IDE Group
Holdings plc
Formerly Coretx Holdings plc
Annual report and financial statements
Registered number SC368538
Year ended 3l December 2017
Contents
Company profile
Highlights
Post period-end highlights
Chairman's stat€Nn€nt
Chief Operating Officer's rwiew
Financial Review
Board of Directors
Corporate Governance Statement
Remuneration Committee report
Strategic report
Directors' report
Statenrent of Directors' responsibilities
Independent auditors' report to the members of IDE Group Holdings plc
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Statements of Financial Position
Statements ofChanges in Equþ
Statem€nts of Cash Florrys
Notes to the Consolidated Financial Statements
IDE Group Holdings plc
Arurual report urd fìnancial staþments
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IDE Group Holdings plc
Annual report and financial statements
Year ended 3 I December 2017
Company profile
The principal activities of IDE Group Holdings plc (formerly Coretx Holdings plc) are the provision of network,
hosting and managed services to public and private companies. Established in 2005, and admitted to AIM in 2010,
the business changed its name to IDE Group Holdings plc on 30 November 2012.
fh9 country of incorporation is Scotland; the Company's registered number is SC368538 and the Company is
limited by shares. The main country of operation is the United Kingdom.
Further information on the Company can be found at www.idegroup.com.
Highlights
Acquisition of 365 ITMS Limited, a collaboration and unified communications services provider in April
2017, for a consideration of f4.6 million.
Opening ofthe new ll3-certified Lifecycle cenhe in Dartford
Creation of cyber-security services business unit
Revenues grew by 50% from f43.4 million to f65.0 million, including €10.4 million conhibution from 365
ITMS Limited
a
a
a
o Adjusted EBITDA* grew by l0% from f4.9 million to 15.4 million
o Successful rebranding of the Company as IDE Group Holdings plc on 30 November 2017
* Adiusted EBITDA is detìned as earnings before interest, tax, deprecíalion, amoilisation, impirment charges, exceptíonal items
pt nole 5, (oss)/gain on disposal of/ìxed assets and share-bsed pyments
Post period-end highlights
o Appointment of Bill Dobbie as Interim Non-Executive Chairman following resignation of Jonathan rilatts
. Appointment of Julian Phipps as Chief Operating Ofücer in addition to his role as Chief Financial Officer
following the resignation of Andy Ross as Chief Executive Oflicer
¡ Reorganisation of the business into two distinct Business Units, Platform Services and Managed Services
I
IDE Group Holdings plc
Annual report and financial statements
Year ended 3 I December 20t7
Chairman's statement
The year being reported was one of continued change and substantial continued investment as part of our stated
strategy to grow and position IDE Group as a key cloud and managed services provider to the UK mid-market.
We now have a modem Platform as a Service ("PaaS") business, providing a portfolio of cloud based services
including cyber-security and collaboration services. We invested in this division of our business with the acquisition
of 365ITMS in April 2017, strengthening our capabilities in voice and unified communications. In June i}ll we
launched a new cyber-security focused service. There has also been further investment in our MPLS network, cloud
platforms and we have developed a new hosted voice platform infrastructure, with new strategic partnerships in place
with Huawei and Gamma. We intend to build on this platform business during the remainder of 201 8 and beyond.
In January 2017 , to modemise our Lifecycle Services and to satis$ two significant contracts won, we commissioned
a new IL3 certified Lifecycle facility in Dartford. This service provides businesses a secure and cost effective way to
replace and refresh their laptop and desktop computer estates.
These positive developments need to be considered alongside the disappointing cash generation which led us to report
net debt of f9.9 million as at 3l December 2017. This caused us to initiate an internal review in December 2-017
prompting the first phase of a major cost reduction progrrimme in January 2018. This programme was necessary to
improve cash generation and reduce overhead costs and, whilst this has initially targeted a reduction ofat least i2m
from personnel costs and at least tl.5m from third party costs on an annualised basis, we believe further costs still
need to be taken out to maintain a more profitable business going forward. These further cost reductions and business
efficiency initiatives are being quantified and will be implemented through 2018 and into 2019 to achieve our newly
set short and medium term profitab¡lity and cash generation goals.
As a result ofthis ongoing operational review, which will be finalised shortly, and the non-recurring nature of the bulk
ofthetwo large lifecycle projects, coupledwith the factthatnewbusiness generatedin early20l8 hasn'treplaced the
margin lost on contracts and projects that have finished, profitability in 2018 is expected to be significantly lower than
2017,but is expected to improve steadily throughout 2018 and beyond.
It is worth noting that the mæket for flexible, secure and robust cloud based solutions remains buoyant, and we remain
focused on positioning IDE Croup to deliver a compelling portfolio of cloud, network, collaboration, security and
lifecycle services that can support an increasingly diverse set of customer demands, whilst also achieving margin
growth.
The Board sees 2018 as being a year ofconsolidation and stabilisation where we look to correct structural concerns
in our business with a view to strengthening the Board and Executive leadership and our business platforms to create
sustainable shareholder returns. Over the next 12 months we will continue to drive down costs within the business
whilst improving the Group's Platform Services offerings and increasing the efliciency of Managed Services.
Unfortunately in January 2018, Non-Executive Chairman, Jonathan Watts had to step down from the Board due to
health reasons. I would like to thank Jonathan, on behalfofthe Board, for his contribution to the business over the last
2 years. I have taken on the role of interim Non-Executive Chairman until such time as a successor is
appointed. Former CEO Andy Ross made the decision to step down from his role in March 2018. Julian Phipps, Chief
Financial Offìcer assumed the role of Chief Operating Officer in addition to his CFO duties. ìVe intend to announce
planned Board and Executive changes along with the conclusion ofour operational review.
w/vlh
Bill Dobbie
I nte ri m N on- Execul ive C hairman
8 May 2018
)
IDE Group Holdings plc
Annual report and financial statements
Year ended 3 I December 2017
Chief Operating Officer's review
During 2017,the Group continued the foundational work started in 2016, focusing on standardising our systems,
platforms and processes, and introducing efliciencies, in order to improve the quality of service provided to our
customers.
rWe made major investments in enhancing and broadening our portfolio of products and services over the year. Having
always had a strong set of skills-based offerings, our focus moved to developing a stronger set of platform-based
offerings.
In early 2017, and in response to customer demand for our device lifecycle services, we commissioned a new IL3
certifìed lifecycle facility in Dartford, where we now have the capacity to securely configure and deploy up to 500,000
end user devices per annum. These capabilities enabled us to successfully deliver two very large device management
conlracts with existing customers,
In April 2017,rhe Group acquired 365 ITMS Limited, greatly strengthening the Group's unified communications,
hosted voice, contact centre and wireless capabilities. The Croup launched its new Gamma Horizon hosted telephony
platform, which has seen solid lake up, and allowed the process of decommissioning two legacy voice platforms,
migrating customers to this more capable solution.
In response to customer demand for cyber-security solutions, at the end ofJune 20 I 7 we launched a new cyber security
business unit, focusing on delivering a range ofcloud based cyber- security and other managed security solutions.
This has attracted a healthy number of new name customers to the Group.
We also refreshed and expanded our private cloud platform and continued developing our MPLS network, where we
are consolidating five separate networks into a single infrastructure based on Juniper and Huawei equipment. This
will provide greater network flexibility, resiliency, and throughput, while enabling us to sell platform services with a
lower operational cost.
Throughout the year, we continued to invest in developing our people so that we can better meet our customers'needs.
We strengthened our management capabilities through lnstitute of Leadership and Management ("ILM") training,
with 36 middle and senior managers now having achieved formal ILM qualifications. We cnhanced our consulting
and technical competencies, helping us design and deliver tailored solutions. V/e developed skills within our sales
team, helping its members be more pro-active when engaging with customers, adding more value to them over time.
Since launching our online training platform, Learning Cloud, in 2016, employees have completed over 12,000
technical and role-based training courses.
We have also continued our commitment to generating entry level career opportunities, aligning this with our aim to
establish a well-balanced employee cost-base, while helping young people start out on promising careers. There are
now 27 apprentices working in the business across all functions. Many are reaching the end of their training and will
be taking up full time roles during 201 8. Our objective is to increase the number of apprentices working in the business
year on year.
While we made significant progress towards our long-term goals during the year, overall, profitability and cash
generation ofthe business has been lower than forecast, driven by a number offactors.
In our managed services area, a number of high mægin, legacy contracts came to an end of their contract terms during
the year. In addition, a large proportion of managed services revenue recorded in2017 arose from one-offprojects,
rather than the recurring revenue deals previously prevalent. The margin profile of these projects was also lower than
the contracts they replaced. In addition, we were impacted by a six month delay to the start of one ofthe large lifecycle
projects won in the year.
A contract with a major new supplier has failed to deliver expected service levels to customers and the cost savings
to the Group that we had anticipated, which is being addressed in 201 8
J
IDE Croup Holdings plc
Annual report and financial statements
Year ended 3 I December 2017
Chief Operating Officer's review (continued)
The Group also had the distraction of defending the company in a trademark dispute brought by an IT services business
called Coreix. The legal process concluded with us being ordered to rebrand, as such we rebranded to IDE Group on
I December 201 7.
While our strategically important investments will enable us to deliver growth from our platform-based solutions in
the future, we need to drive better profit margins and maintain stronger cashflow.
We are addressing these goals in 2018 through a significant rationalisation of our cost base, as well as increasing
automation and process efliciency.
We are also differentiating the way we sell and mæket our services to better target the distinct markets weserve by
focussing on two service areas, Platform Services and Managed Services.
a
Platform Services will deliver growth through the cloud-based platforms we have been investing in, including
private and public cloud hosting, network and connectivity, hosted telephony and unified communications,
cybersecurity and managed security.
Managed Services will continue to deliver the more traditional people-based managed services, including
service desk and remote technical support, project management and delivery, onsite and field based
engineering and device lifecycle services
This change in sales and marketing approach will be completed in the fìrst half of 2018, and will build a shonger
foundation for growth, as well as significantly reducing the underlying operating cost base within the business.
With our broader portfolio of products, and a market full of opportunity, we have the potential to drive further growth
in 2018. However, we must ensure the business has an efficient and sustainable operating model and underlying cost
base. The chang€s we are currently undertaking will support these goals. We expect the profìtability to be sigrificantly
less in 2018 whilst we right-size the business, but expect the business to improve back to double digit EBITDA on
growing revenues beyond.
At the same time as making those changes, we will continue to explore acquisition opportunities that strengthen our
market position and broaden our geographic reach across lhe UK.
we look forwards with confidence to the opportunities and challenges that lie ahead.
Julian Phipps
Chief Operating Officer
8 May 2018
4
IDE, Group Holdings plc
Annual repol and financial statements
Year ended 3 I December 20 17
Financial review
Corporate øctivily
In line with its stated buy and build strategy, the Group has spent a lot of time identif,ing the areas in its portfolio
requiring further development, in order to provide our customers with relevant services at affordable prices.
In January 2017,the Group announced its investment in the Dartford Lifecycle facility, providing enterprise-class
device management services to our customers, on the back of two customer projects worth in excess of f,6 million.
In April 2017,lhe Group acquired 365 ITMS Limited, a specialist in Unifìed Communications and Collaboration
services, for f4.6 million, settled by way of issuing shares worth f,3 million and cash consideration of tl.6 million.
In June 2017 , the Group launched its cyber-security services business unit, in order to satisfu the growing demand for
these services from our customers.
Resulls for the year
The results for the year to 3l December 2017 include full year contributions from the 2016 acquisitions of Selection
Services Investments Limited ("Selection") and C4L Group Holdings Limited (*C4L") and 9 montl¡s' contribution
from 365 ITMS Limited, acquired in April 2017.The Group reported total revenues of t65.0 million in the year to
December 2017, a50%o increase on the f,ß.4 million in the year to 3l December 2016 and gross profit of t24.0 million
Q0l6: f,17.8 million), a 34olo increase.
Administrative expenses excluding impairment, of f27.1 million (2016: i21.6 million) include f,I.6 mitlion of
exceptional costs (2016: f3.0 million) primarily in relation to restructuring following the acquisitions in 2016 and
2017,a charge of t3.6 million for the amortisation of intangible assets (2016: f3.l million) and depreciation of
tangible fìxed assets of f3.2 million (2016: Í2.5 million) following the investment in the portfolio of services and the
internal platforms.
The Group reviewed the Goodwill arising from the acquisitions of Selection and C4L in2016 and 365 ITMS in 2017
and booked an impairment charge of f7.2 million on Selection and f2.l million on C4L. No impairment charge was
booked on 365 ITMS.
The Group reported an adjusted EBITDA, defined as earnings before interest, tax, depreciation, amortisation,
impairment charges, exceptional items, gains/losses on disposal of fixed assets and share based payments of f,5.4
million (2016: f,4.9 million), representing an increase of l0o/o. The Group reported a trading EBITDA, defined as per
adjusted EBITDA but before plc costs, of f6.4 million (2016: f5.9 million), reflecting an increase of 90á.
The Group reported a loss before tax oftl2.8 million (2016: loss of f4.l million) after incuning net financial costs
of€0.3 million (2016; f0.3 million).
The utilisation oftax losses and a deferred tax credit arising on the amortisation ofintangible assets has resulted in a
tax credit for the year of ll.6 million (2016: f0.7 million).
The Group therefore reported a loss attributable to shareholders of Íl1.2 million (2016: loss of f3.4 million), which
equates to a basic loss per share of 5.67p (2016:1.88p). The Group's adjusted earnings per share, based on the
underlying performance ofthe business, equated to 0.73p per share (2016: 0.90p per share), as set out at note I l.
Balance sheel
The Group has tangible assets of f 13.0 million (2016: f.13.7 million). Intangible assets of f,55.4 million at
3l December 2017 (2016:160.3 million), including goodwill arising from the acquisition of 365 ITMS of J6.l million
and €l.l million relating to customer contracts and related relationships within 365 ITMS, with a further 10.8 million
of development costs relating to the portfolio of services.
Trade and other receivables of f15.2 million (2016: f8.9 million), include ûade receivables of f8.6 million
(2016: f,5.9 million), an increase of 45%o reflecting the growth in turnover, and includes provisions against doubtful
debtors of f0.4 million (2016: Í0.4 million).
5
IDE Group Holdings plc
Annual report and financial statements
Year ended 3 I December 2017
Financial review (continued)
Balance sheel (continued)
As at 3l December 2017 the Group had a net overdraft position of f 1.5 million (2016: net cash position of ll.l
million), finance lease liabilities of f,0.8 million (2016: fl.l million) and had borrowed t7.5 million (20ß: f.5.5
million) under the RCF facility.
Trade and other payables, excluding deferred income, amounted to J15.4 million (2016: f9.0 million), including trade
creditors of f8.8 million (20ß: f.5.7 million) and accruals of f,5.1 million (20ß: f.|.9 million). Deferred income,
arising from customers invoiced in advance of services delivered, amounted to f,6.7 million (20ß: f,5.7 million),
whilst provisions, arising primæily from acquisitions in 2016 and20lT,amounted to f,1.7 million (2016: f3.0 million).
Dìvidend
The Directors do not propose a dividend in respect ofthe current financial year (2016: f,nil).
Name change
The Company's name changed to IDE Group Holdings plc from CORETX Holdings plc on 30 November 2017
Update and outlook for 201 I
The Group launched a major cost reduction programme on 2 January 2018, in order to improve cash generation and
reduce overhead costs. Further costs still need to be taken out to maintain a more profitable business going forward.
This is to reflect the facts that a number of high margin managed service contracts finished during 2017 and a
number of one offprojects, including the two significant lifecycle contracts won in early 2017, will not generate the
same absolute margin in 201 8 as in 2017. As a result, the Board now expects that revenue for 201 8 will be slightly
below that reported in 2017 and expects EBITDA for 2018 to be significantly less than that reported in20l7
although profitability is expected to improve through 2018. Net debt (including leases) as at 3l March 2018 totalled
f,10.3 million. The further cost reductions and business efliciency initiatives are being quantified and will be
implemented through 2018 and into 2019.
The Group expects the investments made in platform services during 2017 will bring rewards and is seeing an
improvement in the pipeline of opportunities across the platform services, particularly cyber security and
collaboration services.
Going concern
The Directors have prepæed detailed cash flow projections including sensitivity analysis on key assumptions. The
Group's forecasts and projections, taking account of reasonably possible changes in trading performance and the
timing of key strategic events, show the Group will be able to operate within the level and conditions of available
funding. Based on the level of support demonstrated by the equity raised to acquire 365 ITMS and consolidating bank
facilities during the year, the Directors have a reasonable expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future.
Accordingly, the Group continues to adopt the going concem basis in preparing its consolidated financial statements.
Julian Phipps
Chief Financial Ofücer
8 May 201 8
6
Board of Directors
The Directors who held ofäce during the period and up to the date of the Annual Report are as follows:
IDE Group Floldings plc
Annual report and fìnancial statements
Year ended 3 I December 2017
Jonathan Vy'atts (resigned 9 January 2018)
Andy Ross (resigned 22Much2018)
Julian Phipps
BillDobbie
Katherine Vy'ard
A brief biography of the current Directors follows.
Bill Dobbie - InterÍm Non-ExecutÍve Chairman
Bill is an experienced entrepreneur and director specialising in internet, telecoms and technology businesses and
founder of CORETX Holdings plc (formerly Castle Street Investments plc and Cupid plc). Bill founded Cupid plc
following 7 years at lomart Croup plc in roles spanning founder to non-executive positions. Bill has been a director
of Demon Internet, Prestel, Teledat4 Scottish Telecom (Thus) and several other companies. Bill is currently a director
ofCloudsoft Corporalion, a private entity that produces software for managing public and private cloud infrastructure,
and Edinburgh Alternative Finance Ltd, a peer to peer lender. He is also a non-executive director of Tag-Games Ltd,
a provider of mobile and social games.
On 2l January 2016, Bill resigned as Chairman but remains a Non-Executive Director. On 2l January 2016, Bill
resigned as Chairman of the Remuneration Committee, but continues to serve on the Remuneration Committee. Bill
also serves on the Audit Committee.
On 9 January 20 I 8, Bill was appointed Interim Chairman following the resignation of Jonathan Watts.
JulÍan Phipps - chief Financial ol/icer, chìef operuting ollìcer and company secretary
On 2l January 2016, Julian was appointed Chief Financial Officer and Company Secretary.
Julian is an experienced chief financial officer having spent over 20 years working in the technology sector. He has
worked for a number of large IT and Telecommunications businesses including Updat4 Northgate Managed Services,
SunGard Availability Services and Parity. Prior to working in the technology sector, Julian worked for Coopers and
Lybrand in Switzerland, Luxembourg and London.
On 22 Much 20 18, Julian Phipps was also appointed to the role of Chief Operating Officer following the resigration
ofAndy Ross.
Kqtherine llard - Independent Non-Executive Dì¡ector
On 2l January 2016, Katherine was appointed as Independent Non-Executive Director.
Katherine has 15 years of experience as an Investment Banker, having worked at Morgan Stanley and panmure
Gordon. Katherine has extensive experience in advising companies on a range ofstrategic options, and has worked
on multiple IPO launches, equity capital fundraisings and M&A transactions. During that time, Katherine was a
Financial Services Authority Approved Person and had Nominated Advisor status for listed companies. Katherine is
currently Vice President, Corporate Development and Investor Relations, at Wentworth Resource plc, a publicly listed
oil and gas exploration and production company. Katherine holds a Bachelor's degree in Economics and Politics from
the University of Bristol.
Katherine chairs the Remuneration Committee and the Audit Committee.
7
IDE Group Holdings plc
Annual report and financial statements
Yea¡ ended 3l December 2017
Board of Directors (continued)
Jonathan Wølts - Non-Executive ChqÍrman
On 2l January 2016, Jonathan was appointed Non-Executive Chairman.
Jonathan is an experienced board executive with corporate governance experience within the IT, Telecommunications
and Banking sector in the United Kingdom, Aushalasia and United States of America. Jonathan was president and
Founder of GEO Networks, and has held board positions with Alliance and Leicester, Colt Telecommunications, NB3,
Bell South and Contol Data Corporation.
On 9 Januæy 2018, Jonathan resigned as Non-Executive Chairman and resigned his positions on the Remuneration
Committee and the Audit Committee.
Andy Ross - Chief Exccutive Officer
On 2l January 2016, Andy was appointed Chief Executive Officer.
Andy is an operational partner at MXC Capital Markets LLP, a subsidiary of MXC Capital Limited. Andy has over
35 years of experience in the IT industry and has previously held chief executive officer roles at Northgate Managed
Services and Valldata, and senior director roles at Atos, EDg Sema Group and KpMG.
On22March 2018, Andy resigned as Chief Executive Officer.
8
IDF, Group Holdings plc
Annual report and financial statements
Year ended 3 I December 2017
Corporate Governance statement
As an AIM listed company, IDE Group Holdings plc (lDE Group) is not required to comply with the principles and
provisions of the FRC's Corporate Governance Code. The Directors have decided to use the Corporate Governance
Code for small and mid-sized quoted companies, as published by the Quoted Companies Alliance, for guidance
purposes, and have sought to meet its recommendations in so far as it considers them appropriate for a company of
IDE Group's size and nature. This Statement and the Remuneration Committee Report summarises the Board's
approach to corporate govemance.
The Board of Direclors
At 3l December 2017, the Board comprised the Non-Executive Chairman (Jonathan Vy'atts), the Chief Executive
Officer (Andy Ross), the Chief Financial Oflicer (Julian Phipps), one Non-Executive Director (Bill Dobbie) and one
Independent Non-Executive Director (Katherine Ward).
On 9 January 2018, Jonathan Watts resigned as Chairman and Bill Dobbie was appointed as Interim Chairman with
effect from I February 20 I 8. On 22 Much 20 I 8, Andy Ross resigned as Chief Executive Ofïicer.
The business and management of the Company and its subsidiaries are the collective responsibility of the Board. At
each meeting, the Board considers and reviews the trading performance of the Group. The Board has a formal written
schedule of matters reserved for its review and approval. These include the approval of the annual budget, major
capital expenditure, investment proposals, the interim and annual results and a review ofthe overall system ofinternal
control and risk management.
There are two standing Board Committees - Audit and Remuneration. Each of these committees acts within defined
terms of reference. Additional information is set out later in this report and in the Directors' Remuneration Report in
respect of the Remuneration Committee.
Authority for the execution ofthe approved policies, business plan and daily running ofthe business is delegated to
the executive Directors. During the year, the Board met formally on l7 occasions.
Katherine Ward is the Senior Independent Non-Executive Director and has served on the Board since 2l January
2016.
The Company's Articles of Association require one third of the Directors to stand for re-election each year at the
Annual General Meeting and that each Director should seek re-election every three years. In addition, Directors
appointed by the Board during the year must seek re-appointment at the next Annual General Meeting. Accordingly,
Katherine Ward will retire and offer herself for re-election at the forthcoming Annual General Meeting.
All Directors have access to the advice of the Company Secretary who is responsible for ensuring that Board
procedures and applicable rules and regulations are observed. The Board has a procedure whereby any Director may
seek, through the ofüce ofthe Company Secretary, independent professional advice, at the Company's expense, in
furtherance of his or her duties.
Formal agendas and reports are provided to the Board on a timely basis for Board and Committee meetings and the
Chairman ensures that all Directors are properly briefed on issues to be discussed at Board meetings. Dirèctors can
obtain further advice or seek clarity on issues raised at the meetings fiom within the Company or from external sources.
All Directors are subject to appraisal by the Board. The Senior Independent Non-Executive Director is responsible
for the evaluation of the Chairman.
Boa¡d Committees
The Board has established two standing Board Committees to deal with specific aspects of the Board's affairs: Audit
and Remuneration Committees. Each of these Committees acts within defined terms of reference.
9
IDE Group Holdings plc
Annual repoÍ and fìnancial statements
Yearended 3l December 2017
Corporate Governance stateme nt (continued)
Audil Commillee
At 3l December 2017, the Audit Committee consisted of Katherine Ward (Chair), Jonathan Watts and Bill Dobbie.
Jonathan Watts resigned from the Audit Committee on 9 January 2018 with immediate effect.
The Audit Committee has formal terms of reference (available on request from the Company Secretary). Those
include the recommendation, appointment, re-appointment and removal of the extemal auditors, the review of the
scope and results ofthe interim review and external annual audit by the auditors, their cost effectiveness, independence
and objectivity. The Committee also reviews the nature and extent of any non-audit services provided by the extemal
auditors. In addition, the Committee reviews the effectiveness of internal controls, considers the need for an internal
audit function and considers any major accounting issues and reports to the Board. The Audit Committee have
concluded that due to the current size and complexity of the Company, a formal internal audit function is not required.
The Committee reviews the integrity ofthe financial statements and formal announcements. The Executive Directors
are not members of the Committee but attend the meetings by invitation as necessary, to facilitate its business.
The Chief Financial Officer monitors the level and nature of non-audit services and specific arrangements are raised
for approval by the Audit Committee as appropriate. The Audit Committee reviews non-audit fees and considers
implications for the objectivity and independence of the relationship with external auditors. The Board is satisfied
that the chair of the Audit committee has recent and relevant financial experience.
Re mu n e ral i o n C o mmÍ ttee
At 3 I December 2017 , the Audit Committee consisted of Katherine Ward (Chair), Jonathan V/atts and Bill Dobbie.
Jonathan Watts resigned from the remuneration committee on 9 January 201 8 with immediate effect.
Details of the Committee and its policies are set out in the Remuneration Committee report. The Committee has
formal terms of reference (available on request from the Company Secretary).
Altendqnce al Board and Commiltee Meelings
Attendances of Directors at Board and committee meetings convened in the year, and which they were eligible to
attend, are set out below:
Monthly
Board
Meetings
Other
Board
Meetings
Remuneration
Committee
Audit
Committee
Number of meetings in year
Jonathan Watts - Chairman
Andy Ross - Chief Executive Oflicer
Julian Phipps - Chief Financial Officer
Bill Dobbie - Non-Executive Director
Katherine Ward - Non-Executive Director
t2
t2^2
t2lt2
t2/12
t2n2
t2/12
5
3/5
515
)/)
3/s
3/5
4
*:
4t4
4/4
J
3/3_
3/3
3/3
l0
IDE Group Holdings plc
Annual report and financial statements
Year ended 3 I December 2017
Corporate Governance statement (continued)
Internal conlrol
The Board has overall responsibility for the Group's system of internal conhols and for reviewing its effectiveness.
The implementation and maintenance of the risk management and internal control systems are the responsibility of
the Executive Directors and senior management. The internal control system is designed to manage risk rather than
eliminate it and can therefore only provide reasonable and not absolute assurance against material misstatement or
loss. In accordance with the Turnbull Guidance on Internal Control, the Group has an on-going process for identifiing,
evaluating and managing the significant risks faced by it.
The Group is committed to maintaining high standards of business conduct and operates under an established internal
control framework covering financial, operational and compliance controls. This is achieved through an organisation
structure that has clear reporting lines and delegated authorities, which are clearly defined. Management monitors the
risk and performance of the Group. In addition, the Group maintains written processes to control expenditure,
authorisation limits, purchase ordering, sales order intake, project management and assets to the extent applicable
given the changes in the Group's activities during the year and up to the date ofthe approval ofthe Annual Report.
Financial control
The Board receives monthly financial information which includes key performance and risk indicators and the Chief
Executive reports on significant changes in the business and the external marketplace to the extent that they represent
risk. There is an established budgetary system with an annual budget approved by the Board. The Board reviéws the
results monthly against budget and forecasts, together with other business measures.
The principal treasury related risks are documented and approved by the Board.
Relalions wilh shsreholders and Ínvestors
Copies of the Annual Report are issued to all shareholders and copies are available on the Group's website
www.idegroup.com. The unaudited Interim Report is also available on the Group's website. The Group makes full
use of its website to provide information to shareholders and other interested parties. The Company Secretary also
deals with a number of written or e-mailed enquiries throughout the year.
Shareholders are given the opportunity to raise questions at the Annual General Meeting and the Directors are
available both prior to and after the meeting for further discussion with shareholders.
During the year, the Chief Executive Officer and the Chief Financial Ofücer met with institutional investors after the
announcement of interim and year-end results. Additional meetings were arranged by the Group's brokers, N+l
Singer Capital Markets Limited. Feedback arising from these meetings was communicated to the Board and the
Company Secretary also reported to the Board on feedback from shareholders.
Katherine Ward, as Senior Independent Non-Executive Director, is available to shæeholders if they wish to raise any
matters that communication through the normal channels of Non-Executive Chairman or Chief Operating
Officer/Chief Financial Ofücer has failed to resolve, or for which, such communication is inappropriate.
ll
IDE Group Holdings plc
Annual report and financial statements
Year ended 3 I December 2017
Corporate Governance statement (contínued)
Substential Shareholders
At 3l December 2017 and at I I April 2018, being the latest practicable date before the publication of the Annual
Report, the Company has been notified of the following significant interests in its Ordinary, voting share capital:
Shareholder name
3l December 2017
Number
31 December 2017
o/o
1l April2018
Number
ll Aoril2018
o/o
42-160-000
35.s77.206
22.t22.270
17-t56-053
t6-370-627
t4.297-s62
9.826.400
7.177.712
6-666.668
MXC Capital Limitedl
Kestrel Parhers LLP 2
Liontrust Asset Manasement
Bill Dobbiel
Matt Hawkinsa
Coltrane Asset Manasement
LMS Caoital
Richa¡d Grifüths
Elevase Limited
2t.90
18.01
l l.0l
8.85
8.16
7.t2
4.90
3.58
3.32
I . MXC Capial Limited is a related party; Andy Ross, former Chief Executive Oflicer, was an operational partner until 3 I July
2. Max Royde, a former Director of the Company is Chief Executive Oflicer of Kesbel Partners LLP
3. Cunent Directorof the Company
4. Former Dircctor of the Company
43.960.000
36.t54.77t
22-101.089
17-756.053
t6.370.627
t4.297.s62
9.826.400
7-177-712
6-666.668
2017 of MXC Capital Markets LLP, a subsidiary of MXC Capital Limited
21.00
17.72
11.02
8.85
8.16
7.12
4.90
3.58
3.32
Julian Phipps
Company Secretary
8 May 2018
t2
IDE Croup Holdings plc
Annual report and fìnancial statements
Year endcd 3 I Dec¿mber 2017
Remuneration Committee report
Re mu ne ral ìon Committee
At 3l December 2017, the Remuneration Committee comprised Katherine Ward (Chair), Jonathan Watts and Bill
Dobbie. Jonathan Watts resigned from the Remuneration Committee on 9 January 2018 with immediate effect.
The Committee makes recommendations to the Board, within agreed terms of reference, on the remuneration and
other benefrts, including bonuses and share based payrnents, ofthe Executive Directors.
In considering the remuneration for the year, the Committee consulted with the Executive Directors about its
proposals. The Board sets the fees payable to the Non-Executive Directors.
Remuneration policy
The Remuneration Committee is aware that the remuneration package should be sufTiciently competitive to attract,
retain and motivate individuals capable ofachieving the Group's objectives and thereby enhancing shareholder value.
Basic salary and benetils
Basic salaries for the Executive Directors are reviewed in January each year. The benefits provided to the Executive
Directors may include contributions to a Group defined contribution pension scheme, private medical insurance for
themselves, their spouse and their children, life assurance cover of4 times salary, critical illness and income protection
cover, acompany car allowance and annual leave of25 days.
Perþrmance related bonus
The Remuneration Committee determines the criteria for the award of performance bonuses for the Executive
Directors in advance ofeach year. The bonuses are pensionable. Non-Executive Directors do not receive a bonus.
Fees
The Board, within the limits stipulated by the Articles of Association and following recommendations by the
Executive Directors, determines Non-Executive Directors' fees. The annual fees are J50,000 (2016: f50,000) for the
Chairman and f,30,000 (2016: 130,000) for the Non-Executive Directors. An additional annual fee of €5,000
(2016:
J5,000) is paid to the Independent Non-Executive Director for chairing the Audit and Remuneration Committees. The
Chairman is entitled to private medical cover for himself and his spouse.
Semice contrucls
The Company's policy is for all Executive Directors to have service contracts with provision for termination of no
more than six months'notice. The service contracts of the Executive Directors contain restrictive covenants for a
period of twelve months following termination of their employment.
Non-Executive Directors have letters of appointment. Appointments can be terminated by the Company giving three
months'notice or the individual giving three months'notice. The remuneration ofthe Non-Executive Directors takes
the form solely of payments which are not pensionable.
The details of the Executive Director and Non-Executive Director service contracts are summarised below:
l3
IDE Group Holdings plc
Annual report and financial statements
Year ended 3l December 2017
Remuneration Committee report (continued)
Se¡vice Contrscts (cont inued)
Contract date
Contract expiry
date
Normal notice
period
Executive Directors
Andy Ross (resigned 22March2018)
Julian Phipps
2l lanuary 2016
2l January2016
22 September 2018
Non-Executive Directors
Jonathan Watts (resigred 9 January 2018) 2l lanuary 2016
Bill Dobbie
Katherine tlVard
9 April 2018
3l December 2015 2t January 2019
2l January 2016 2l January 2019
6 months
6 months
3 months
3 months
3 months
Katherine Ward retires in line with the terms of the articles of the Company and being eligible, offers herself for re-
election at the forthcoming Annual General Meeting.
Dírectors' emoluments
For Directors who held oflice during the year, emoluments for the year ended 3l December 2017 werc as follows:
Salary/fees Redundancy Benefits Bonus Pension 2017 total 2016 total
tr,î,r,r,î,t
Executive
Andy Rossr
Julian Phipps
Mathew
Hawkins
Simon Mewett
NiallStirling
Non-Executive
Jonathan trlVatts
BillDobbie
Katherine Ward
Max Royde
200,000
140,000
7
7
,200
,000
50,000
37,500
12,432
8,820
269,632
193¡320
50,000
30,000
35,000
2,935
52,935
30,000
35,000
193,052
216,695
79,830
153,425
136,095
48,605
30,000
33,026
1,731
Total
455.000
17.135 87.s00 2t.2s2
s80.887 892.4s9
Directors emoluments to Andy Ross were paid as follows:
a. AnannualsalaryofflSQ000from
I January-31July20lT,increæingtof,200,000from
I August-31
December 2017, paid monthly by IDE Group Manage Limited, a Croup subsidiary company; and
b. A monthly fee of f,l,666.67 paid to MXC Advisory Limite{ a subsidiary company of MXC Capital Limited, for
the period from I January - 3l luly 2017 .
The Executive Directors salaries are paid from subsidiary companies within the Group. The Non-Executive Director
fees and the fee to MXC Advisory Limited for Andy Rass' services to 3l July 2017 are paid by the Company.
t4
IDE Group Holdings plc
Annual report and financial statements
Year ended 3l December 2017
Remuneration Committee report (continued)
Díreclorc' ínterests ín share options
The interests of the Directors at 3l December 2017 in options over the ordinary shares of the Company were as
follows:
N¡me of
Dircctor
At
3vt2n6
Gr¡ntcd
l¡psed
At
3vl2n7
Exerc¡se
pricc
Andy Ross
Julian Phipps
Jonathan Watts
Tot¡l
1,206833
603417
666,66
2-t176^916
I,206,833
603,417
666,66
2.476^916
f,0.30
f,0.30
f0.30
M¡rkÊt
price rt
date of
¡w¡rd
f0.39s0
10.3950
Í0.392s
Dateofgrant Date from
when
exercls¡ble
Expiry
date
16 Mar2016
16 Mar2016
4 May 2016
2l lan20l9
2l la¡2019
2l Jan20l9
2l Ja¡2023
2l Jan2023
2l Jan202l
The options award to Jonathan rüatts lapsed on 9 January 2018 wtren he resigned and the options awarded to Andy
Ross lapsed on22March 2018 when he resigned.
Share price
The market price of the Company's shares on 3l December 2017 was 28.75p per share. The highest and towest
market prices during the year were 36.7p and 27.0p respectively.
Katherine \üard
Chair, Remuneration Committee
On behalf of the Board
8 May 2018
l5
IDE Group Floldings plc
Annual report and fìnancial statements
Year ended 3 t December 20 17
Strategic report
Review ofthe business
A detailed review of the business is set out in the Chairman's Sûatement, Chief Operating Oflicer's Review and the
Financial Review. Included in these rev¡ews are comments on the key performance indicators that are used by the
Board on a monthly basis to monitor and assess the performance of the business, including the revenue and gross
margin arising from each line ofbusiness, revenue and EBITDA per head, the value ofnew orders secured by the
Group during the year and the net cash from operating activities derived by the business.
In April 2017,the Croup acquired 365 ITMS Limited ("365 ITMS"), a unified communications and collaboration
services provider, for f,4.6 million, settled in shares and cash. In January 2016, the Group acquired Selection Services
Investments Limited ("Selection"), the parent of a group providing managed IT Solutions and Cloud and network
services, for f34.8m, settled in shares and cash. In February 2016, the Group acquired C4L Group Holdings Limited
C'C4L'), a network services and data cenüe hosting group, for f20.2m, settled in shares and cash.
The Consolidated Income Statement for the year is set out on page 29. The results for the year to 3 I Decamber 201 7
include full year contributions from Selection (now rebranded as IDE Croup Manage) and C4L (now rebranded as
IDE Group Connect) and nine months conûibution from 365 ITMS. The results for the year to 3l December 2016
included eleven and a half months' contribution from Selection and ten and a half months' contribution from C4L.
The Group reported total revenues in2017 of f65.0 million (20ß: f,4.4 million).
Operating loss on continuing operations was f,12.5 million (2016: loss of 13.8 million) after booking an impairment
charge of t9.3 million against the goodwill arising on the acquisitions of Selection and C4L. The adjusted EBITDA'
of the Group was f,5.4 million (20ß: f4.9 million). The Directors do not recommend the payment of a dividend for
the year ended 3l December 2017 (2016: f,nil).
As at 3l December 2017 the Group was overdrawn by a net ll.5 million (2016: cash balances of f, l.l million).
At 3 I December 2017 , the Board comprised five Directors (2016: five); four (2016: four) of which are male and one
(2016: one) is female. At 3l December 2017, the Group's Senior Management consists of 33 individuals (2016: 32),
24 (2016:21) of which are male and 9 (2016: I l) are female. At 3l December 2017,the Group had 525 employees
including Directors (2016: 401), of which 416 (2016:318) are male and 109 (2016: 83) are female.
Principal risks und uncertainties
Identi$ing, evaluating and managing the principal risks and uncertainties facing the Group is an integral part of the
way the Group does business. There are policies and procedures in place throughout the operations, embedded within
our management structure and as part ofour normal operating processes.
The Group's compliance officer maintains a business risk register which is reviewed by the Board on a quarterly basis.
Each risk has an owner on the Group's executive committee and is assigned a consequence and probabilify value,
multiplied to give a risk value. The impact, measures in place and tactics to mitigate risks are assessed on a regular
basis. The risk categories, set out below, have been identified by the Board as those currently considered to potentially
have the most material impact on the Group's future performance. In addition to these risks, note 25 contains details
offinancial risks.
Market and economic conditions
Mæket and economic conditions æe recognised as one of the principal risks in the cunent trading environment. The
risk is mitigated by the monitoring of trading conditions and changes in government legislation, the development of
action plans to address specific legislative changes and the constant search for ways to achieve new efliciencies in the
business without impacting level of service. The Group is currently evaluating the impact of the General Data
Protection Regulation legislation on its business and is developing a strategy to support its clients, who will also be
affected by this legislation. The Group has also discussed the potential impact of "Brexit" with a number of key clients
who will be directly affected, to ensure our services are relevant in the future economic environment.
* Adjusted EBITDA is defìned as eamings before interest, tax, depreciation, amortisation, impairment charges, exceptional items,
(loss)/gain on disposal offìxcd assets and share-based payments
l6
IDE Group Holdings plc
Annual report and fìnancial slatements
Year ended 3 I December 2017
Strategic report (continued)
Reliance on key personnel and management
The success ofthe Group is dependent on the services ofkey management and operating personnel. The Directors
believe that the Group's future success will be largely dependent on its ability to retain and attacr highly skilled and
qualified personnel and to expand, train and manage its employee base. During the year, the Group has strengthened
its senior management team through external recruitment and internal promotion, rolled out a new employee learning
and training solution across the Group and has implemented a new apprenticeship scheme. The Group has introduced
a number of employee benefits and a core set of values to encourage employees to establish an identity with the Group
and to mitigate the risk of losing skilled and qualified individuals.
Competition
The Group operates in a highly competitive marketplace and while the Directors believe the Group enjoys significant
strengths and advantages in competing for business, some of the competitors are much larger with considerable scale
that could allow them to offer similar services for lower prices, thus impacting the Group's ability to win new business.
The Group monitors competitors' activity and constantly reviews its own services and prices to ensure a competitive
position in the market is maintained.
Technology
The market for the Group's servicçs is in a state of constant innovation and change. The Group devotes significant
resource to the development of new services, ensuring new technologies can be incorporated and integated with the
Group's core services. The nature of the Group's services means that they are exposed to a range of technological
risk, such as viruses, hacking and an ever-changing spectrum ofsecurity risk. The Group maintains constant pro-
active vigilance against such risks and maintains membership of some of the highest levels of security accreditation
as part of the service it offers its customers.
Infrastructure failure
The Directors believe that one of the key differentiators the Group offers is that its services are provided over its own
controlled and managed infrastructure, such as its own networks and data centre. Whilst this provides customers with
comfort over the resilience and reliability, the Group is also exposed to risks of infrastructure failure. A critical
element of the Group's operating methodologies and procedures is to mitigate such risks through the careful
construction, maintenance and management of its infrastructure. All networks and data centre have fully resilient fail-
over procedures with regular testing ofback-up and recovery plans.
Struteg,
The market for network, cloud and IT managed services in the United Kingdom is highly fragmented and is served
by a broad spectrum of businesses from global telecommunication companies through hardware and software
providers, system integrators and a range of independent managed service providers of varying sizes through to
companies providing individual elements of the IT managed services spectrum. The market is growing, driven by the
continued move towards ofÊpremise solutions and mobile access to secure services.
The Group positions itself in the market as being able to combine the benefits of its network and data centre with a
flexible and technically skilled workforce able to deliver and support critical services and solutions in a highly secure
environment. The Group seeks to differentiate itself in three distinct ways:
Innovation - innovation in the design and delivery ofservices;
¡
o Reliability - the right technical skills organised in the right way, to give predictable high quality results; and
o Value - service offerings that are designed to offer value for money to mid-market customers.
l7
IDE Group Holdings plc
Annual report and financial statements
Year ended 3l December 2017
Strategic report (continued)
Strategt (contirued)
Through these differentiators, the Group aims to attract new customers and to deepen and broaden the retationship
with existing customers. The Board's stategy for growth comprises:
with the very highest level ofsecurity and service;
o Ongoing investment in expanding and enhancing our own intastructure so that we can provide our customers
o Efficient use ofour scale and resources to explore and invest in new technologies so that our customers can
. Expansion through suitable acquisitions to enhance the business.
benefit ñom the high levels of innovation across the whole indushy; and
Our acquisition criteria are strict and mean thatwe would only consider buying a business which is similar to our own,
would increase earnings, have high recuning revenues, have synergies available and woutd not over-leverage the
Group.
The Board believes that the Group's position between the very large s)rstem integrators and network operators and the
smaller competitors that may lack delivery structure, reputation, reliability and financial strength is a very compelling
one. The Group has a shong and reliable set ofcore infrastructure and has developed a delivery model that provides
assurance and certainty for customers. This underlying platform is the core streNrgh of the Group and the Group wilt
continue to consider augmenting its underlying organic gxowth with acquisitions to leverage this platform, should
there be a compelling strategic and financial case.
On behalf of the Board
Julian Phipps
Company Secretary
8 May 2018
24 Dublin Sbeet
Edinburgh EHI 3PP
l8
IDE Croup Holdings plc
Annual report and financial statements
Year ended 3l December 2017
I)Írectorst report
The Directors present their report, together with the audited consolidated and Company financial statements for the year
ended 3l December 2017.
Princlpal aclivity
The principal activity ofthe Group during the year was to supply network, cloud, collaboration, security and IT managed
services. The Company is a holding company.
Ott 30 November 20l7,the Company changed its name to IDE Group Holdings plc fiom CORETX Holdings plc.
Revlew ofthe year
The review ofthe year and the Directors' strategy are set out in the Shategic Report.
Divldends
The Company did not pay a dividend dwing the year ended 3l December 2017 (2016: fnil). The Directors do not
recommend the payment of a dividend at 3l December 2017 (2016: fnil).
Directors
The Directors who held office during the year and up to the date of the Annual Report are as follows:
Jonathan Watts (resigned 9 Januæy 2018)
Andy Ross (resigned 22March20l8)
Julian Phipps
Bill Dobbie
Katherine Ward
Company Secretary
Julian Phipps
Details of the Directors and Company Secretary of the Company in office at the date of this report, and each offrcer's
qualifications, experience and special responsibilities are set out on pages 7 and 8.
Details of the Directors' service contacts and their respective notice terms are detailed in the Remuneration
Committee report.
The interests of the Directors at the end of the year in the ordinary shares of the Company at 3l December 2017,
together with their interests at 3 I December 201 6 were as follows:
BillDobbie
Jonathan Watts
Katherine rùVard
Number of ordinary shares
3l December 3l December
2017
2016
17,756,053 14,676,053
83,330
16,666
83,330
16,666
As permitted by the Articles of Association, the Directors have the benefit of an indemnity which is a qualifiing third
party indemnity provision as defined by Section 234 of the Companies Act 2006. The indemnþ was in force
throughout the last financial year and is currently in force. The Company also purchased and maintained Directors'
and Officers' liability insurance throughout the financial year in respect of itself and its Directors.
Katherine Ward retires in line with the terms of the articles of the Company and being eligible, offers herself for re-
election at the forthcoming Annual General Meeting.
l9
IDE Group tloldings plc
Annual report and financial statements
Year ended 3 I December 2017
Directors' report (continued)
Stalf policies
The Group's employment policies are designed to ensure that they meet the statutory, social and market practices in
the United Kingdom where the Group operates. The Group systematically provides employees with information on
matters of concern to them, consulting them or their representatives regularly, so that their views can be taken into
account when making decisions that are likely to affect their interests. Employee involvement in the Group is
encouraged, as achieving a common awareness on the part of all employees on the financial and economic factors
affecting the Group, plays a major role in maintaining its relationship with its staff
The Group is committed to employment policies, which follow best practice based on equal opportunities for all
employees, inespective of sex, race, colour, disability or marital status. The Group gives full and fair consideration
to applications for employment for disabled persons, having regard to their particular aptitude and abilities.
Appropriate arrangements are made for the continued employment and training, career development and promotion
of disabled persons employed by the Group. If members of staffbecome disabled, the Group continues employment,
either in the same or an alternative position, with appropriate retraining being given, if necessary.
Political donations
The Group and Company have not made any political donations in the year ended 3l December 2017 (2016: nil).
AudÍlors
BDO LLP were appointed auditors during the year. A resolution is to be proposed at the forthcoming AGM for the
re-appointment of BDO LLP as auditors to the Company, at arate of remuneration to be determineã by the Audit
Committee.
Financial rísk manogement objectives and policy
The Company's financial risk management objectives and policies are described in note 25 to the financial statements.
The key objectives are:
a
Cash flow interesl rale ¡islr - The Group receives interest on cash and cash equivalents and pays interest on
its bonowings.
Borrowings at variable rates expose the Group to cash flow interest rate risk. During the year ended 3l
December 2017, the Group's borrowings at variable rate were denominated in Pounds Sterling with interest
linked to Sterling interest rates.
a
a
a
The impact on post-tax profit and equity of a +/- lo/o shift in the interest rate would not be materiat.
Price ¡isk - The Group is not exposed to significant commodity or security price risk.
C¡edit risk - Credit risk is managed at a subsidiary level. Credit risk arises from cash and cash equivalents
as well as credit exposures to customers, including outstanding receivables. Individual risk limits are set
based on internal and external ratings and reviewed by management, The utilisation of credit limits is
regularly monitored with appropriate action taken by management in the event of the breach of a credit limit.
As at 3l December 2017,trade receivables of f0.4 million (2016: f0.4 million) were impaired and fully
provided. As at 3 I December 2017 , lrade receivables of f 0.9 million (2016: Í0.7 million) were past due but
not impaired.
Liquidity ris* - Management reviews cash forecasts of trading companies of the Group in accordance with
practice and limits set by the Group. The Group's liquidity management policy involves projecting cash
flows and considering the level of liquid assets necessary to meet these.
20
IDE Group Holdings plc
Annual report and financial statements
Year ended 3 I December 2017
Directorst report (continued)
Disclosure of inþrmalíon to lhe audltots
The Directors, who were members of the Board at tt¡e time of approving the Directors' Report as listed on page 19.
Having made enquiries of the fellow Directors, each ofthe Directors confirms that:
¡ To the best of each Director's knowledge and belie{, there is no information relevant to the preparation of
their report ofwhich the Group's auditors are unaware; and
o Each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of
relevant audit information and to establish that the Group's auditors are aware of that information.
Subsequent events
{onathan Watts resigned as Chairman on 9 January 201 8 and was replaced by Bill Dobbie as Interim Chairman. Andy
Ross resigted on22March 2018 and Julian Phipps assumed the role of Chief Operating Officer. Options awarded to
both resigning Directors lapsed upon their resignation date.
Fulure developments
Future developments and current trading and prospects are set out in the Chairman's Statement, the Chief Operating
Officer's Review and the Financial Review.
On behalfofthe Board
Julian Phipps
Director
8 May 2018
24 Dublin Steet
Edinburgh
EHI3PP
2l
IDE Group Floldings plc
Annual report and fìnancial statements
Ycar ended 3l December 2017
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with
applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the
Directors have prepared the Group and Company financial statements in accordance with International Financial
Reporting Standards (lFRSs) as adopted by the European Union. Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a true and fair view ofthe state ofaffairs ofthe-Group
and Company and of the profìt or loss of the Group and Company for that period. In preparing the financial statementj,
the Directors are required to:
¡
.
select suitable accounting policies and then apply them consistently;
state whether applicable IFRSs as adopted by the European Union have been followed for the Group and
Company financial statements, subject to any material departures disclosed and explained in the financial
statements;
. make judgements and accounting estimates that are reasonable and prudent; and
.
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Group and Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufücient to show and explain the
Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the
Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking
reasonable steps for the prevention and detection offraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United
Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
The Directors consider that the Annual Report and accounts, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Group and Company's performance, business
model and strategy.
Each of the Directors, whose names and functions are listed in the Directors' Report confirm that, to the best of their
knowledge:
a
a
the Company financial statements, which have been prepared in accordance with IFRSs as adopted by the
European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Company;
the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the
European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Croup;
and
the Strategic Report includes a fair review of the development and performance of the business and the
position of the Group and Company, together with a description of the principal risks and uncertainties that
it faces.
Julian Phipps
Director
On behalf ofthe Board
8 May 2018
22
IDE Group Holdings plc
Annual report and fìnancial statements
Year ended 3 I December 2017
Independent auditor's report to the members of IDE Group Holdings plc
Opinion
We have audited the financial statements of IDE Group Holdings plc (the'Parent Company') and its subsidiaries (the
'Group') for the year ended 3l December 2017 which comprise the Consolidated Income statement, Consolidated
Statement of Comprehensive Income, Consolidated and Company Slatement of Financial Position, Consolidated and
Company Statement of Changes in Equity, Consolidated and Company Statement of Cash Flows and notes to the
financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable
law and International Financial Reporting Standards (lFRSs) as adopted by the European Union and, as regards the
parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
'
the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs
as at 3 I December 2017 and ofthe Croup's loss for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union;
the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by
the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
'
'
'
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (lSAs (LJK)) and applicable
law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of
the financial statements section of our report. We are independent of the Group and the Parent Company in accordance
with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's
Ethical Standard as applied to listed entities, and we have ñ¡lfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Use ofour report
This report is made solely to the Parent Company's members, as a bod¡ in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company's
members those matters we are required to state to them in an auditor's report and for no other pì¡rpose. To the fr¡llest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Parent
Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report
to you where:
'
the Directors' use ofthe going concern basis ofaccounting in the preparation ofthe financial statements is
not appropriate; or
the Directors have not disclosed in the financial statements any identified material uncertainties that may
cast significant doubt about the Group's or the Parent Company's ability to continue to adopt the going
concern basis of accounting for a period of at least twelve months from the date when the financial
stat€ments are authorised for issue.
'
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
fina¡rcial statem€nts of the cunent period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) we identified, including those which had the greatest effect on; the overall audit strategy,
the allocation of resources in the audit; and directing the efforts ofthe engagement team. These matters were addressed
in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
23
IDE Group Holdings plc
Annual report and financial statements
Year ended 3 I December 20 I 7
Independent auditor's report to the members of IDE Group Holdings plc (continued)
Revenue recognition
Key audit mafrer
The Group's revenue recognition policy is included within the accounting
policies in note 1 and the components of revenue are set out in note 2.
The Group's revenue is a key performance indicator for the market upon
which the results of the Group will be assessed. Management exercises
judgement in recognising revenue arising from the provision of services
where contracts are ongoing at the year-end. Revenues are recognised in
accordance with underlying contracts, unless the contract outcome cannot
be reliably determined, in which case, revenue is only recognised to the
extent that incuned costs are recoverable.
Based on the above revenue is accrued or deferred appropriately.
ln vieur of the judgements involved we considered that these matters gave
r¡se to a significant risk of misstatement in the financial statements.
Significant risks over revenue recognition include:
-
lnherent fraud risk in respect of overstatement of revenue and
accrued income and the understatenìent ofdeferred revenue;
Response
We reviewed the revenue recognition policy applied
to each of the Group's revenue streams and
considered their compliance w¡th lAS18 'Revenue'.
We audited a sample of revenue transactions for
each material revenue stream to check the
existence of revenue and that it was accurately
recorded in the correct accounting period. This
testing was performed through agreement to
contract, recalculation of revenue recognition and
checking recognition to the accounting system.
We tested deferred revenue by r+performing
calculations for a sample of deferred balances. We
reviewed management's assumptions relating to
appropriate revenue deferral for contracts and
tested these assumptions to supporting
documentation.
lncorrect calculation and appropriate judgement in the estimatio¡ s1 Accrued income balances were agreed to
contract revenues to be deferred;
supporting documentation such as contracts and
revenue recognition confirmed. Where applicable,
balances were confirmed to post year end invoice.
24
Independent auditor's report to the members of IDE Group Holdings plc (continued)
IDE Group Holdings plc
Annual report and financial stâtements
Year ended 3 I December 2017
Accounting for business combinations
Key audit maüer
The Group's accounting policy for the basis of consolidation is included
within the accounting policies in note 1 and detail of the business
combination during the year is set out in note 6.
Response
We reviewed the Group's basis of consolidation
accounting policy applied to the acquisition and
considered its compliance with IFRS 3'Business
Combinations'.
fair value to those assets. We øitically evaluated
'-- assets and liabilities acquired and their allocation of
During the year the Group acquired 100% of the share capital of 365 ITMS
Limited, paid by Ê1.6m of cash and Ê3m through the issue of 9,g26,400 Weaudited.management'sassessmentof
ordinary åhares-in IDE Group Holdings plc.
IFRS 3 requires management to identifi and recognise all the purchar* the assets and liabilities identified using our
assets and ftabilities ãt tne¡r fair valúe, which includes all ieparately understandingofthebusiness.
identifiable assets, such as intellectual property, customer lisb and brand. We used a BDO valuations expert to challenge the
and varuation
rhis varuation requires manasement to make estimates and judsemen,, ", ïiliHJl3i5*33,:'lili;fii:å]l5'l
set out in note 1.30. As a result of their valuation, management have identified mechanjcs of ne grouptialuations assessment,
Ê9,1?5,000 of goodwill and [1,111,000 of customer contracts and related includingevaluatioî of modelinputsand
relationships'
recalculátion of discount rates used. we also
tn view or the judgenrents invotved, we considered.t!at these matters n""" ;::lT;:XIï"i.Îi:1t't:ff:::å:t:TjJÎ::å" ""
rise to a significant risk of misstatement in the financial statements.
We reviE¡red performance and outcomes post-
acquisition to ensure that fair values were
appropriately supported.
the
25
Independent auditor's report to the members of IDE Group Hotdings plc (continued)
IDE Group Holdings plc
Annual report and fìnancial statements
Year ended 3 I December 20 17
Carrying value of intangible assets
Key audit matter
The Group's accounting policy for intangible assets is included within the
accounting policies in note 1 and the components of intangible assets are
set out in note 13.
Acquisitions have given rise to significant intangible asset balances. At 31
December 2017, prior to any impairment rev¡ew, the group's intangible
assets comprise Ê38,381,000 of goodwill, Ê1,067,000 of trademarks,
Ê24,346,000 of customer contracts and related relationships and Êg95,000
of technology.
ln accordance with IAS 36; at the end of the reporting period, management
have assessed whether there is any indication that the above asseté may be
impaired and have identified impairment indicators.
Due to the impairment indicators managernent have estimated the
recoverable amount of each asset and impaired to that value where
recoverable amount is less than carrying value.
The impairment identified by managønent is a Ê9,339,000 reduction in the
value of group goodwill. This relates to goodwill from the acquisition of
Selection Services lnvestments Limited and subsidiaries (now IDE Group
lirltøl on 21 January 2016 and the acquisition of C4L Group Hotdings
Limited and subsidiaries (now IDE Group Subholdings Limited) on 16-
February 2016.
The resultant carrying value of assets at year-end, post impairment, is
e29,042,000 of goodwill, Ê1,067,000 of trademarks, Ê24,346,000 of
customer contracts and related relationships and Ê895,000 of technology.
When assessing recoverable amount, management exercises significant
judgement.
ln vievr¡ of the judgements involved, we considered that these matters gave
rise to a significant risk of misstatement in the financial statements.
Response
On finite life intangible assets, we have reviewed
management's assessment of whether any IAS 36
'lmpairment of Assets' indicators had been
identified and performed our own assessment of
such based on our knowledge ofthe group's
business and activities and from discussion with
management.
Where an indicator of impairment has been
identified and for goodwill, being an infìnite life
intangible asset, we have audited management's
impairment assessment.
At a Cash Generating Unit level, we have evaluated
and sceptically challenged management's
assumptions used in assessing the recoverable
amount of the applicable intangible assets,
including goodwill. ln particular, revenue, profit
margins and the timing and quantum of future cash
flows and discount rates used.
Our audit of the Group's impairment assessments
has included using a BDO valuations expert where
applicable.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could
influence the economic decisions of reasonable users that are taken on the basis of the financial sìatements. ln order
to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower level,
"performance materiality", to determine the extent of testing needed. Importantly, misstatemènts below these levels
will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and
the particular circumstances of their occuffence, when evaluating their effect on the financial statements as a whole.
The materiality for the Group financial statements as a whole was set at f,320,000. This was determined with reference
to the Group's revenue. Revenue is considered the most appropriate measure in assessing the performance of the Group
given the Group's loss before tax. Performance materiality was set at 75o/o of the Groúp materiality level. Thã
performance materiality level was set based upon there being a small number of materiai components within the
Group, that we did not expect there to be a high value of misstatements and that the aggregation effect of planned
testing was deemed to be low. Where financial information from components was auãited separately, component
materiality was set for this purpose at lower levels, varying between 34.67% utd93.75%oof group materiality.
The materiality for the Parent Company financial statements was set at !300,000. This was determined with reference
to the Parent Company's total assets, but limited to be below group materiality. Total assets are considered the most
appropriate measure as the Company's main activity is to hold its investment in its direct subsidiary undertakings.
Performance materiality was set at7syo of the Group materiality level for the same reasons as above.
26
IDE Croup Holdings plc
Annual report and financial statements
Year ended 3 I December 2017
Independent auditor's report to the members of IDE Group Holdings plc (continued)
We agreed with the Audit Committee that we would report to the committee all individual audit differences in excess
of 112,000. We also agreed to report differences below this threshold that, in our view, warranted reporting on
qualitative grounds.
An overview ofthe scope ofour audit
The Group comprised the Parent Company, three main trading companies; IDE Group Manage Limited, IDE Group
Connect Limited and 365 ITMS Limited; and 17 other entities. The Parent Company and the three trading entities are
the significant components ofthe Group. The l7 other entities either contain immaterial balances or are dormant. Each
entity is wholly owned by the Group. Each entity's results are included in the consolidated financial statements. Each
significant component of the Group is audited by BDO LLP.
Other information
The Directors are responsible for the other information. The other information comprises the information included in
the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial
statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we
do not express any form ofassurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we ¿ìre required to determine whether there is a material
misstatement in the financial statem€nts or a material misstatement ofthe other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course ofthe audit:
'
'
the information given in the strategic report and the Directors' report for the frnancial year for which the
financial statements are prepared is consistent with the financial statements; and
the strategic report and the Directors'report have been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained
in the course of the audit, we have not identified material misstatements in the stategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires
us to report to you if, in our opinion:
'
adequate accounting records have not been kept by the Parent Company, or retums adequate for our audit
have not been received ftom branches not visited by us; or
'
the Parent Company financial statements are not in agreement with the accounting records and returns; or
.
certain disclosures of Directors' remuneration specified by law are not made; or
' we have not received all the information and explanations we require for our audit.
27
IDE Group Holdings plc
Annual report and financial statements
Year ended 3l December 2017
Independent auditor's report to the members of IDE Group Hotdings plc (continued)
Responsibilities of Directors
As explained more fully in the Directors'responsibilities statement, the Directors are responsible for the preparation
ofthe financial statements and for being satisfied that they give a ûue and fair view, and for such internal conhol as
the directors determine is necessary to enable the preparation of financial stratements that a¡e free fiom material
misstatement, whether due to fraud or eror.
In preparing the financial statements, the Directors are responsible for assessing the Group's and the Parent
Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company
or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable asswance about whether the financial statements as a whole are free from
material misstatemorÇ whether due to fraud or elror, and to issue an auditor's rçort that includes our opinion.
Reasonable assurance is a high level ofassurance, 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 i{, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions ofusers taken on the basis ofthese
financial statements.
A fr¡rther description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's
report.