scenarios, including a severe but plausible Directors’ and Officers’ liability insurance in respect of itself and downside scenario which assumes no new business, with respect its Directors and these remain in force at the date of this report to levels of new business In all scenarios the Directors were able to conclude that the Group has adequate cash to continue in operational existence for the foreseeable future By order of the Board Chrissie Herbert Company Secretary 15 June 2022 56 Corporate Governance | Independent auditors report 57 Independent auditors’ report to the members of Eckoh plc Report on the audit of the financial statements Opinion In our opinion: • • • • Eckoh plc’s group financial statements and company financial statements (the “financial statements”) give a true and fair view of the state of the group’s and of the company’s affairs as at 31 March 2022 and of the group’s profit and the group’s cash flows for the year then ended; the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report and Financial Statements 2022 (the “Annual Report”), which comprise: the Consolidated statement of financial position and Company statement of financial position as at 31 March 2022; the Consolidated statement of total comprehensive income, the Consolidated statement of changes in equity and the Company statement of changes in equity and the Consolidated statement of cash flows for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our audit approach Overview Audit scope • We conducted full scope audit work over the operations of Eckoh UK and Eckoh US due to their financial significance to the group. With respect to Syntec, we performed audit procedures over certain financial statement line items where Syntec’s contribution to the group was 5% or more. In addition, we performed full scope audits of Eckoh plc (“the Company”). The audit procedures performed accounted for 100% of both the Group’s revenue and profit for 2022 and 98% of net assets as at 31 March 2022. Key audit matters • Revenue recognition (group) • • Recoverability of investment in, and the loan to, subsidiary (parent) Accounting for the acquisition of Syntec (group) Materiality • Overall group materiality: £317,800 (2021: £305,000) based on 1% of total revenue. • Overall company materiality: £610,000 (2021: £322,600) based on 1% of total assets capped for the purpose of the group audit. Performance materiality: £238,300 (2021: £228,700) (group) and £457,000 (2021: £241,900) (company). • The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Accounting for the acquisition of Syntec and Recoverability of investment in, and the loan to, subsidiary undertakings are new key audit matters this year. Impact of Covid-19, which was a key audit matter last year, is no longer included because of the ability of the Group to continue to generate profits and operate normally despite disruption related to the Covid-19 pandemic. Otherwise, the key audit matters below are consistent with last year. Key audit matter Revenue recognition (group) How our audit addressed the key audit matter Our procedures included the following: Revenue in the year ended 31 March 2022 was £31,780k • For a sample of customer contracts, determined whether (FY21:£30,486k) as set out in the consolidated statement of the correct judgement was exercised in recognising revenue comprehensive income. The approach to revenue recognition according to the five-step revenue recognition approach set out as set out under IFRS 15 is complex and can be judgemental by IFRS 15. especially where contracts with customers have variable • Recalculating revenue recognition schedules to confirm the considerations. Due to its expected impact on the Group, we deem accuracy of these schedules. the contract revenue recognition as a key audit matter. • For a sample of customer contracts with deferred revenue and costs at the year-end, we assessed management’s judgements used in estimating the amounts deferred. • Performing testing on unusual revenue journal entries. Based on the procedures performed, we noted no material uncorrected issues. (Table continued overleaf) 58 Corporate Governance | Independent auditors report 59 Key audit matter How our audit addressed the key audit matter Accounting for the acquisition of Syntec (group) Our procedures included the following: As set out in Note 27, the Group acquired 100% of shares in Syntec • Assessing the business processes and controls related to the Holdings Limited on 22 December 2021 for a purchase price of purchase price allocation. £30,997k.The allocation of this purchase price to the acquired • Reviewing the purchase agreement with a focus on unusual assets and liabilities is considered to be a key audit matter as terms and conditions and more complex forms of consideration. the identification of the acquired assets and liabilities, and their • Comparing the identified assets and liabilities with other sources Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. subsequent valuation, recognition and measurement, is based to a of information, such as Board presentations, that might suggest Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: large extent on estimates and assumptions involving a high degree omitted items. of judgement. • Obtaining the report prepared by management’s expert used to value certain of the acquired assets and utilising our own specialists to assess the valuation techniques, assumptions and source data, used to determine these fair values. • Evaluating the allocation of the purchase price to the relative fair values of the assets and liabilities acquired. Overall materiality £317,800 (2021: £305,000) £286,000 (2021: £322,600) Financial statements – group Financial statements – company How we determined it 1% of total revenue. 1% of total assets capped at for the purpose of the group audit. Based on the procedures performed, we noted no material issues Rationale for benchmark We have applied this benchmark as a generally We believe that total assets is the primary from our work. applied accepted auditing practice for Group’s at the growth measure used by the shareholders in assessing stage and based on what management deems to be the performance of the company, and is a a key performance indicator. generally accepted benchmark. The value is capped for the purpose of the group audit. Recoverability of investment in, and the loan to, subsidiary (parent) Our procedures included the following: As disclosed in Note 15, the company held an investment in • Evaluating management’s assessment of whether any indicators subsidiary undertakings and other investments of £51,625k (2021: of impairment existed. £20,153k) as disclosed in Note 15 and had amounts receivable • Assessing the recoverable value by reference to the net assets from subsidiary undertakings of £4,034k (2021: £3,506k) as of the underlying subsidiaries and amounts owed by group disclosed in Note 18. The assessment of the recoverability of undertakings with reference to the Director’s intentions for the these assets required the application of management judgement, settlement of group-wide intercompany balances. particularly in determining whether any impairment indicators have • Verifying that the recoverable values of the investment was arisen that trigger the need for a formal impairment assessment consistent with the recoverable value of the CGU tested for and in assessing whether the carrying value of each investment goodwill impairment purposes, leveraging the audit work and amounts owed by group undertakings are recoverable. As undertaken as part of the group audit. changes to these judgements and estimates could have a material • Verifying that Eckoh Plc’s market capitalisation is higher than the impact on the company financial statements, we consider this to total of the company’s non-current and current assets. be a key audit matter. Based on the procedures performed, we noted no material issues from our work. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they operate. Eckoh plc has both its corporate and operating headquarters in the United Kingdom. The audit engagement team is aligned to Eckoh plc’s geographical organisation and largely reflects the management structure. As Eckoh plc’s corporate headquarters are based in the UK, the Group audit engagement team is also based in the UK with no support required from any auditors from other territories. The largest trading entity is Eckoh UK. This entity, along with Eckoh US and the Company were the only components requiring an audit of its complete financial information for the purposes of the consolidated Group audit with audit procedures being performed on certain financial statement line items in respect of Syntec. In total the audit work performed accounted for 100% of both consolidated revenue and profit and 98% of consolidated net assets. For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was between £238,000 to £286,000. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to £238,300 (2021: £228,700) for the group financial statements and £457,000 (2021: £241,900) for the company financial statements. In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate. We agreed with those charged with governance that we would report to them misstatements identified during our audit above £15,800 (group audit) (2021: £15,200) and £30,500 (company audit) (2021: £16,100) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern Our evaluation of the directors’ assessment of the group’s and the company’s ability to continue to adopt the going concern basis of accounting included: • We reviewed the Directors’ model supporting their going concern assumption. We discussed with management the assumptions applied in the going concern review so we could understand and challenge the rationale for those assumptions, using our knowledge of the business. We tested the model’s mathematical accuracy and considered the reasonableness of the revenue and cost assumptions made and the available headroom throughout a period of at least twelve months from the date of approval of the financial statements; and • We reviewed management’s sensitivity scenarios including their severe but plausible downside. We considered potential mitigating actions available to the Group that are achievable and within management’s control. We then assessed the availability of liquid resources under the different scenarios and the associated covenant tests applicable. 60 Corporate Governance | Independent auditors report 61 Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and the company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and the company’s ability to continue as a going concern. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. Strategic report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ Report for the year ended 31 March 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors’ Report. Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors’ responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of AIM regulations, Payment Card Industry Data Security Standards (PCI DSS), General Data Protection Regulation (GDPR), and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the requirements of the Companies Act 2006 and UK tax regulations. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to the risk that Group and Company management may record inappropriate journal entries, and the risk of bias in accounting estimates and judgements. Audit procedures performed by the engagement team included: • • • • • Enquiring of management and those charged with governance together with inspection of policy documentation as to the Group’s and Company’s high-level policies and procedures to prevent and detect fraud, these enquiries were corroborated through review of Board minutes provided. Inspection of regulatory correspondence, to identify actual and potential breaches of laws and regulations; Enquiring of those charged with governance and management as to whether they have knowledge of any actual, suspected or alleged fraud and breaches of laws and regulations; Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations (for example credit to revenue with a debit entry to an unexpected account) or journals posted by senior management; Auditing one-off transactions, such as acquisition related and restructuring costs to ensure these have been appropriately accounted for; and Testing accounting estimates (because of the risk of management bias), including challenging assumptions and judgements made by management in their significant accounting estimates. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non- compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc. org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. 62 Corporate Governance | Independent auditors report 63 Use of this report This report, including the opinions, has been prepared for and only for the company’s members as a bod in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Financial Statements Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not obtained all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or certain disclosures of directors’ remuneration specified by law are not made; or the company financial statements are not in agreement with the accounting records and returns. • • We have no exceptions to report arising from this responsibility. Matthew Mullins (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Watford 15 June 2022 Consolidated Statement of Total Comprehensive Income 64 Consolidated Statement of Financial Position 65 Company Statement of Financial Position 66 Consolidated Statement of Changes in Equity 67 Company Statement of Changes in Equity 68 Consolidated Statement of Cash Flows 69 Notes to the Financial Statements 70 Shareholder Information 102 64 Consolidated and Company Statements 65 Consolidated statement of total comprehensive income Consolidated statement of financial position for the year ended 31 March 2022 as at 31 March 2022 Notes 2022 £’000 2021 £’000 Notes 2022 £’000 2021 £’000 Continuing operations Revenue Cost of sales Gross profit Administrative expenses Operating profit Adjusted operating profit Amortisation of acquired intangible assets Expenses relating to share option schemes Exceptional restructuring costs Costs relating to acquisition Profit from operating activities Finance charges Finance income Profit before taxation Taxation Profit for the financial 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 4 4 12 23 8 27 5 9 9 10 31,780 30,486 (6,357) 25,423 (6,291) 24,195 (23,037) (20,645) 2,386 5,229 (751) (241) (866) (985) 2,386 (74) 6 2,318 (743) 1,575 3,550 4,749 (663) (536) - - 3,550 (87) 48 3,511 (717) 2,794 139 139 134 134 Total comprehensive income for the year attributable to the equity holders of the Company 1,714 2,928 Profit per share Basic earnings per 0.25p share Diluted earnings per 0.25p share 2022 2021 pence pence 0.59 0.51 1.09 1.06 11 11 Assets Non-current assets Intangible assets Property, plant and equipment Right-of-use leased assets Deferred tax assets 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 Lease liabilities Non-current liabilities Lease liabilities Deferred tax liabilities Net assets Equity Called up share capital Share premium account Capital redemption reserve Merger reserve Currency reserve Retained earnings Total equity 12 13 14 10 17 18 19 20 22 14 14 10 21 21 39,664 4,189 1,516 1,789 6,527 4,307 1,310 3,211 47,158 15,355 268 12,283 2,840 15,391 62,549 174 13,277 12,706 26,157 41,512 (18,286) (18,482) - (609) (975) (517) (18,895) (19,974) (928) (2,983) (3,911) (825) (296) (1,121) 39,743 20,417 732 22,180 198 2,697 1,121 12,815 39,743 638 2,663 198 2,697 982 13,239 20,417 The Financial Statements were approved by the Board of Directors on 15 June 2022 and signed on its behalf by: C Herbert Chief Financial Officer Company Registration Number 3435822 Financial Statements | 66 Consolidated and Company Statements 67 Company statement of financial position Consolidated statement of changes in equity as at 31 March 2022 for the year ended 31 March 2022 Notes 2022 £’000 2021 £’000 Called up share capital Share premium account Capital redemption reserve Merger reserve Currency reserve Retained earnings Total Shareholders’ equity Assets Non-current assets Property, plant and equipment Investments in group companies Deferred tax asset Long-term debtor Current assets 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 Deferred tax liabilities Net assets Equity Called up share capital Share premium account Capital redemption reserve Merger reserve Retained earnings Total equity 13 15 18 18 19 20 22 10 21 21 2,866 51,629 2 2,909 20,153 2 4,034 3,506 58,531 26,570 93 2,383 2,476 643 5,055 5,698 61,007 32,268 (26,896) (16,388) - (975) (26,896) (17,363) - - (133) (133) 34,111 14,772 732 22,180 198 2,697 8,304 34,111 638 2,663 198 2,697 8,576 14,772 The Company has taken advantage of the exemption under Section 408 of the Companies Act 2006 from presenting its own income statement in these Financial Statements. The Company’s profit after tax for the year was £1,120,000 (2021: profit after tax of £4,293,000). The Financial Statements were approved by the Board of Directors on 15 June 2022 and signed on its behalf by: C Herbert Chief Financial Officer Company Registration Number 3435822 Balance at 1 April 2021 638 2,663 198 2,697 982 13,239 £’000 £’000 £’000 £’000 £’000 £’000 Total comprehensive income for the year Profit for the financial year Other comprehensive income for the year Total comprehensive income for the year Dividends paid in the year Shares transacted through Employee Benefit Trust Purchase of own shares Shares purchased for share ownership plan Shares issued under the share options schemes Share based payment charge Shares issued as part of acquisition Deferred tax on share options Transactions with owners recorded directly in equity Balance at 31 March 2022 - - - - - - - 3 - 91 - 94 732 - - - - - - - 226 - 19,291 - 19,517 22,180 - - - - - - - - - - - - - - - - - - - - - - - - - 139 139 - - - - - - - - - 1,575 - 1,575 (1,559) (75) (126) (111) - 464 - (592) (1,999) 198 2,697 1,121 12,815 39,743 Called up share capital Share premium account Capital redemption reserve Merger reserve Currency reserve Retained earnings Total Shareholders’ equity Balance at 1 April 2020 638 2,663 198 2,697 848 11,965 £’000 £’000 £’000 £’000 £’000 £’000 Total comprehensive income for the year Profit for the financial year Other comprehensive expense for the year Total comprehensive income for the year Dividends paid in the year Shares transacted through Employee Benefit Trust Shares purchased for share ownership plan Share based payment charge Deferred tax on share options Transactions with owners recorded directly in equity - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 134 134 - - - - - - 2,794 - 2,794 (1,558) (138) (241) 303 114 (1,520) (1,520) Balance at 31 March 2021 638 2,663 198 2,697 982 13,239 20,417 £’000 20,417 1,575 139 1,714 (1,559) (75) (126) (111) 229 464 19,382 (592) 17,612 £’000 19,009 2,794 134 2,928 (1,558) (138) (241) 303 114 Financial Statements | 68 Consolidated and Company Statements 69 Company statement of changes in equity Consolidated statement of cash flows for the year ended 31 March 2022 for the year ended 31 March 2022 Called up share capital Share premium account Capital redemption reserve Merger reserve Retained earnings Total Shareholders’ equity Balance at 1 April 2021 638 2,663 198 2,697 8,576 £’000 £’000 £’000 £’000 £’000 £’000 14,772 Profit for the financial year and total comprehensive income Dividends paid in the year Shares transacted through Employee Benefit Trust Purchase of own shares Shares purchased for share ownership plan Shares issued under the share options schemes Share based payment charge Shares issued as part of acquisition Transactions with owners recorded directly in equity Balance at 31 March 2022 - - - - - 3 - 91 94 732 - - - - - 226 - 19,291 19,517 - - - - - - - - - - - - - - - - - - (75) (126) (111) - 479 - (1,392) 22,180 198 2,697 8,304 (75) (126) (111) 229 479 19,382 18,219 34,111 1,120 1,120 (1,559) (1,559) Called up share capital Share premium account Capital redemption reserve Merger reserve Retained earnings Total Shareholders’ equity Balance at 1 April 2020 638 2,663 198 2,697 5,917 £’000 £’000 £’000 £’000 £’000 £’000 12,113 Profit for the financial year and total comprehensive income Dividends paid in the year Shares transacted through Employee Benefit Trust Shares issued under the share option schemes Share based payment charge Transactions with owners recorded directly in equity - - - - - - - - - - - - - - - - - - - - - - - - 4,293 4,293 (1,558) (1,558) (138) (241) 303 (138) (241) 303 (1,634) (1,634) Balance at 31 March 2021 638 2,663 198 2,697 8,576 14,772 Cash flows from operating activities Cash generated from operations Tax received/ (paid) Interest paid Interest paid on lease liability Net cash generated from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Business acquisition Interest received Net cash utilised in investing activities Cash flows from financing activities Dividends paid Repayment of borrowings Principal elements of lease payments Purchase of own shares Shares purchased for share ownership plan Issue of shares net of issue costs Cash outflow from acquiring shares from the Employee Benefit Trust Net cash generated from / (utilised in) financing activities Decrease in cash and cash equivalents Cash and cash equivalents at the start of the period Effect of exchange rate fluctuations on cash held Cash and cash equivalents at the end of the period The notes on pages 70 to 101 form an integral part of these financial statements. Notes 2022 £’000 2021 £’000 26 9 9 13 12 27 9 14 21 19 19 3,362 4,385 88 (23) (51) (10) (54) (33) 3,376 4,288 (308) (375) (22,500) 6 (1,175) (573) - 48 (23,177) (1,700) (1,559) (1,558) (975) (500) (126) (110) 13,311 (75) (975) (461) - (241) - (138) 9,966 (3,373) (9,835) 12,706 (31) (785) 13,541 (50) 2,840 12,706 Financial Statements | 70 Notes to the Financial Statements 71 Notes to the Financial Statements for the year ended 31 March 2022 General Information New accounting standards effective for the Group and the Directors have reviewed a number of scenarios, including Valuation of goodwill and intangible assets on acquisition The accounting policies set out below have, unless otherwise Company in these financial statements: the severe yet plausible downside scenario which assumes As a result of the successful acquisition of Syntec Holdings stated, been applied consistently to all periods presented in No new or revised accounting standards were adopted in the no new business, with respect to levels of new business. In all Limited, acquisition accounting has been included as a these Consolidated Financial Statements. year. In April 2021, the IFRS Interpretations Committee issued a scenarios the Directors were able to conclude that the Group significant estimate for the year ended 31 March 2022. new interpretation in relation to accounting for customisation has adequate cash to continue in operational existence for the Acquisition accounting involves a significant degree of Eckoh plc is a public limited Company and is incorporated and configuration costs of cloud computing arrangements. foreseeable future. in the UK under the Companies Act 2006. The address of the Following a detailed review, it was confirmed that the new Company’s registered office is Telford House, Corner Hall, interpretation does not materially impact the accounting Hemel Hempstead, HP3 9HN. treatment for costs incurred in the business. Eckoh plc (the “Company”) is a global provider of Customer There are a number of other amendments and clarifications Engagement Data and Payment Security Solutions. to IFRS effective in future years, which are not expected to significantly impact the Group’s consolidated results or The Group Financial Statements consolidate its subsidiaries financial position. (together referred to as the “Group”). The Company’s financial statements present information about the Company as a Going concern separate entity and not about its Group. In determining the appropriate basis of preparation of the 1. Basis of preparation financial statements, the Directors are required to consider whether the Group and Company can continue in operational existence for the foreseeable future. The Group’s financial statements have been prepared and The Board has carried out a going concern review and approved by the Directors in accordance with UK adopted concluded that the Group and Company have adequate cash international accounting standards in conformity with the to continue in operational existence for the foreseeable future. requirements of the Companies Act 2006 and the Company’s Financial Statements have been prepared in accordance The Directors have prepared cash flow forecasts for a period with United Kingdom Generally Accepted Accounting Practice in excess of 12 months from the date of approving the financial (United Kingdom Accounting Standards, comprising FRS 101 statements. As at 31st March 2022, the £10 million of funding “Reduced Disclosure Framework”, and applicable law). The (£5 million RCF and £5 million overdraft) from Barclays Bank Company has also applied the exemptions available under is undrawn. Bank covenants have been reviewed and are FRS 101 in respect of the following disclosures: comfortably achieved for the year to 31 March 2022. • A Cash Flow Statement and related notes Our US operation is underpinned completely by fixed • Comparative period reconciliation for share capital contractual fees. In the UK, clients have a variety of commercial • Disclosures in respect of transactions with wholly owned models including fixed fees and transactional arrangements, subsidiaries with varying levels of commitment. • Disclosures in respect of capital management • IFRS 2 Share based payments in respect of group settled In addition to our key business indicator, total orders and new share-based payments. business orders, we have also introduced Annual Recurring Revenue (ARR) to measure the health of the business, which This financial information has been prepared on a going includes all clients that we are billing. In the US, we continue to concern basis and under the historical cost convention. see the majority of the Secure Payments contracts won and The Group’s and Company’s financial statements are presented have accelerated their move into the cloud. Following the in Pounds Sterling, which is the Company’s functional currency. pandemic we do not anticipate this trend to reverse and All financial information presented has been rounded to the whilst this reduces the upfront payments (and cash received) nearest one thousand, except where stated. for implementations, it increases the proportion of recurring delivered through Eckoh’s cloud platforms, as large enterprises revenue and improves the operational gearing, earnings quality and visibility in the business. We anticipate the renewal rate for the UK and US businesses to remain unchanged during this period. When preparing the cash flow forecasts 2. Summary of principal accounting policies Critical accounting 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 and Company’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. Critical accounting estimates and assumptions 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: Impairment of investments in subsidiaries (Company only) The Company has an investment in subsidiaries balance of £51.6million (2021: £20.1million) and intercompany receivables of £4.0million (2021: £4.1million). The Company assess the carrying values of its investments in subsidiaries and the recoverability of intercompany receivables at the end of each reporting period. Where indicators of impairment are identified the estimation of the recoverable values requires an estimation of future cash flows from each subsidiary and selection of appropriate discount rates in order to determine the net present value of the cash flows. Share based payments The fair value of share-based payments is estimated using the methods detailed in note 23 and using certain assumptions. The Black Scholes and Monte Carlo valuation models have been used in determining the fair value of share-based payments. 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. judgement and estimation when assessing the overall deal consideration and valuing the purchased assets and liabilities. In a business combination, intangible assets are identified and recognised at fair value. The assumptions involved in valuing these intangible assets require the use of estimates that may differ from the actual outcome. These estimates cover future growth rates, expected inflation rates and the discount rate used. Changing the assumptions selected by management could significantly affect the allocation of the purchase price paid between goodwill and other acquired intangibles. Deferred taxation The key estimates made for deferred taxation are on the future profitability of the business and the Company the trading will reside in or capital expenditure to determine whether deferred tax assets should be recognised. Deferred tax assets amounting to £9.5 million were not recognised in respect of trading losses of £2.3 million and capital losses of £7.2 million due to the statutory entity the losses are held. It is possible that the deferred tax assets actually recoverable may differ from the amounts recognised if actual taxable profits and capital expenditure differ from estimates. Critical accounting judgements Contract revenue Following the acquisition of Syntec Holdings Limited, IFRS 15: Revenue from Contracts with Customers was implemented. Syntec did not previously capture implementation costs on a client-by-client basis, management has therefore applied judgement in estimating that the implementation costs per contract should be 20% based on historical performance of the Eckoh US business as well as management’s views on the efficiency of the Syntec implementation process. Deferred taxation 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. Judgement is also required regarding the rate at which deferred tax is recognised, following the substantial enactment of Finance Bill 2021, resulting in an increase in the UK tax rate to 25% from 1 April 2023. UK deferred tax assets and liabilities expected to unwind prior to 1 April 2023 have been recognised at 19%, with those expected to unwind after 1st April Financial Statements | 72 Notes to the Financial Statements 73 2023 being recognised at 25%. At 31 March 2022, the Group the market-based value of the replacement awards compared Acquired intangible assets are carried at cost less accumulated The gain or loss arising on the disposal of an asset is determined recognised deferred tax assets of £1.8 million and deferred tax with the market-based value of the acquiree’s awards and the amortisation and accumulated impairment losses. Amortisation by comparing the disposal proceeds and the carrying amount liabilities of £3.0 million. Included within the deferred tax asset extent to which the replacement awards relate to past and/or is recognised on a straight-line basis over estimated lives, on of the asset and is recognised in the income statement. of £1.8 million is £1.4 million in respect of tax losses and tax future service. credits and included within the deferred tax liabilities of £3.0 million is £2.8 million in respect of the intangible asset from the (b) Subsidiaries acquisition of Syntec. Basis of consolidation (a) Business combinations 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. Business combinations are accounted for using the acquisition method as at the acquisition date – i.e. when control is (c) Loss of control the following bases: Customer relationships – 5 years Intellectual property – 5 years Trade name – 3 years 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 (c) Research and development Fixtures and equipment – between 3 and 6 years Research costs are charged to the income statement in the Leasehold improvements – over the term of the lease year in which they are incurred. Development expenses include transferred to the Group. Control is the power to govern the On the loss of control, the Group derecognises the assets and expenses incurred by the Group to set up or enhance services Material residual values and useful lives are reviewed, and financial and operating policies of an entity so as to obtain liabilities of the subsidiary, any non-controlling interests and to clients. Development costs that mainly relate to staff salaries adjusted if appropriate, at least annually. An asset’s carrying benefits from its activities. In assessing control, the Group takes the other components of equity related to the subsidiary. Any are capitalised as intangible assets when it is probable that amount is written down immediately to its recoverable amount into consideration potential voting rights that are currently surplus or deficit arising on the loss of control is recognised in the project will be a success, considering its commercial if the asset’s carrying amount is greater than its estimated exercisable. profit or loss. If the Group retains any interest in the previous and technological feasibility, and costs can be measured recoverable amount. The Group measures goodwill at the acquisition date as: date that control is lost. Subsequently that retained interest are expensed as incurred. Capitalised development costs are The Company holds an investment property, which comprises • the fair value of the consideration transferred; plus is accounted for as an equity-accounted investee or as an amortised on a straight-line basis over the estimated useful of freehold land and office buildings that are held for capital • the recognised amount of any non-controlling interests in available-for-sale financial asset depending on the level of life of the asset, which is generally assumed to be three years. appreciation. subsidiary, then such interest is measured at fair value at the reliably. Development costs that do not meet those criteria the acquiree; plus influence retained. • if the business combination is achieved in stages, the fair Amortisation is charged to administrative expenses in the The Investment Property was initially recognised at cost and value of the pre-existing equity interest in the acquiree; less (d) Transactions eliminated on consolidation income statement. subsequently carried at cost less accumulated depreciation • the net recognised amount (generally fair value) of the Intra-group balances and transactions, and any unrealised and accumulated impairment losses. identifiable assets acquired and liabilities assumed. income and expenses arising from intra-group transactions, are The carrying value of intangible assets is assessed at the end When the excess is negative, a bargain purchase gain is Unrealised gains arising from transactions with equity Investments in subsidiaries are held at cost less accumulated recognised immediately in profit or loss. accounted investees are eliminated against the investment Impairment of non-financial assets impairment losses. eliminated in preparing the Consolidated Financial Statements. of each financial year for impairment. Investments in subsidiaries to the extent of the Group’s interest in the investee. Unrealised An impairment loss is recognised in the income statement for The consideration transferred does not include amounts losses are eliminated in the same way as unrealised gains, but the amount by which the asset’s carrying amount exceeds its Inventories related to the settlement of pre-existing relationships. Such only to the extent that there is no evidence of impairment. recoverable amount. The recoverable amount is the higher of the Inventories are valued at the lower of cost and net realisable amounts are generally recognised in profit or loss. Transaction costs, other than those associated with the issue (a) Goodwill Intangible assets asset’s fair value less costs to sell, and the value-in-use based on value. The cost of finished goods and work in progress an internal discounted cash flow evaluation. For the purpose of comprises design costs, direct labour and other direct costs. assessing impairment, assets are grouped at the lowest levels for Net realisable value is the estimated selling price in the of debt or equity securities, that the Group incurs in connection Goodwill represents the excess of the fair value of the which there are separately identifiable cash flows. All assets are ordinary course of business less applicable selling expenses. with a business combination are expensed as incurred. consideration paid over the fair value attributable to the subsequently reassessed for indications that an impairment loss separately identifiable net assets acquired and is capitalised previously recognised may no longer exist. Financial assets Any contingent consideration payable is measured at fair on the Group balance sheet. value at the acquisition date. If the contingent consideration is Property, plant and equipment Trade and other receivables do not carry interest and are stated Trade and other receivables classified as equity, then it is not re-measured and settlement Goodwill is not amortised and is reviewed for impairment at Property, plant and equipment is stated at cost or fair at their fair value as reduced by allowances for estimated is accounted for within equity. Otherwise, subsequent changes least annually. Any impairment is recognised in the period in value at acquisition, net of depreciation and any provisions irrecoverable amounts. The Group applies the IFRS 9 simplified in the fair value of the contingent consideration are recognised which it is identified. in profit or loss. for impairment. Cost includes expenditure that is directly approach to measure expected credit losses which uses a attributable to the acquisition of the items. lifetime expected loss allowance for all trade receivables. To (b) Acquired intangible assets measure the expected credit losses, trade receivables have If share-based payment awards (replacement awards) are Intangible assets acquired in a business combination are Subsequent costs are included in the asset’s carrying amount been grouped based on shared credit risk characteristics and required to be exchanged for awards held by the acquiree’s initially recognised at their fair value at the acquisition date, or recognised as a separate asset, as appropriate, only when the number of days past due. Trade receivables are written employees (acquiree’s awards) and relate to past services, which is regarded as their cost. Where necessary the fair value it is probable that future economic benefits associated with off when there is no reasonable expectation of recovery. then all or a portion of the amount of the acquirer’s replacement of assets at acquisition and their estimated useful lives are the item will flow to the Group and the cost of the item can Indicators that there is no reasonable expectation of recovery awards is included in measuring the consideration transferred based on independent valuation reports. be measured reliably. All other repairs and maintenance are include, amongst others, the failure of a debtor to engage in the business combination. This determination is based on charged to the income statement during the financial period in a repayment plan with the Group and a failure to make in which they are incurred. Financial Statements |74 Notes to the Financial Statements 75 contractual payments for an extended period. The Group does not enter into forward contracts to hedge Cash and cash equivalents forecast transactions. Employee Benefits (a) Pensions market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on The Group operates a defined contribution scheme to the the number of awards that meet the related service and non- Cash and cash equivalents in the statement of financial The assets and liabilities of foreign operations, including benefit of its employees. Contributions payable are charged to market performance conditions at the vesting date. For share- position comprise cash at bank and in hand, short-term goodwill and fair value adjustments arising on consolidation, income in the year they are payable. based payment awards with non-vesting conditions, the grant deposits and other short-term liquid investments. are translated to the Group’s presentational currency, Sterling, at foreign exchange rates ruling at the balance sheet date. The (b) Bonus schemes date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences In the cash flow statement, cash and cash equivalents revenues and expenses of foreign operations are translated at The Group recognises a liability and an expense for bonuses between expected and actual outcomes. comprise cash and cash equivalents as defined above, net of an average rate for the year where this rate approximates to the payable to: i) employees based on achievement of a series of bank loans. foreign exchange rates ruling at the dates of the transactions. financial targets; and ii) senior management and executive The fair value of the amount payable to employees in respect directors based on achievement of a series of financial and of share appreciation rights, which are settled in cash, is Credit and liquidity risk management is described Exchange differences arising from this translation of foreign non-financial targets. in note 3. Equity operations are reported as an item of other comprehensive income and accumulated in the translation reserve. Such translation differences would be reclassified to profit and loss (c) Share-based payments From time to time on a discretionary basis, the Board of each reporting date and at settlement date. Any changes 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 Equity comprises the following: in the period in which the operation is disposed of. Directors award high-performing employees bonuses in the in the fair value of the liability are recognised as personnel • Share capital represents the nominal value of Ordinary Leases form of share options. The options are subject to a three- expenses in profit or loss. year vesting period and their fair value is recognised as an Shares Following the implementation of IFRS 16 Leases, from 1 April employee benefits expense with a corresponding increase in (d) Employee Share Ownership Plan • Capital redemption reserve represents the maintenance of 2019, each lease is recognised as a right-of-use asset with a equity over the vesting period. The fair value of share options The Group’s Employee Share Ownership Plan (‘ESOP’) is a capital following the share buy back and tender offer corresponding liability at the date at which the lease asset is granted is recognised within staff costs with a corresponding separately administered trust. The assets of the ESOP comprise • Share premium account represents consideration for available for use by the Group. Interest expense is charged increase in equity. The proceeds received are credited to share shares in the Company and cash. The assets, liabilities, income Ordinary Shares in excess of the nominal value to the consolidated income statement over the lease period capital and share premium when the options are exercised. and costs of the ESOP have been included in the Financial • Merger reserve represents consideration in excess of the so as to produce a constant periodic rate of interest on the Statements in accordance with SIC 12, ‘Consolidation - Special nominal value of shares issued on certain acquisitions remaining balance of the liability. The right-of-use asset is The fair value of share options was measured using the purpose entities’ and IAS 32, ‘Financial Instruments: Disclosure • Currency reserve represents exchange differences arising depreciated over the shorter of the asset’s useful life and the Black Scholes and Monte Carlo valuation models, taking into and Presentation’. The shares in the Company are included at on consolidation of Group companies with a functional lease term on a straight-line basis. account the terms and conditions upon which the grants were cost to the ESOP and deducted from Shareholders’ funds. When currency different to the presentation currency made. The amount recognised as an expense is adjusted to calculating earnings per share these shares are treated as if • Retained earnings represent retained profits less losses and Assets and liabilities arising from a lease are initially measured reflect the actual number of share options that vest except they were cancelled. distributions. on a present value basis. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot where forfeiture is only due to share prices not achieving the threshold of vesting. (e) US share save scheme Foreign currency transactions be determined, the lessee’s incremental borrowing rate is used, The Eckoh plc 2019 US Sharesave Scheme (the “2019 Sharesave Transactions in foreign currencies are translated to the being the rate that the lessee would have to pay to borrow the IFRS 2 has been applied to all options granted after 7 November Scheme”), was approved by Shareholders at the 2019 AGM respective functional currencies of Group entities at the foreign funds necessary to obtain an asset of similar value in a similar 2002 that have not vested on or before 1 April 2006. A deferred and introduced to employees in December 2019. Employees exchange rate ruling at the date of the transaction. Monetary economic environment with similar terms and conditions. tax adjustment is also made relating to the intrinsic value of the are invited to enrol in the 2019 Sharesave Scheme annually assets and liabilities denominated in foreign currencies at share options at the balance sheet date (see separate policy). and are granted an option to purchase up to a number of the balance sheet date are retranslated to the functional Right-of-use assets are measured at cost comprising the Ordinary Shares at the end of the offering period. The number currency at the foreign exchange rate ruling at that date. amount of the initial measurement of the lease liability, any As a result of the grant of share options since 6 April 1999 the is determined by dividing the total payroll deductions credited Foreign exchange differences arising on translation are lease payments made at or before the commencement date Company will be obliged to pay employer’s National Insurance to the employee’s account as of the exercise date by the recognised in the income statement, with the exception of less any lease incentives received, any initial direct costs and contributions on the difference between the market value of option price. The option price is equal to the closing price of exchange differences arising on quasi-equity liabilities which restoration costs. are recognised in other comprehensive income. Non-monetary the underlying shares and their exercise price when the options the Ordinary Shares on the London Stock Exchange on either (i) are exercised. A provision is made for this liability using the the date the offering period begins, or (ii) the date of exercise, assets and liabilities that are measured in terms of historical cost Where leases include an element of variable lease payment value of the Company’s shares at the balance sheet date and whichever results in the lowest price per share. Any shares in a foreign currency are translated using the exchange rate at or the option to extend the lease at the end of the initial term, is spread over the vesting period of the share options. acquired will be held in accordance with the terms of the the date of the transaction. Non-monetary assets and liabilities each lease is reviewed and a decision is made on the likely Scheme. denominated in foreign currencies that are stated at fair value term of the lease. are retranslated to the functional currency at foreign exchange The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, Government Grants rates ruling at the dates the fair value was determined. Payments associated with short-term leases and leases of with a corresponding increase to equity, over the period that The Group received government assistance as a result of low-value assets are recognised on a straight-line basis as an expense in the consolidated income statement, during the year there was a franking machine and the rental of a storage unit. the employees unconditionally become entitled to the awards. the COVID-19 pandemic in the form of contributions towards The amount recognised as an expense is adjusted to reflect employee costs. For Government assistance which meets the number of awards for which the related service and non- the definition of a Government grant, under IAS 20 the Group Financial Statements |76 Notes to the Financial Statements 77 applies the income approach to account for the grants In addition to the initial set-up costs, there are on-going support Deferred tax assets are recognised to the extent that it is The contractual maturities of financial liabilities are set out in received. As such, the grant is recognised in the Income and maintenance and running costs of the service. In the UK, probable that future taxable profit will be available against note 22. Statement as a reduction of the related costs incurred. In the clients have a variety of commercial models including fixed which the temporary differences can be utilised. period ending 31 March 2022, grant income of £12k, (FY21: £311k) fees and transactional arrangements, the revenue, whether it Interest rate risk relating to claims made for Contact Centre Agents, who are is the fixed monthly fee or based on transactions is recognised Deferred tax on temporary differences associated with shares The Group principally finances its operations through employed on Zero-hour contracts, was received. There are no in the month it relates to. In the US business and the Syntec in subsidiaries is not provided if reversal of these temporary Shareholders’ equity and working capital. The Group and unfulfilled conditions or other contingencies attached to this business where the Secure Payments business is contracted differences can be controlled by the Group and it is probable Company has exposure to interest rate fluctuations on the government assistance. on an opex style basis the monthly licence fee charged to the that reversal will not occur in the foreseeable future. loan, its cash and short-term deposits. Irregular restructuring costs If the Group incurs irregular or one-off costs due to the closure (ii) Coral product client is recognised in the month it relates to. Changes in deferred tax assets or liabilities are recognised as The Group has adopted a sensitivity analysis that measures a component of tax expense in the income statement, except changes in the fair value of financial instruments and interest- of an activity, such as third-party Support or following the Revenue arises from the sale of licences, implementation fees where they relate to items that are charged or credited directly bearing loans and any resultant impact on the income acquisition of a business, these costs are disclosed in the and on-going support and maintenance. Under IFRS 15, each to equity in which case the related deferred tax is also charged statement of an increase or decrease of 2% in market interest Income Statement as irregular restructuring costs and excluded component is defined as a performance obligation. Revenue or credited directly to equity. rates. from adjusted earnings before interest, tax, depreciation and is recognised for sales of licences when they are delivered to amortisation (Adjusted EBITDA) and excluded from Adjusted the client; revenue from implementation fees is recognised by Financial liabilities Operating Profit. Revenue recognition estimating a percentage of completion based on the direct labour costs incurred to date as a proportion of the total estimated costs required to complete the implementation; and Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group or Company becomes a party to the contractual provisions of the The Group, including the newly acquired Syntec Holdings revenue for on-going support and maintenance is recognised instrument. Financial liabilities are stated at amortised cost. Limited recognises revenue in accordance with IFRS 15: Revenue each month as the service is provided. from Contracts with Customers (“IFRS 15”). IFRS 15 provides a single, principles-based five-step model to be applied to all (iii) Third party support services sales contracts, based on the transfer of control of goods and Revenue is earnt from providing expert third party support for services to customers. Revenue represents the fair value of the contact centre infrastructure and is recognised on a pro-rated sale of goods and services and after eliminating sales within basis over the period of the contract. the Group and excluding value added tax or overseas sales A financial liability is derecognised only when the obligation is discharged, is cancelled or it expires. 3. Financial risk management 2% decrease in interest rates £’000 2% increase in interest rates £’000 (115) 115 Impact on financial interest in the income statement: (loss)/gain Foreign currency risk 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 taxes. The following summarises the method of recognising (iv) Telephony services The operations of the Group expose it to a variety of financial by taking differences that arise on the retranslation of the revenue for the solutions and products delivered by the Group. Syntec is Ofcom regulated and has a small number of risks: liquidity risk, interest rate risk, foreign currency risk and net overseas investments to the currency reserve. Foreign contracts with clients to provide telecommunication services. credit risk. Policies for managing these risks are set by the currency risk on cash balances is monitored through cash (i) Secure Payment solutions and These revenues are based on transactional volume and are Board following recommendations from the Chief Financial flow forecasting and currency is held in foreign currency hosted services recognised in the month it relates to. Officer. All financial risks are managed centrally. The policy for bank accounts only to the extent that it is required for Due to the unique nature of the Secure Payments solution and clients’ reliance on Eckoh’s and Syntec’s PCI-DSS Level Taxation each of the above risks is described in more detail below. working capital purposes. No sensitivity analysis is provided in respect of foreign currency risk as due to the Group’s working 1 compliance, the delivery and on-going support and Current tax is the tax currently payable based on taxable profit The Group’s financial instruments comprise cash, short-term capital management practices the risk is considered to be maintenance of the Secure Payments solution under IFRS 15 for the year. is one single performance obligation. Therefore, revenue for deposits, finance leases and various items, such as receivables moderate. The risk is further explained in the principal risks and and payables that arise directly from its operations. It is, and uncertainties on pages 20 to 23. implementation fees for our hosted Secure Payments solution Deferred taxation is provided in full, using the liability method, on has been throughout the year under review, the Group’s policy and our hosted Customer Contact services; and revenue temporary differences arising between the tax bases of assets that no trading in financial instruments shall be undertaken. Capital management for hardware and implementation fees for our hosted or and liabilities and their carrying amounts in the Consolidated Similarly, the Group did not undertake any financial hedging The Board’s policy is to maintain a strong capital base with onsite Secure Payments solution are typically received at the Financial Statements. Deferred tax is not provided if it arises arrangements during the year under review. The year-end the joint objectives to maintain investor, creditor and market beginning of the contract and held on the balance sheet as from initial recognition of an asset or liability in a transaction, position reflects these policies and there have been no confidence and to sustain future development of the business. contract liabilities. This revenue is recognised evenly over the other than a business combination, that at the time of the changes in policies or risks since the year-end. period of the contract from the point of delivery of the solution transaction affects neither accounting nor taxable profit or to the client. Costs directly attributable to the delivery of the loss. Deferred tax is calculated at tax rates that are expected to Liquidity risk Capital comprises all components of equity (i.e. share capital, capital redemption reserve, share premium and retained hardware, the implementation fees and the sales commission apply to their respective period of realisation, provided they are Through detailed cash flow forecasting and capital expenditure earnings). The Board manages the capital structure and makes costs are deferred onto the balance sheet and held as contract enacted or substantively enacted at the balance sheet date. planning, the Group monitors working capital and capital adjustments as required in the light of changes in economic assets and released over the contract term from the point of delivery of the solution to the client. expenditure requirements and through the use of rolling conditions. The Board may return capital to Shareholders, issue short-term investments ensures that cash is available to new shares or sell assets in order to maintain capital. meet obligations as they fall due. Cash at bank is pooled and invested in overnight money market accounts and deposits. Credit risk management is described in note 18. Financial Statements | 78 Notes to the Financial Statements 79 Terms and debt repayment schedule Alternative performance measures (APMs) Financial assets Current financial assets Trade receivables (note 18) 2022 £’000 2021 £’000 4,860 4,551 During the year the business repaid its term loan with Barclays The Directors consider that disclosing alternative performance bank. In addition, and as a result of the acquisition of Syntec measures enhances Shareholders’ ability to evaluate and Holdings Limited, the Group entered into new banking analyse the underlying financial performance of the Group. arrangements with Barclays Bank for a £5.0 million Revolving They have identified adjusted operating profit and adjusted Other receivables (note 18) 852 838 Credit Facility (RCF) and a £5.0 million overdraft facility. The EBITDA as measures that enable the assessment of the Accrued income (note 18) 1,501 2,085 RCF is for a term of three years, interest is 2.5% above the Bank performance of the Group and assists in financial, operational of England base rate and there is a non-utilisation fee of 0.88%. and commercial decision-making. In adjusting for this Cash & cash equivalents (note 19) 2,840 12,706 The overdraft is reviewed annually by the bank, has an interest Total financial assets 10,053 20,180 rate of 1.75% above the Bank of England base rate. As at 31 March there was no debt drawn under either facility. measure the Directors have sought to eliminate those items of income and expenditure that do not specifically relate to the underlying operational performance of the Group in a specific year. The table below reconciles operating profit to adjusted operating profit1 and adjusted EBITDA2 identifying those Financial liabilities Current financial liabilities Trade payables (note 20) Other payables (note 20) 2022 £’000 899 508 2021 £’000 2,193 294 The collateral to these loans is the land and buildings carrying reconciling items of income and expense. value of £3 million. Earnings per share The Group presents basic and diluted earnings per share (“EPS”) data for its Ordinary Shares. Basic EPS is calculated by Year ended 31 March 2022 £’000 Year ended 31 March 2021 £’000 Accrued liabilities (note 20) 4,416 3,470 dividing the profit or loss attributable to Ordinary Shareholders Operating profit 2,386 3,550 Lease liabilities (note 14) 1,537 1,342 of the Company by the weighted average number of Ordinary Shares outstanding during the reporting period. Diluted EPS Total financial liabilities 7,360 7,600 is determined by adjusting the weighted average number of Other interest-bearing loans and borrowings Information about the contractual terms of the Group’s The Group presents adjusted basic and diluted earnings per interest-bearing loans and borrowings, which are measured share (“Adjusted EPS”) data for its Ordinary Shares. Adjusted Ordinary Shares outstanding for the effects of all potential dilutive Ordinary Shares. Amortisation of acquired intangible assets Expenses relating to share option schemes Restructuring costs Costs relating to business combi- nations 751 241 866 985 663 536 - - at amortised cost are disclosed below. For more information EPS is defined as profit before tax, expenses relating to share Adjusted operating profit1 5,229 4,749 about the Group’s exposure to interest rate and foreign option schemes, amortisation of acquired intangible assets, currency risk, see above. restructuring costs and costs relating to business combinations Non-current financial liabilities Secured bank loans Current financial liabilities Current portion of secured bank loans 2022 £’000 – - 2021 £’000 – 975 with tax applied at the standard corporation tax rate. Dividends Final dividends are recorded in the Group’s Financial Statements in the period in which they are approved by the Shareholders. Interim and Special dividends are recorded in the financial statements in the period in which they are approved and paid. Determination and presentation of operating segments The Eckoh Group determines and presents operating segments based on the information that internally is provided to the Executive Management team, considered to be the Chief Operating Decision Maker. An operating segment is a component of the Eckoh Group that engages in business activities from which it may earn revenues and incur expenses. During the current year the operating segments will be reviewed as the integration of the Syntec acquisition progresses. Amortisation of other intangible assets Depreciation of owned assets Depreciation of leased assets 392 680 495 398 704 505 Adjusted EBITDA2 6,796 6,356 1. Adjusted operating profit is the profit from operating activities adjusted for expenses relating to share option schemes, amortisation of acquired intangible assets, restructuring costs and costs relating to business combinations. 2. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) is the profit from operating activities adjusted for depreciation, amortisation, expenses relating to share option schemes, restructuring costs and costs relating to business combinations. Financial Statements | 80 Notes to the Financial Statements 81 4. Segment analysis In 2021/22 there was no one customer that individually accounted for more than 10% of the total revenue of the continuing operations of the Group. In 2020/21 there was one customer that individually accounted for more than 10% of the total revenue of the continuing Following the acquisition of Syntec Holdings Limited on 22nd December 2021, the key segments reviewed at Board level are the UK operations of the Group. (including Eckoh Omni), US operations and Syntec. This will be reviewed over the current year as Eckoh progress with the integration of Syntec. Information regarding the results of each operating segment is included below. Performance is measured on operating segments based on the information that internally is provided to the Executive Management team, considered to be the Chief Operating Decision Maker. Current period segment analysis Segment Revenue Gross profit Administrative expenses Operating profit Adjusted operating profit Other expenses2 Operating profit Profit before taxation Segment assets Trade and other receivables Prepayments and contract assets Deferred tax asset Segment liabilities Trade and other payables Accruals and contract liabilities Capital expenditure Purchase of tangible assets Purchase of leases Purchase of intangible assets Depreciation and amortisation Depreciation of property, plant & equipment Depreciation of leased assets Amortisation Eckoh UK £’000 Eckoh US £’000 Syntec1 £’000 Total 2022 £’000 Total 2021 £’000 18,596 15,593 11,487 8,473 1,697 1,357 31,780 25,423 30,486 24,195 (14,399) (7,300) (1,338) (23,037) (20,645) 1,194 3,194 (2,000) 1,194 1,156 2,904 2,798 1,103 1,364 6,216 187 - 375 525 353 1,143 1,173 1,728 (555) 1,173 1,149 2,059 954 513 607 4,191 120 686 - 130 108 - 19 307 2,386 5,229 (289) (2,844) 19 13 2,386 2,318 749 2,819 173 367 5,543 1 - - 25 34 - 5,712 6,571 1,789 2,336 15,950 308 686 375 680 495 1,143 3,550 4,749 (1,199) 3,550 3,511 5,389 7,888 3,211 3,364 15,118 1,066 1,546 573 704 505 1,061 Revenue by geography UK United States of America Rest of the World Total Revenue Timing of revenue recognition Services transferred at a point in time Services transferred over time Eckoh UK £’000 Eckoh US £’000 Syntec £’000 18,117 339 140 - 11,314 173 739 776 182 2022 £’000 18,856 12,429 495 2021 £’000 17,804 12,321 361 18,596 11,487 1,697 31,780 30,486 Eckoh UK £’000 Eckoh US £’000 Syntec £’000 Total 2022 £’000 Total 2021 £’000 15,193 3,403 18,596 8,076 3,411 11,487 1,472 225 1,697 24,741 7,039 31,780 23,240 7,246 30,486 The following table provides information about receivables, contract assets and contract liabilities from contracts with customers. Receivables, which are included in, ‘Trade and other receivables’ Contract assets which are included in ‘Trade and other receivables’ Contract liabilities which are included in ‘Trade and other payables’ 2022 £’000 4,860 3,828 2021 £’000 4,551 4,359 (9,470) (11,347) (782) (2,437) Payment terms and conditions in client contracts may vary. In Contract liabilities result from client payments in advance of some cases, clients pay in advance of the delivery of solutions the satisfaction of the associated performance obligations and or services; in other cases, payment is due as services are relates primarily to revenue for hardware and implementation performed or in arrears following the delivery of the solutions fees. Contract liabilities are released as revenue is recognised. or services. Differences in timing between revenue recognition and invoicing result in trade receivables, contract assets, or Contract assets and contract liabilities are reported on a contract liabilities in the statement of financial position. contract-by-contract basis at the end of each reporting period. Contract assets result when costs directly attributable to the Significant changes in the contract assets and contract delivery of the hardware and the implementation fees are liabilities balances during the year are as follows: capitalised as contract assets and released over the contract term, thereby also deferring costs to later periods and revenue earnt not yet invoiced. 1. Since date of acquisition of Syntec Holdings Limited on 22nd December 2021. 2. Other expenses comprise expenses relating to share option schemes, amortisation of acquired intangible assets, exceptional restructuring costs and costs from business combinations. 31 March 2022 Revenue recognised that was included in the contract liability balance at the beginning of the period Current year billings recognised in contract liabilities Cost of sales recognised that was included in the contract assets balance at the beginning of the period Costs deferred in current year and unbilled revenue included in contract assets Contract assets £’000 Contract liabilities £’000 - - 2,640 1,538 6,938 4,108 - - Financial Statements |82 Notes to the Financial Statements 83 Contract costs Deferred implementation costs Deferred hardware costs 31 March 2022 £’000 31 March 2021 £’000 1,028 510 1,538 1,698 316 2,014 Revenue by geography UK United States of America Rest of the World Total Revenue Eckoh UK £’000 Eckoh US £’000 Total 2021 £’000 17,804 - 233 - 12,321 128 17,804 12,321 361 18,037 12,449 30,486 Contract costs are capitalised as ‘costs to fulfil a contract’ and are amortised when the related revenues are recognised, which are spread evenly over the length of the contract, typically 3 years. Transaction price allocated to the remaining performance obligations The total amount of revenue held in contract liabilities and allocated to unsatisfied performance obligations is £9.5m (FY21: £11.3m). We expect to recognise approximately £3.9m (FY21: £5.4m) in the next 12 months, £5.5m (FY21: £5.9m) in 1-3 years and the remainder in 3 years or more in time. 5. Profit from operating activities The Group’s profit from operating activities is arrived at after charging: Employee benefits expense (note 6) Restructuring costs (note 8) The amount represents our best estimate of contractually committed revenues that are due to be recognised as we satisfy the Costs relating to acquisition (note 27) contractual performance obligations in these contracts. A large proportion of the Group’s revenue is transactional in nature or is invoiced monthly for support and maintenance and these are not included in the contract liabilities. Eckoh UK £’000 Eckoh US £’000 Total 2021 £’000 18,037 15,299 (13,022) 2,277 3,069 (792) 2,277 2,285 12,449 8,896 (7,623) 1,273 1,680 (407) 1,273 1,226 30,486 24,195 (20,645) 3,550 4,749 (1,199) 3,550 3,511 2,648 2,699 1,903 512 4,551 3,211 Amortisation of intangible assets (note 12) Depreciation of property, plant and equipment (note 13) Depreciation of leased assets (note 14) Inventory recognised as an expense (note 17) 6. Employee benefits expense Government grants receivable towards employee costs Wages and salaries Less: Internal development costs capitalised in the year Amortisation of internal development costs Social security costs Other pension costs Share based payments 2022 £’000 2021 £’000 14,149 14,104 866 985 1,143 680 495 11 2022 £’000 (12) 12,618 (343) 352 1,097 183 254 - - 1,061 704 505 32 2021 £’000 (311) 12,502 (379) 327 1,235 194 536 14,149 14,104 2,565 798 3,364 The Remuneration Report on page 46 provides further details on the Directors’ emoluments. The monthly average number of people (including Executive Directors) employed by the Group during the year was: 698 1,138 573 542 408 665 368 408 - 162 97 396 1,066 1,546 573 704 505 1,061 Technical support Customer services Administration and management 2022 Number 2021 Number 97 45 49 191 97 38 59 194 1. Other expenses include expenses relating to share option schemes and amortisation of acquired intangible assets. in the year. Excluded from the table above are 25 (2021: 23) full time equivalent casual call centre employees who cost £238,361 (2021: £305,398) Prior period segment analysis Segment revenue Gross profit Administrative expenses Operating profit Adjusted operating profit Other expenses1 Operating profit Profit before taxation Segment assets Trade and other receivables Deferred tax asset Segment liabilities Trade and other payables Capital expenditure Purchase of tangible assets Purchase of leases Purchase of intangible assets Depreciation and amortisation Depreciation of property, plant & equipment Depreciation of leased assets Amortisation Financial Statements |84 Notes to the Financial Statements 85 7. Auditors’ remuneration During the year the Group obtained the following services from the Group’s auditors at costs as detailed below: Fees payable for the audit of the Company and Consolidated Financial Statements Fees payable for other services: Fees payable for the audit of the financial statements of subsidiary undertakings Total fees payable to the Group’s auditors 2022 £’000 72 129 201 2021 £’000 39 85 124 8. Exceptional restructuring costs The exceptional restructuring costs are presented separately as irregular costs unlikely to reoccur in the near future. The exceptional restructuring costs of £866k have been incurred in Syntec Holdings Limited, £289k, Eckoh US £531k and Eckoh UK £46k. The Syntec costs of £289k relate to redundancy costs and contract termination costs post acquisition. The Eckoh US costs of £577k relate to redundancy costs for employees associated with the planned exit from the third-party Support activity. 9. Finance income and finance charges Interest receivable Bank interest receivable Total Finance expense Bank interest payable Lease interest payable Total 2022 £’000 2021 £’000 6 6 48 48 2022 £’000 2021 £’000 (23) (51) (74) (54) (33) (87) 10. 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 Adjustments in respect of prior periods Foreign exchange translation Effect of tax rate change Total tax charge 2022 £’000 2021 £’000 13 (3) 10 1,198 (54) 4 (415) 733 743 1 2 3 697 3 21 (7) 714 717 A charge of £592k (2021: credit of £114k) for deferred taxation in relation to share options was recognised directly in equity. The tax charge for the year is different (2021: different) to the standard rate of corporation tax in the UK of 19% (2021: 19%). The differences are explained below: Continuing operations Profit before taxation Profit multiplied by rate of corporation tax in the UK of 19% (2021: 19%) Additional foreign tax suffered Effect of expenses not deductible for tax purposes Non-taxable income Adjustments in respect of prior periods (current and deferred) Movement on deferred tax not recognised Deferred tax impact of UK rate change Impact of change in tax rate on opening deferred tax Opening deferred tax rate change impact of share options Impact of difference between current and deferred tax rates Deferred tax impact of rate change on intangible assets Deferred tax impact of share options Tax charge for the year 2022 £’000 2,318 440 11 181 (9) (57) (25) - (119) (296) 102 - 515 743 2021 £’000 3,511 667 1 10 (20) 5 16 45 - - (7) - 717 The 2021 Finance Bill was substantively enacted on 24 May 2021. The main rate of UK corporation tax will increase from 19% to 25% with effect from April 2023. The Group’s UK deferred tax assets and liabilities have therefore been remeasured at 25%, except to the extent that they are expected to be realised prior to 1 April 2023. Financial Statements |86 Notes to the Financial Statements 87 Recognition of deferred tax assets and liabilities Reconciliation of earnings for the purposes of adjusted basic and diluted earnings per share. Short term timing differences Tax losses Property, plant and equipment Intangible assets Tax losses carried forward Assets Liabilities Net 2022 £’000 145 1,421 223 - 1,789 2021 £’000 954 2,006 251 - 2022 £’000 - - (224) (2,759) 2021 £’000 (100) - (182) (14) 2022 £’000 145 1,421 (1) (2,759) 2021 £’000 854 2,006 69 (14) 3,211 (2,983) (296) (1,194) 2,915 Earnings for the purposes of basic and diluted earnings per share Taxation Amortisation of acquired intangible assets Expenses relating to share option schemes Exceptional restructuring costs Costs relating to acquisition Adjusted profit before tax Included in the deferred tax liability is £nil (FY21: £133k) which relates to the Company and comes from acquired deferred tax liabilities. Tax charge based on standard corporation tax rate of 19% (2021: 19%) Earnings for the purposes of adjusted basic and diluted earnings per share 2022 £’000 1,575 743 751 241 866 985 5,161 (980) 4,181 2022 £’000 265,968 (2,028) - 2021 £’000 2,794 717 663 536 - - 4,710 (895) 3,815 2021 £’000 255,351 (1,862) - Denominator Weighted average number of shares in issue in the period Shares held by employee ownership plan Shares held in Employee Benefit Trust Number of shares used in calculating basic earnings per share 263,940 253,489 Dilutive effect of share options Dilutive effect of shares for acquisition Dec 21 Dilutive effect of placing Dec 21 Number of shares used in calculating diluted earnings per share Profit per share Basic earnings per 0.25p share Diluted earnings per 0.25p share Adjusted earnings per 0.25p share Adjusted diluted earnings per 0.25p share 20,558 7,889 18,494 310,881 9,426 - - 262,915 2022 pence 2021 pence 0.59 0.51 1.57 1.34 1.09 1.06 1.49 1.45 Movement in deferred tax balances during the year Balance at 1 April Arising through a business combination Recognised in income statement Recognised in equity Other – Forex Balance at 31 March Unrecognised deferred tax assets 2022 £’000 2,915 (2,797) (733) (592) 11 2021 £’000 3,515 - (714) 114 (1,196) 2,915 There are unprovided deferred taxation assets totalling £9,538k (2021: £6,058k). These have arisen in respect of trading losses of £2,323k (2021: £575k) and in respect of capital losses of £7,215k (2021: £5,483k). The historic trading losses have not been recognised as they are held in Eckoh plc and Syntec Holdings Limited, both of which are non-trading Companies. Therefore, due to the uncertainty of future taxable profits being available in these statutory entities to utilise these losses they have not been recognised. The capital losses have not been recognised due to restrictions over their utilisation. There is no expiry date on the trading losses or the capital losses carried forward. 11. Earnings per share The basic and diluted earnings per share are calculated on the following profit and number of shares. Earnings for the calculation of earnings per share is the net profit attributable to equity holders of the Company. Earnings for the purposes of basic and diluted earnings per share Earnings for the purposes of adjusted basic and diluted earnings per share 2022 £’000 1,575 4,181 2021 £’000 2,794 3,815 Financial Statements |88 Notes to the Financial Statements 89 12. Intangible assets Goodwill acquired through business combinations have been allocated to the following CGUs: • Eckoh – UK • Eckoh – US • Syntec These represent the lowest level within the Group at which Goodwill is monitored for internal management purposes. Goodwill 31 March 2022 £’000 Goodwill 31 March 2021 £’000 31 March 2022 Market growth rate % 31 March 2022 Discount rate % 31 March 2021 Market growth rate % 31 March 2021 Discount rate % Eckoh – UK Eckoh – US Syntec Total 2,373 2,627 21,442 26,442 2,373 2,510 - 4,883 10% 20% 15% 13.9% 13.9% 12.0% 10% 20% - 13.9% 13.9% - No impairment has been recorded in the current year for Eckoh Sensitivity to the changes in assumptions UK, Eckoh US or Syntec. The main assumptions which related If forecast revenues fell by 70%, no impairment in the carrying to sales volume, selling prices and cost changes, are based values of Eckoh UK and Eckoh US would be required, and if on recent history and expectations of future changes in the forecast revenues for Syntec fell by 35%, no impairment in the market. The discount rate applied to the cash flow forecasts carrying values of Syntec would be required. In addition, if there is based on a market participant’s pre – tax weighted average was no further growth in either Eckoh UK, Eckoh US or Syntec, cost of capital adjusted for the specific risks in the CGUs. Growth no impairment in the carrying value of Eckoh UK, Eckoh US or rate used to extrapolate beyond the plan year and terminal Syntec would be required. values are based upon minimum expected growth rates of the individual businesses. Group Cost At 1 April 2020 Additions Transfer of assets Foreign exchange Disposals At 31 March 2021 Additions Additions from business combinations Foreign exchange Disposals At 31 March 2022 Accumulated amortisation At 1 April 2020 Charge for the year Transfer of assets Foreign exchange At 31 March 2021 Charge for the year Foreign exchange At 31 March 2022 Carrying amount At 31 March 2022 At 31 March 2021 Goodwill £’000 Computer software £’000 Customer relationships £’000 Intellectual property £’000 Trade name £’000 Total £’000 5,166 - - (283) - 4,883 - 21,422 117 - 4,147 525 (372) (7) - 4,293 364 - 3 - 3,775 7,287 400 20,775 - - (277) - 48 372 (42) (2) 3,498 7,663 - 12,367 115 - 11 - 17 (3) - - (29) - 371 - - 12 - 573 - (638) (2) 20,708 375 33,789 264 (3) 26,422 4,660 15,980 7,688 383 55,133 - - - - - - - - 26,422 4,883 2,739 362 (273) (7) 2,821 357 3 3,181 1,479 1,472 3,241 498 - (267) 3,472 727 113 7,122 163 273 (40) 7,518 59 17 360 38 - (28) 370 - 12 13,462 1,061 - (342) 14,181 1,143 145 4,312 7,594 382 15,469 11,668 26 94 145 1 1 39,664 6,527 The Company has no intangible assets. (2021: nil). On an annual basis an impairment review of goodwill is undertaken to determine a value in use calculation for each Within the intangible category of computer software in the cash generating unit (CGU) using cashflow projections. above table is internally developed computer software, as at 31 Management have identified the CGUs as Eckoh UK, Eckoh US March 2022 this had a net book value of £1,441k (2021: £1,466k). and Syntec in the current year and in the prior year Eckoh UK Amortisation of acquired intangible assets included in the charge forecast for the next five years for each of the CGUs, which are for the year in the above table was £751k (2021: £663k). This is based on the latest three-year plan approved by the Board. made up of Customer Relationships, Intellectual Property and Management is satisfied that the carrying value of Goodwill Trade name, with the exception of £34k of Intellectual Property and Other Intangible Assets are supported based on the (2021: £36k) which relates to amortisation on self-generated expected performance of the CGUs. and Eckoh US. Management have performed a profitability assets in Eckoh UK Limited. Within Intellectual Property is an intangible asset acquired when Eckoh Omni Limited (previously known as Klick2Contact (EU) Limited) was purchased. Financial Statements |90 Notes to the Financial Statements 91 13. Property, plant and equipment 14. Leases Cost At 1 April 2020 Additions Foreign exchange Disposals At 31 March 2021 Additions Additions from business combinations Foreign exchange Disposals At 31 March 2022 Accumulated depreciation At 1 April 2020 Charge for the year Foreign exchange Disposals At 31 March 2021 Charge for the year Foreign exchange Disposals At 31 March 2022 Carrying amount At 31 March 2022 At 31 March 2021 Leasehold improvements £’000 Land and buildings £’000 Fixtures and equipment £’000 32 - (3) - 29 - - - - 3,068 109 - - 3,177 - - 30 - 29 3,207 32 - (3) - 29 - - - 29 - - 225 43 - - 268 43 30 - 341 2,866 2,909 7,695 1,066 (126) (181) 8,454 308 235 45 (350) 8,692 6,687 661 (114) (178) 7,056 637 26 (350) 7,369 1,323 1,398 Total £’000 10,795 1,175 (129) (181) 11,660 308 235 75 (350) 11,928 6,944 704 (117) (178) 7,353 680 56 (350) 7,739 4,189 4,307 The land and buildings are held by the Company, the gross book value as at 31 March 2022 was £3,207k (2021: £3,177k). The net book value at 31 March 2021 was £2,866k (2021: £2,909k). This is the only property, plant and equipment held by the Company. The Group enters into leases of buildings in relation to offices in the US. In addition, in the UK the Group leases equipment either in the datacentres or in the offices. Right-of-use assets Cost At 1 April 2020 Additions Foreign exchange Disposals At 31 March 2021 Additions Additions from business combinations Foreign exchange Disposals At 31 March 2022 Accumulated depreciation At 1 April 2020 Charge for the year Foreign exchange Disposals At 31 March 2021 Charge for the year Foreign exchange Disposals At 31 March 2022 Carrying amount At 31 March 2022 At 31 March 2021 Buildings £’000 Equipment £’000 Total £’000 220 407 (22) - 605 - 686 28 - 549 1,139 - (518) 1,170 - - - - 769 1,546 (22) (518) 1,775 - 686 28 - 1,319 1,170 2,489 98 96 (14) - 180 134 13 - 327 992 425 394 409 - (518) 285 361 - - 646 524 885 492 505 (14) (518) 465 495 13 - 973 1,516 1,310 In some cases, the contracts entered into by the Group include extension options which provide the Group with additional operational flexibility. If the Group considers it reasonably certain that an extension option will be exercised the additional period is included in the lease term. Financial Statements |92 Notes to the Financial Statements 93 Lease liabilities Current Non-current Lease interest and expenses Interest expense (included in finance costs) Expenses relating to short-term leases (included in cost of goods sold and administrative expenses) 2022 £’000 609 928 1,537 2022 £’000 (51) (17) 2021 £’000 517 825 1,342 2021 £’000 (33) (8) The total cash outflow for leases in 2022 was £551k (2021: £494k), made up of principle lease payments of £500k (2021: £461k) and lease interest payments of £51k (2021: £33k). The Company does not hold any leased assets. (2021: £nil). 15. Investments in Group companies At 1 April 2020 Additions At 31 March 2021 Additions At 31 March 2022 Accumulated Impairment At 1 April 2020, 31 March 2021 Movement in the year At 31 March 2022 Net Book Value At 31 March 2022 At 31 March 2021 Shares in subsidiary undertakings £’000 Other investments £’000 21,232 - 21,232 30,997 52,229 (6,989) - (6,989) 45,240 14,243 5,607 303 5,910 479 6,389 - - - 6,389 5,910 Total £’000 26,839 303 27,142 31,476 58,618 (6,989) - (6,989) 51,629 20,153 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. 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 23 of the Consolidated Financial Statements. 16. Investment in subsidiary undertakings The Company has the following investments in subsidiaries, which are included in the Consolidated Financial Statements: Subsidiary undertakings Country of incorporation Principal activities Percentage of share capital held Eckoh UK Limited Veritape Limited England and Wales (ii) Secure Payment & Customer Engagement Solutions England and Wales (ii) Non trading Eckoh Inc United States of America (iii) Secure Payment Solutions & Support Solutions 100% 100% 100% Eckoh France SAS France (iv) Eckoh Enterprises Limited England and Wales (ii) Eckoh Projects Limited England and Wales (ii) Avorta Limited England and Wales (ii) Eckoh Technologies Limited England and Wales (ii) Intelliplus Group Limited England and Wales (ii) Intelliplus Limited England and Wales (ii) Medius Networks Limited England and Wales (ii) Telford Projects Limited England and Wales (ii) Swwwoosh Limited England and Wales (ii) Non trading 100%(i) Dormant 67% & 33%(i) Non trading Dormant Dormant Dormant Non-Trading Non-Trading Dormant Dormant 100% 100%(i) 100%(i) 100% 100%(i) 100%(i) 100% 100%(i) 100% 100% 100% 100% 100% (i) 100% (i) 100% (i) 100% (i) 100% (i) 100% (i) Eckoh Omni Ltd England and Wales (ii) Cloud-based Software Provider Syntec Holdings Limited (v) England and Wales (ii) Syntec Limited (v) England and Wales (ii) Syntec Investment Limited (v) England and Wales (ii) CardEasy North America Inc United States of America (vi) Agentcall Limited CardEasy Limited England and Wales (ii) England and Wales (ii) Response Track Limited England and Wales (ii) Syntec Telecom Limited England and Wales (ii) Synpbx Limited England and Wales (ii) Non-Trading Trading Non-Trading Dormant Dormant Dormant Dormant Dormant Dormant (i) Share capital held by a subsidiary undertaking. (iv) The registered office is Rue De La Vieille Poste Parc, Industriel et Technologique de la (ii) The registered office is Telford House, Corner Hall, Hemel Hempstead, HP3 9HN. Pompignane, 34000 Montpellier. (iii) The registered office is 7172 Regional Street. #431, Dublin, California 94568. (v) Acquired as part of acquisition of Syntec Holdings Limited (vi) The registered office is 12 Timber Creek Lane, Newark, New Castle 19711. All companies hold ordinary class shares and have March year-ends, with the exception of Veritape, which has a September year end. Information in relation to geographical operations is set out in note 4. The subsidiary undertaking Eckoh Omni Limited (registered number: 07553916) is exempt from the Companies Act 2006 requirements relating to the audit of their individual accounts by virtue of Section 479A of the Act as this company has guaranteed the subsidiary company under Section 479C of the Act. Financial Statements |94 Notes to the Financial Statements 95 17. Inventories Finished goods Group 2022 £’000 268 268 2021 £’000 174 174 The Directors consider that the carrying value of the trade and Group’s trade and other receivables. Concentrations of credit other receivables approximate to their fair value. risk with respect to trade receivables are limited due to working Credit risk is the risk of financial loss to the Group if a customer nature of the Group’s customer base. The reputable nature of or counterparty to a financial instrument fails to meet its the Group’s current customer base limits exposure to credit risk. contractual obligations. Credit risk arises principally from the capital practices of the market sector and the Group and the The cost of inventory recognised as an expense during the year was £11k (2021: £32k). The Company does not hold any inventory 19. Cash and cash equivalents Group Company (2021: £nil). 18. Trade and other receivables Group Company Current assets Trade receivables Less: Loss allowance Net trade receivables Amount receivable from subsidiary undertakings Other receivables Prepayments and contract assets Long-term debtor Amount receivable from subsidiary undertakings 2022 £’000 5,056 (196) 4,860 - 852 6,571 12,283 - - 2021 £’000 4,640 (89) 4,551 - 838 7,888 13,277 2022 £’000 2021 £’000 - - - - - 93 93 - - - 618 - 25 643 - - 4,034 4,034 3,506 3,506 Trade receivables are stated after loss allowance of £196k (2021: £89k). Included in prepayments and contract assets is £1,501k (2021: £2,085k) relating to accrued income. Amounts receivable from subsidiary undertakings are unsecured, due in 9 years and have an interest rate of 1.35%. No expected credit loss has been calculated for the amount receivable from subsidiary undertakings as the directors expect the full amount to be recoverable. Gross trade receivables - ageing Current 1-30 days 31-60 days 61-90 days Over 90 days Group Gross carrying amount - trade receivables Group Expected loss rate 2022 £’000 3,703 1,082 75 13 183 2021 £’000 3,803 626 83 17 111 5,056 4,640 2022 % 0.3% 1.0% 13.9% 78.3% 84.2% 3.9% 2021 % 0.0% 0.0% 0.0% 0.0% 80.3% 1.9% Sterling Euro US dollars Floating rate Euro US dollars 2022 £’000 2,266 6 568 2021 £’000 10,897 24 1,785 2022 £’000 1,898 - 485 2021 £’000 4,370 - 685 2,840 12,706 2,383 5,055 Group Company 2022 £’000 2,266 6 568 2021 £’000 10,897 24 1,785 2022 £’000 1,898 - 485 2021 £’000 4,370 - 685 2,840 12,706 2,383 5,055 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 0.02% (2021: 0.04%). The Group’s financial risk management is disclosed in note 3. 20. Trade and other payables Trade payables Other payables Other taxation and social security Amounts payable to subsidiary undertakings Accruals and contract liabilities Group Company 2022 £’000 899 508 929 - 15,950 18,286 2021 £’000 2,193 294 877 - 15,118 18,482 2022 £’000 2021 £’000 - - - - - - 26,832 16,366 64 22 26,896 16,388 Financial Statements |96 Notes to the Financial Statements 97 As set out in note 4, £5.5 million (FY21: £5.9 million) of the contract liabilities are due in more than one year. Loans and borrowings March 2020 on the loan of £1,950,000 was repaid evenly over the In July 2016, the Group secured a bank loan with a carrying amount remaining life of the loan and the final two quarterly repayments of Included in accruals and contract liabilities is £4,416k (2021: £3,470k) relating to accrued income. of £6.5 million to assist with the acquisition of Klick2Contact EU Ltd £487,500 were made in April 2021 and July 2021. and to repay the existing bank loan that had a balance of £3.75 All of the amounts above are payable within one year and trade payables that are more than three months’ old at the year-end million at 31 March 2016 due over one year. In conjunction with the acquisition of Syntec Holdings Limited, Eckoh represent £99,000 (2021: £180,000). The loan of £6.5 million was repayable over a period of five years. comprises a £5.0 million overdraft and a £5.0 million Revolving secured a new £10 million debt facility with Barclays Bank, which Amounts payable to subsidiary undertakings are unsecured, payable on demand and interest free. Twenty quarterly repayments of £325,000 commenced in July 2016. Credit Facility (RCF). The RCF is for a term of three years, interest The Group’s exposure to liquidity risk is disclosed in note 3. 21. Called up share capital and share premium account Allotted called up and fully paid Share type Ordinary Shares of 0.25p each At 1 April 2021 Shares issued under the share option schemes Shares issued as part of placing Shares issued as part of business combination At 31 March 2022 Number of shares Nominal value £’000 Share Premium £’000 255,351,256 1,315,365 25,377,600 10,825,040 292,869,261 638 3 64 27 732 2,663 226 13,018 6,273 22,180 A fixed interest was payable at a rate of 1.25% per annum plus a is 2.5% above the Bank of England base rate and there is a non- variable base rate. In March 2020 and as a result of the COVID-19 utilisation fee of 0.88%. The overdraft is reviewed annually by the pandemic, the Board of Directors took advantage of the ability to bank and has an interest rate of 1.75% above the Bank of England defer the repayment of capital under the loan as a precautionary base rate. measure. The Bank approved a delay to the April 2020 and July 2020 quarterly repayment of £325,000. The remaining balance in As at 31 March 2022, there was no debt drawn under either facility. 23. Share based payments The Eckoh plc Share Option Scheme (‘the Scheme’) was introduced the employee must remain employed with the company and hold in November 1999 and re-approved by the Board in the year ended the shares within the Trust for a minimum of five years. 31 March 2018. Under the Scheme the Board can grant options over shares in the Company to Group employees. The grant price of The Eckoh plc Performance Share Plan (“the PSP”) was introduced share options is the middle market quotation price as derived from in November 2017, following approval by Shareholders at the 2018 the Daily Official List of the London Stock Exchange on the date of the AGM. Initial Awards, at Nominal cost were granted to each of the grant. The contractual life of an option is ten years. Options granted Executive Directors in November 2017. Each of the PSP Initial awards under the Scheme become exercisable subject to the share price is subject to a Total Shareholder Return performance condition, exceeding RPI plus 15% after the third anniversary of the grant date. measured over a five-year performance period. Further details Exercise of an option is subject to continued employment, with are included in the Remuneration Committee report on page 46. All Ordinary Shares in issue are fully paid. The holders of the price on 14 December 2021 of 61.5 pence and a premium of 6.4 certain exceptions, as specified in the Scheme rules. During the financial year awards have been granted to senior Ordinary Shares are entitled to receive dividends, if declared, per cent to Eckoh’s 60 day weighted average share price to 14 management, key employees and the Executive Directors. The PSP and are entitled to vote at general meetings of the Company. December 2021. The net proceeds of the Placing were used to The Eckoh plc Enterprise Management Incentive Scheme (‘the EMI awards granted to Management are subject to a Total Shareholder Potential Ordinary Shares are disclosed in note 23. part fund the Cash Consideration portion of the acquisition. In Scheme’) was introduced in February 2007. Under the Scheme the Return performance condition, measured over a three-year As a result of the acquisition of 100% of the Share Capital of in new Eckoh shares, the share price used to calculate the employees. The grant price of share options is the middle market Directors and two Directors from the acquisition of Syntec are Syntec Holdings limited on 22nd December 2021, shares were number of shares was £0.582. Costs relating to the issue of quotation price as derived from the Daily Official List of the London subject to both a Total Shareholder Return and Adjusted Earnings issued as part of a Placing. The Placing price of 54 pence shares of £622k have been deducted from the proceeds and Stock Exchange on the date of the grant. The contractual life of an per Share performance condition, measured over a three-year represented a 12.2 per cent discount to Eckoh’s closing mid- included in the share premium account. option is ten years. Options granted under the EMI Scheme become performance period. addition to the cash consideration, £6.3 million was payable Board can grant options over shares in the Company to Group performance period, the PSP awards granted to the Executive 21. Other interest-bearing loans and borrowings At 1 April 2021 Repaid during the year At 31 March 2022 Bank Loans £’000 (975) 975 - exercisable subject to the percentage growth in earnings per share in the three years following the year of grant being at least The Eckoh plc 2019 US Sharesave Scheme (the “2019 Sharesave 5% (compounded) per annum. Exercise of an option is subject to Scheme”), was approved by Shareholders at the 2019 AGM and continued employment, subject to certain exceptions as specified introduced to employees in December 2019. Employees who enrol in the EMI Scheme rules. As at 31 March 2022, there were no share in the 2019 Sharesave Scheme are granted an option to purchase options unvested or unexercised. up to a number of Ordinary Shares. The number is determined by The Eckoh plc Share Incentive Plan (“the Plan”) was introduced in account as of the exercise date by the option price. The option September 2016. The Plan provides employees with the opportunity price is equal to the closing price of the Ordinary Shares on the to acquire shares in Eckoh plc. Shares are purchased on behalf London Stock Exchange on either the (i) the date the offering period of the employee from amounts sacrificed from their salary on a begins, or (ii) the date of exercise, whichever results in the lowest monthly basis and matched on a two for one basis by the company. price per share. Any shares acquired will be held in accordance dividing the total payroll deductions credited to the employee’s Any shares acquired will be held in a trust in accordance with the with the terms of the Scheme. terms of the Plan. In order to maximise the tax benefits available, Financial Statements |98 Notes to the Financial Statements 99 The fair value of share options granted under the Scheme and the PSP were measured using the QCA-IRS option valuer based on A reconciliation of option movements over the year to 31 March 2022 is shown below: the Black-Scholes and Monte-Carlo valuation models, 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: 23 Mar 2016 2 May 2016 13 Oct 2016 31 Mar 2017 21 Jun 2017 23 Nov 2017 23 Jul 2018 24 Jun 2021 10 Jan 2022 10 Mar 2022 Share price (pence) Exercise price (pence) No. of employees 43.50 43.50 10 43.50 38.875 43.50 38.88 1 1 39.50 39.50 9 47.50 47.50 1 51.25 37.81 63.50 50.00 43.00 - 2 - 13 - 53 - 2 - 94 Shares under option 1,350,000 500,000 400,000 2,000,000 500,000 6,000,000 635,000 2,415,000 1,940,428 7,850,000 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) 3 32% 10 3 0.78% 0.89% 3 31% 10 3 3 33% 10 3 3 35% 10 3 3 35% 10 3 4.33 35% 4.33 4.33 3 47% 3 3 3 30% 3 3 3 30% 3 3 3 30% 3 3 0.24% 0.56% 0.56% 0.56% 0.56% 0.56% 0.18% 0.91% 1.36% 1.03% 1.16% 1.14% 1.22% 1.14% 1.53% 0.00% 0.00% 0.00% 12.00 8.50 8.19 11.0 10.6 17.00 16.00 23.90 18.4 + 49.76 20.481 1. Included in the Share Options granted on 10 March 2022 are 1,000,000 awards made to Directors, which have a fair value of 17.69 pence (50% TSR) and 42.76 pence (50% adjusted eps) 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. The fair value of share options granted under the Share Incentive Plan (SIP) was measured using the valuation model. The number of share options in the SIP as at 31st March 2022 was 1,925,436. The charge for the year was £83k (2021: £63k) The assumptions used in the US Sharesave Scheme fair value calculation are as follows: Commencement date Share price (pence) Exercise price (pence) Number of employees Shares under option Vesting period (years) 1 Dec 2019 66.00 51.85 18 52,107 2.00 1 Dec 2020 60.0 51.0 20 50,331 2.00 Share type Outstanding at 1 April Granted Exercised Lapsed Forfeited Outstanding at 31 March Exercisable at 31 March 2022 2021 Number of share options Weighted average exercise price (pence) Number of share options Weighted average exercise price (pence) 15,066,669 12,861,774 (1,762,022) - (548,077) 25,618,344 6,213,495 17.74 1.17 16.33 - 18.83 9.44 34.19 15,830,194 499,622 (911,672) - (351,445) 15,066,699 5,710,481 18.51 23.37 31.21 - 25.35 17.74 37.83 2022 Weighted average remaining life 2021 Weighted average remaining life Range of exercise prices (pence) Weighted average exercise price (pence) Number of shares (000’s) Expected Contractual Weighted average exercise price (pence) Number of shares (000’s) Expected Contractual 0 - 0.5 10.5 - 12.5 37.2 – 40.0 40.5 - 45.0 46.5 – 48.5 50.0 – 54.5 55.0 – 59.5 60.0 – 64.0 0.23 - 39.33 43.50 47.54 52.53 56.00 62.57 20,074 - 2,567 1,850 652 178 65 181 1.76 - 3.89 - 0.02 0.91 1.67 1.17 1.76 - 4.60 4.00 4.03 1.36 1.67 1.35 0.21 11.00 39.33 43.50 47.55 51.85 56.00 62.18 8,771 75 3,053 2,200 685 40 76 262 0.89 - 4.84 - 0.14 0.67 2.67 1.95 0.91 0.98 5.56 5.00 4.68 0.67 2.67 1.95 The total charge for the year relating to employee share-based payment plans was £241,000 (2021: £536,000) all of which related to equity-settled share-based payment transactions. Included in the charge is a fair value share-based payment charge of £479,000 (2021: £303,000) offset by a release of the employer’s NI accrual due to the share price as at 31 March 2022. 24. 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. Financial Statements |100 Notes to the Financial Statements 101 25. Related party transactions 27. Business Combinations Eckoh plc is the parent and ultimate controlling company of the Eckoh Group, the Consolidated Financial Statements of which On 22 December 2021 the Group completed the acquisition of Costs relating to the acquisition were £1.6 million, £0.6 million of include the results of the subsidiary undertakings set out in note 15. Syntec Holdings Limited for £31.0 million, through a combination costs relating to the issue of shares have been offset against of a cash consideration of £24.7 million with the balance funds raised in the share premium account, the remainder £1.0 Each subsidiary is 100% owned by the Eckoh Group and is considered to be a related party. of £6.3 million payable in new Eckoh shares. The deal was million of costs have been expensed as incurred and treated as There are two Directors accruing benefits under the pension scheme. legally structured via the acquisition of 100% of the top holding exceptional items. company of Syntec Holdings Limited and its subsidiaries. The legal entities within the Syntec Holdings Limited group are set Post-acquisition results of the acquired business for the year The aggregate Directors’ emoluments are shown in the table below. out in note 16. Aggregate emoluments 2022 £’000 806 806 2021 £’000 691 691 ended 31 March 2022 are included in the Group Consolidated Financial Statements. Revenue of £1.7 million and operating Syntec is an Ofcom-regulated UK network operator, based in profit of £0.3 million relate to the acquired business. If the the UK, with an extensive patent portfolio in the UK, US, EU and acquisition of Syntec Holdings Limited had been completed on Australia. Syntec is a provider of secure payment solutions the first day of the financial year, revenue included for the year (under the brand CardEasy) with additional telecom and would have been £5.8 million and operating profit included contact centre services provided predominantly in the UK. would have been £1.0 million. Further details of the Directors’ emoluments are disclosed within the Remuneration Report on page 46. The provisional fair values of the identifiable asset and liabilities at the acquisition date are set out below: Rented apartment An apartment owned by a Director, 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 £15,000 (2021: £15,000). The amount outstanding to them at the end of the current year was Nil (2021: £4,098). There were no amounts written off in the current or prior year. 26. Cash flow from operating activities Profit for the financial year Finance income Finance charges Taxation Depreciation of property, plant and equipment Depreciation of leased assets Amortisation of intangible assets Exchange differences Expenses relating to share option schemes Operating profit before changes in working capital and provisions (Increase) / decrease in inventories Decrease in trade and other receivables Decrease in trade and other payables Net cash generated from operating activities 2022 £’000 1,575 (6) 74 743 680 495 1,143 (95) 241 4,850 (5) 2,423 2021 £’000 2,794 (48) 87 717 704 505 1,061 522 536 6,878 138 217 (3,906) (2,848) 3,362 4,385 Tangible assets £’000 Satisfied by 236 Cash Intangible assets – Customer Relationships 12,367 Shares Right-of-use leased assets 686 Total Purchase consideration Deferred tax asset Stock Debtors Cash at bank and in hand 91 89 1,431 2,197 Net cash outflow arising on acquisition Cash consideration Less: cash and cash equivalent balance acquired Creditors due within one year (3,940) Cash outflow from investing activities £’000 24,697 6,300 30,997 £000 24,697 (2,197) 22,500 Creditors due after one year Deferred tax liability Fair value of net assets acquired Goodwill Total consideration (694) (2,888) 9,575 21,422 30,997 The goodwill of £21.4 million comprises primarily the estimated value of a combination of the cross-selling opportunities for Eckoh’s products into Syntec’s CardEasy clients and vice versa. The goodwill also comprises the benefits that will be derived from the combined product as set out in the Operational Review, in the section setting out the approach to ‘Syntegration’, the aim of which is to bring the best of Eckoh and Syntec existing product and technologies together to build a unified platform and roadmap for future new capability. The goodwill will not be deductible for tax purposes. 28. Events after the statement of financial position date There were no events after the balance sheet date. Financial Statements |102 Shareholder Information 103 Shareholder information Dealings permitted on Alternative Investment Market (AIM) of the London Stock Exchange. Directors and Company Secretary Joint Broker C.J. Humphrey – Non-Executive Chairman Canaccord Genuity Limited D.J. Coghlan – Non-Executive Director G.L. Millward – Non-Executive Director N.B. Philpot – Chief Executive Officer 88 Wood Street London, EC2V 7QR C.G. Herbert – Chief Financial Officer and Company Secretary Solicitor Registered Office Eckoh plc Telford House Corner Hall Hemel Hempstead Hertfordshire, HP3 9HN www.eckoh.com Registered number: 3435822 Registrar Link Group Central Square 29 Wellington Street Leeds LS1 4DL Nominated Advisor and Joint Broker Singer Capital Markets Limited One Barthlomew Lane London, EC2N 2AX Mills & Reeve LLP Botanic House 100 Hills Road Cambridge, CB2 1PH Banker Barclays Bank plc 11 Bank Court Hemel Hempstead Hertfordshire, HP1 1BX Independent Auditors PricewaterhouseCoopers LLP 40 Clarendon Road Watford WD17 1JJ Financial Statements | Eckoh UK plc, Telford House, Corner Hall, Hemel Hempstead, Hertfordshire, HP3 9HN 01442 458 300 tellmemore@eckoh.com www.eckoh.com
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