Ideagen plc Annual Report and Accounts for the Year Ended 30 April 2016 Registration number: 02805019 CONTENTS WELCOME TO IDEAGEN OFFICERS AND ADVISERS FINANCIAL HIGHLIGHTS OPERATIONAL HIGHLIGHTS STRATEGIC REPORT DIRECTORS’ REPORT STATEMENT OF DIRECTORS’ RESPONSIBILITIES INDEPENDENT AUDITOR’S REPORT GROUP STATEMENT OF COMPREHENSIVE INCOME GROUP STATEMENT OF FINANCIAL POSITION GROUP STATEMENTS OF CHANGES IN EQUITY GROUP STATEMENT OF CASH FLOWS COMPANY STATEMENT OF FINANCIAL POSITION COMPANY STATEMENTS OF CHANGES IN EQUITY COMPANY STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS 5 6 7 7 8 16 18 19 21 22 24 26 27 29 31 32 3 Ideagen | ANNUAL REPORT 2016 4 Ideagen | ANNUAL REPORT 2016 WELCOME TO IDEAGEN Ideagen is a UK company quoted on the AIM market of the London Stock Exchange (Ticker: IDEA.L) and is a leading supplier of information management software to highly regulated industries. The Group has established a global business supplying Governance, Risk and Compliance (GRC) solutions predominantly to the Healthcare, Transport, Aerospace & Defence, Manufacturing and Financial Services Sectors. Ideagen has operations in the UK, the USA and the Middle East and a network of partners servicing Asia Pacific, Europe and South America. Ideagen is able to provide complete content lifecycle solutions that enable organisations to meet their Regulatory and Compliance standards, helping them to reduce corporate risks and deliver operational excellence. The Group has over 2,200 customers including 7 of the top 10 UK accounting firms, over 80% of NHS Trusts and the top 7 global Aerospace and Defence companies. The Group has grown both organically and through a number of strategic acquisitions and this year’s results represent the 7th consecutive year of growth in revenue, adjusted EBITDA* and adjusted earnings per share**. £25,000,000 £20,000,000 £15,000,000 £10,000,000 £5,000,000 £0 3.00 2.00 1.00 0.00 -1.00 -2.00 -3.00 -4.00 2009 2010 2011 2014 REVENUE ADJUSTED EBITDA* 2012 2013 2015 2016 Diluted adjusted Earnings per share (pence)** 2009 2010 2011 2012 2013 2014 2015 2016 * Before share-based payments, costs of acquiring businesses and other exceptional items ** Before share-based payments, amortisation of acquisition intangibles, costs of acquiring businesses and other exceptional items 5 Ideagen | ANNUAL REPORT 2016 OFFICERS AND ADVISERS DIRECTORS Jonathan Wearing Non-Executive Chairman Aged 63 David Hornsby Chief Executive Officer Aged 49 Jonathan was formerly a director in the London corporate finance department of Citicorp Investment Bank Limited and previously worked in the corporate banking group of Citibank in London. He has run corporate advisory and consultancy businesses in the City for the last 20 years and has worked on training and lecturing assignments with a wide variety of institutions in many parts of the world. He is an early stage investor in technology companies and holds a number of directorships. Jonathan has an MA in Economics from Cambridge University. David has been the Chief Executive of Ideagen Plc since June 2009 and has over 20 years’ experience in the technology sector. David has held a number of senior management positions in both UK and US based software companies including Smart Workforce Management Plc, Parametric Technology Corporation and Profund Systems Limited. Graeme Spenceley Chief Financial Officer & Company Secretary Aged 51 Alan Carroll Independent Non-Executive Director Aged 65 Graeme has been a chartered accountant for over 25 years. He spent 18 years with KPMG, initially specialising in audit where he managed a number of public company clients and later as an associate director in Transaction Services which specialised in the provision of due diligence and reporting accountant services to corporates, private equity companies and banks. Graeme was appointed to the Board of Ideagen in March 2010. Alan has 25 years’ experience in the information systems industry during which he has worked in a senior capacity in the development of the Ministry of Defence’s Information System Strategy. He has also been a senior sales manager and advisor to a number of major companies. He is currently managing director of Ultris Limited and Ultris Information Services Limited which are focused on the UK confidential government market. Alan has an MSc in Design of Information Systems from Cranfield Institute of Technology. Alan was appointed to the Board in June 2012. ADVISERS NOMAD & BROKER AUDITOR SOLICITORS REGISTERED OFFICE finncap 60 New Broad Street London EC2M 1JJ RSM UK Audit LLP Suite A, 7th Floor, City Gate East Tollhouse Hill Nottingham NG1 5FS Howard Kennedy No.1 London Bridge London SE1 9BG Peregrine Law Amadeus House 27b Floral Street London WC2E 9DP Ergo House Mere Way Ruddington Fields Business Park Ruddington Nottinghamshire NG11 6JS 6 Ideagen | ANNUAL REPORT 2016 FINANCIAL HIGHLIGHTS 52% 10% 53% Revenue increased by 52% to £21.9m (2015: £14.4m) Underlying organic revenue growth of 10% (2015: 5.3%)*** Recurring revenues of £11.5m (2015: £10.6m) representing 53% (2015: 53%) of total revenues 57% 26% 11% Adjusted EBITDA* increased 57% to £6.3m (2015: £4m) Adjusted diluted EPS** increased by 26% to 2.66 pence (2015: 2.11 pence) Proposed final dividend increased by 11% to 0.122 pence per share making a total of 0.183 pence (2015: 0.165 pence) per share for the year £1m £4.9m £6.3m Profit before tax of £1m (2015: £0.6m) Cash generated by operations of £4.9m (2015: £2.2m) Net cash at year end of £6.3m (2015: £5.3m) OPERATIONAL HIGHLIGHTS ▪ Strong growth in SaaS business driven by investment in Enlighten, Ideagen’s cloud based Governance, Risk and Compliance (GRC) platform ▪ Landmark contract awarded for Enlighten with the Railway Safety and Standards Board worth £4.9 million over 5 years ▪ Additional 15 SaaS deals, including Providence Financial, WAMOS Air, HNZ Global and Air Greenland ▪ Over 100 new on-premise customer wins including Schiphol Airport, DHL, Cobalt Air, Meggitt and South West Yorkshire NHS Trust ▪ Significant contract extensions and expanded engagements within existing customer base, including PWC, Haeco, Babcock, Bristow Helicopters, BTG and Dartford and Gravesham NHS Trust ▪ Continued high levels of customer retention with support and maintenance contract renewal rate of 96% (FY2015: 96%) ▪ Ongoing product innovation and investment across all products * Before share-based payments, costs of acquiring businesses and other exceptional items ** Before share-based payments, amortisation of acquisition intangibles, costs of acquiring businesses and other exceptional items *** Based on a comparison of revenue in the year with pro-forma revenue for the comparative period as adjusted to include acquisitions for a full year 7 Ideagen | ANNUAL REPORT 2016 STRATEGIC REPORT CHAIRMAN’S STATEMENT We are pleased to report on another solid performance for the year to 30 April 2016, representing our 7th consecutive year of revenue and EBITDA growth. The Group delivered strong organic revenue growth of 10%, combined with a full year contribution from Gael which was acquired in January 2015. A key financial metric for the Group continues to be adjusted diluted EPS and we are pleased to report an increase in adjusted diluted EPS of 26% to 2.66 pence for the year (FY2015: 2.11 pence). Following several successful acquisitions in prior years, Ideagen now has scale, a world class customer base, an outstanding product set and a proven and effective management team. This year’s focus has been on driving forward our expanded operations and executing the strategy through stronger organic growth. We have successfully added new customers to the Group across all of our key Governance, Risk and Compliance (“GRC”) verticals, including manufacturing, life sciences, healthcare and financial services, while also maintaining a focus on product enhancement and innovation which has seen acceptance across the user base, resulting in significant revenues. The clinical management solutions market continues to be impacted by the stasis in acute NHS Trusts, as anticipated. However our existing customers in this market continue to provide us with strong levels of recurring revenues, adding to the underlying financial strength of the business. GRC represents the large majority of Ideagen revenues at 80% and continues to be the primary engine of growth for the Group. The long term prospects for the Group are positive. Organisations require the tools we provide to help them identify, assess and manage corporate risk while complying with international industry standards, and many are only in the early stages of adopting an enterprise-wide approach. We believe we have established the right business platform to continue to participate in this growth, with a comprehensive set of integrated solutions and offices in the UK, US and Dubai from which we can service our global customer base. In line with our progressive dividend policy and reflecting our continued confidence in the prospects for the Group, the Board is pleased to propose a final dividend of 0.122 pence per share making a total dividend of 0.183 pence for the year (FY2015: 0.165 pence). Subject to approval at the forthcoming AGM, the final dividend will be payable on 15 November 2016 to shareholders on the register on 28 October 2016. The corresponding ex-dividend date is 27 October 2016. The success of Ideagen is the result of our dedicated and committed employees and on behalf of the Board I should like to thank all of them for their continued hard work. The new financial year has started well and I look forward to continued growth. Jonathan Wearing Non-Executive Chairman 8 Ideagen | ANNUAL REPORT 2016 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2016 CHIEF EXECUTIVE’S REVIEW BUSINESS REVIEW Trading for the period was robust, resulting in a year of solid growth for the Group. Our priorities during the year were completing the integration of Gael, our largest acquisition to date in January 2015, and the continued development of the solutions portfolio to ensure we are fully aligned to our customers’ evolving needs. Growth in the period was driven by our core business in the development and implementation of GRC solutions. New customers added in the period include HNZ Global, Amsterdam Schiphol, Providence Financial, WAMOS Air, DHL and Meggitt while significant new orders from the existing customer base were achieved with Haeco, Babcock, Boeing and PwC. Revenue for the year increased 52% to £21.9 million (FY2015: £14.4 million), representing underlying organic growth of 10% (FY2015: 5.3%). This resulted in adjusted EBITDA for the Group of £6.3 million (FY2015: £4.0 million), an increase of 57% whilst adjusted diluted EPS increased 26% to 2.66 pence. The Group continues to enjoy high levels of recurring revenue, which represent 53% (FY2015: 53%) of revenue and cover 88% of the operating cost base (FY2015: 84%). Cash generation remained strong, particularly in the second half of the year, and net cash at 30 April 2016 was £6.3 million (31 October 2015: £5.4 million), after paying £1.7 million of deferred and contingent consideration, principally for the Gael acquisition, and £0.3 million in dividends in the second half. The Group continues to maintain a debt-free balance sheet. The international landscape for GRC management is evolving and we believe we are well positioned to capitalise on the emerging trends. The industry verticals we operate in are governed by an increasing number of international standards, with the introduction of standards such as ISO 13485:2016, IATA/e-IOSA for aviation and ISO 45001 for health and safety as examples. Furthermore, we are seeing these new standards move increasingly towards a risk-based philosophy, meaning that it is no longer sufficient for risk management and compliance procedures to be implemented in department silos but instead must be embedded across all areas of an organisation in an integrated way. We have the tools and expertise to help our customers develop and embed a holistic approach to risk management across their enterprise. This trend in turn is also driving interest in SaaS-delivered GRC systems which can easily deploy across multiple geographies and departments and scale to cope with vast, disparate workforces. While SaaS-based revenue currently represents a small proportion of overall revenue, we see this as a significant growth area for the Group and a key focus for continued product development. MARKETS: GRC AND CONTENT & CLINICAL The Group operates in two markets: supplying GRC solutions to highly regulated industries including Healthcare (which includes provision to the NHS), Complex Manufacturing, Finance, Transport and Life Sciences; and, supplying Content and Clinical management solutions, primarily to the NHS. GRC represented 80% of Ideagen revenues at £17.5 million and continues to be the main engine of growth for the Group. Revenues from this market grew by 23% during the year (FY2015: 13%). Content and Clinical represents 20% of Ideagen revenues contributing £4.4 million to Group revenue (FY2015: £5.5 million). The Content and Clinical market continues to be impacted by stasis within acute NHS trusts resulting in a decline of 20% in revenues from this market during the year (FY2015: decline of 3%). While there are encouraging longer term opportunities, policy initiatives and decisions continue to be delayed and as a result, the Group does not see a strong growth opportunity in the near term. The Group continues to benefit from high levels of recurring revenues from our Content and Clinical customers adding to the underlying financial strength of the business and does not expect any further decline in the current financial year. 9 Ideagen | ANNUAL REPORT 2016 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2016 CHIEF EXECUTIVE’S REVIEW (CONTINUED) ACQUISITIONS The Board continues to pursue opportunities to complement organic growth through strategic and bolt on acquisitions. The Group continues to build on its extensive experience from previous successful acquisitions and will adhere to its strict criteria of acquiring complementary businesses that have strong IP and significant recurring revenues. Since the end of the financial year, the Group has made two further acquisitions which are briefly summarised in the Directors’ Report. PRODUCT STRATEGY & DEVELOPMENT The Group has a strong commitment to continued development of its product suite. The product development strategy centres on the closer integration of the established product set to enable a modular best-of-breed GRC solution, delivered via SaaS or on-premise. On-premise: The focus going forward is on the closer integration and interoperability of the product suite, including the Pentana, Proquis and Q-Pulse products, across a single, modular platform. We have made good progress in the year towards creating common standards and common user interfaces in line with this strategy. Cloud: We continue to see growing interest in SaaS deployed GRC systems amongst our customer base which can provide the scale and flexibility required for a pan-enterprise approach to risk management. As a result, we have seen excellent early success with our Enlighten solution, delivered via Amazon Web Services. The focus in the year ahead is adding enhanced functionality to the Enlighten platform to provide smart forms capability, training and competency and third party management. OUTLOOK The market for GRC management solutions remains fragmented and the drivers are long term and highly strategic. Trading since the year end has remained robust. Whilst we remain alert to prevailing economic and political conditions we have a strong presence in a variety of different markets across the globe, which, together with the high levels of recurring revenues and repeat business derived from our 2,200 customer base, provides me with confidence in the future prospects for the Group. David Hornsby Chief Executive Officer 10 Ideagen | ANNUAL REPORT 2016 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2016 FINANCIAL REVIEW OF THE YEAR Revenue for the year ended 30 April 2016 increased by 52% to £21.9 million (FY2015: £14.4 million). Within this, pro-forma organic revenue growth was 10%. This is based on a comparison with pro-forma revenue for FY2015 of £19.9 million which includes the acquisitions of Gael and EIBS for a full year. The Group operates in two markets. Revenues from the GRC market of £17.5 million represented 80% of Ideagen revenues and this continues to be the main engine of growth for the Group. Revenues from this market grew by 23% during the year (FY2015: 13%). Content and Clinical represents 20% of Ideagen revenues contributing £4.4 million to Group revenue (FY2015: £5.5 million). Revenues from this market were impacted by the ongoing stasis in acute NHS trusts and declined by 20% during the year although this decline was only 15% if revenues from non-core hardware sales are excluded. Recurring revenues were £11.5 million (FY2015: £10.6 million) making up 53% (FY2015: 53%) of total revenues and are equivalent to 88% (FY2015: 84%) of operating costs. Software licence revenues represented 32.8% (FY2015: 29.5%) of total revenues at £7.2 million (FY2015: £4.3 million), Maintenance and Support 45.6% (FY2015: 45.9%) at £10.0 million (FY2015: £6.6 million), Professional Services 21.1% (FY2015: 20.2%) at £4.6 million (FY2015: £2.9 million) and Hardware 0.5% (FY2015: 4.4%) at £0.1 million (FY2015: £0.6 million). Adjusted EBITDA increased by 57% to £6.3 million (FY2015: £4.0 million) and the adjusted EBITDA margin at 28.5% remained at a similar level to FY2015 (27.9%). We have continued our programme of investment in our staff, improving customer service and the longer-term infrastructure of the business both to support future organic growth and provide a stronger platform for the integration of future acquisitions. Amortisation of acquisition intangibles of £3.7 million (FY2015: £2.1 million) represents the majority of the total depreciation and amortisation charge of £4.3 million (FY2015: £2.5 million). Amortisation of development costs amounted to £0.4 million (FY2015: £0.2 million). The share-based payment charge of £0.9 million (FY2015: £0.3 million) is a non-cash cost which relates to the Group’s equity-settled share option schemes. The increased charge is mainly in respect of the Long Term Incentive Plan which was set up in 2015. The adjusted group tax charge was £0.7 million (FY2015: £0.6 million). This has been adjusted to exclude the deferred tax credits associated with the amortisation of acquisition intangibles and share based payment charges. The adjusted group tax charge represents 12.4% (FY2015: 16.4%) of adjusted profit before tax of £5.7 million (FY2015: £3.6 million). The lower adjusted tax rate is mainly the result of a higher rate of R&D tax credit claims in the Gael business acquired in 2015. The Group’s use of tax losses has reduced the corporation tax liability to only £13,000 at 30 April 2016. As a result of the above, adjusted diluted earnings per share increased by 26% to 2.66p (FY2015: 2.11p). The Group’s financial position has continued to strengthen during the year with net assets increasing to £33.7 million (FY2015: £31.2 million) and net current assets increasing to £3.8 million (FY2015: £1.2 million). The level of intangible assets decreased to £32.6 million (FY2015: £35.1 million) as a result of amortisation charges and no new acquisitions in the year. The Group capitalised £1.6 million (FY2015: £0.9 million) of R&D development costs during the year which represented 47% (FY2015: 49%) of total development costs of £3.5 million (FY2015: £1.9 million) or 7.5% (FY2015: 6.5%) of total revenues. The increase is the result of having Gael in the Group for a full year and the acceleration of the Enlighten development programme. Cash generated by operations improved during the year and amounted to £4.9 million (FY2015: £2.2 million) representing 78% (FY2015: 56%) of adjusted EBITDA. Free cash flow also improved significantly to £2.8 million (FY2015 £0.7 million) representing 45% (FY2015: 18%) of adjusted EBITDA. The group ended the year with cash balances of £6.3 million (FY2015: £5.3 million) and no debt. During the year, the group made the first deferred consideration payment of £1.6 million in respect of the acquisition of Gael. A final payment of £1.6 million is due to be made in January 2017. Graeme Spenceley Chief Financial Officer 11 Ideagen | ANNUAL REPORT 2016 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2016 CUSTOMER CASE STUDIES IDEAGEN ENLIGHTEN VIRGIN TRAINS Ideagen has been working with Virgin Trains, a major UK train operating company, through the provision of its Enlighten cloud solution. Enlighten has brought with it a number of operational business benefits such as easy access to company documentation, user friendly completion of audits and the proactive logging and reporting of accidents and incidents. The firm has over 1,400 employees utilising Enlighten to effectively streamline work management processes and enhance quality document control. The software also provides dynamic safety management investigation, monitoring and reporting while safety incidents can be captured in real time via mobile devices and processed seamlessly. With very little training, we have managed to implement new ways of working using the product for maximum benefit. We initially started using Enlighten as a safety management system, but it offers a lot more than just that and fits our long-term aims in terms of development. Garry Hall Safety and Standards Manager Virgin Trains 12 Ideagen | ANNUAL REPORT 2016 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2016 CUSTOMER CASE STUDIES IDEAGEN Q-PULSE & VALIDATION SERVICES ROYAL WOLVERHAMPTON NHS TRUST The Royal Wolverhampton NHS Trust is one of the largest acute and community providers in the West Midlands having more than 800 beds on the New Cross site as well as a number of additional locations. As the second largest employer in Wolverhampton, the Trust employs more than 8,000 staff. Ideagen worked with Royal Wolverhampton NHS Trust to validate its Q-Pulse software following the Trust’s transition from CPA to the ISO 15189 standard. Ideagen, along with its validated partner, Compliance Path, helped the Trust achieve the standard certification by providing a validation pack which consolidated information across each of the Trust’s Q-Pulse modules and offered a simple guide to follow for successful validation. The final validation report for Q-Pulse contained the package itself along with the additional checks. All in all it was a fantastic, and hassle free service from Ideagen and CompliancePath and meant that we didn’t need to spend months validating or contract a specialist consultant paying a premium. It saved us immensely in resources and removed what would have been a major headache for the department. Katy New Pathology Quality Manager Royal Wolverhampton NHS Trust 13 Ideagen | ANNUAL REPORT 2016 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2016 CUSTOMER CASE STUDIES IDEAGEN PENTANA BDO BDO, a global top-five accounting firm, worked with Ideagen to implement Ideagen Pentana for its Risk and Advisory Services department. Pentana quickly became an integral part of the department’s operations. Pentana allowed BDO to implement a consistent methodology which was compliant with international risk and auditing standards, allowing for multiple departments within the business – in this case the Risk, Compliance and Internal Audit teams – to work with a single tool, increasing effectiveness of the ‘Three Lines of Defence’ and ‘Golden Thread’. We use Pentana for all of our internal audits and the product is a requirement now within the risk and advisory services team here at BDO. Every internal audit we carry out uses Pentana from beginning to end as it provides a structured receptacle for our working papers. The product also enables us to manage our reviews and our files and to structure the risk based internal audit reviews that we were carrying out in a way that was relatively easy and simple for our staff to use. Nigel Burbidge Partner and Global Head of Risk Advisory Services BDO 14 Ideagen | ANNUAL REPORT 2016 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2016 KEY PERFORMANCE INDICATORS Key financial performance indicators used by management are as follows: PERFORMANCE INDICATOR Revenue for the year (£m) Adjusted EBITDA (£m) 2016 21.9 6.3 2015 METHOD OF MEASUREMENT 14.4 4.0 EBITDA adjusted for business acquisition costs, share-based payment charges and other exceptional items Gross margin 88.0% 86.9% Gross profit as a percentage of revenue Adjusted EBITDA margin 28.5% 27.9% Adjusted EBITDA as a percentage of revenue PRINCIPAL RISKS AND UNCERTAINTIES Risk management is an important part of the management process throughout the Group and a policy of continuous improvement is adopted in assessing the adequacy of the internal system of controls. The Group’s operations expose it to a variety of risks including strategic, economic, operational and financial. The management of the group monitors the exposures to these risks in order to limit the adverse effects of these risks on the financial performance of the Group. Strategic. The Group operates in a dynamic market and constantly seeks to ensure the solutions it offers are competitive. Economic. A worsening of the economic climate may lead to reduced spend on IT systems and services by customers. However, the Group has products and solutions which can help customers lower their cost base in difficult trading conditions and to some extent address compliance issues which need to be covered even in an economic downturn. Operational. The Group’s most significant assets are the intellectual property developed by the Group, the intangible assets acquired with business acquisitions and the employees of the Group. Ongoing product review and investment into product development together with the Group’s quality procedures seek to ensure that products are reliable, of high quality and relevant to market requirements. Financial. Management actively review the cash flow position of the Group both in the short and medium term and maintain a level of cash and debt finance facilities designed to ensure that the Group has sufficient funds for its operations. The greater part of the Group’s revenues and costs are denominated in sterling however the Group is exposed to foreign exchange risk, principally through profits and cash inflows generated in US dollars by the Group’s US subsidiary. The foreign exchange risk is partly addressed by maximising costs denominated in US dollars. Management closely monitors exchange rate fluctuations and will use forward contracts when considered to be appropriate to reduce this risk. The Group implements appropriate credit checks on potential customers before sales are made. The amount of exposure to individual customers is subject to a limit which is regularly reassessed. Approved by the Board and signed on its behalf by ……………………… Graeme Spenceley Director and Company Secretary 4 October 2016 15 Ideagen | ANNUAL REPORT 2016 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 APRIL 2016 The directors are pleased to present their report and the audited financial statements for the year ended 30 April 2016. RESULTS AND DIVIDENDS A review of the results for the year and the financial position of the Group is included in the Strategic Report on pages 8 to 15 and details are set out in the financial statements on pages 21 to 74. A final dividend for 2015 of 0.11 pence per share amounting to £197,000 and an interim dividend for 2016 of 0.061 pence per share amounting to £109,000 were paid during the year. The directors propose a final dividend in respect of the year of 0.122 pence per share payable on 15 November 2016 to shareholders on the register on 28 October 2016. This is subject to approval by shareholders at the forthcoming Annual General Meeting. In accordance with S414c(ii) of the Companies Act 2006, the Group has chosen to set out in the Group’s Strategic Report, information required by the Large and Medium Companies and Groups (Accounts and Reports) Regulations 2008 Sch.7 to be contained in the Director’s Report. DIRECTORS The directors who held office during the year were as follows: ▪ Jonathan P Wearing (Non-Executive Chairman) ▪ David R K Hornsby (Chief Executive Officer) ▪ Graeme P Spenceley (Finance Director) ▪ Alan M Carroll (Non-Executive Director) DIRECTORS’ INDEMNITY AND INSURANCE The Group maintained insurance cover during the year for its Directors and Officers and those of subsidiary companies under a Directors and Officers liability insurance policy against liabilities which may be incurred by them while carrying out their duties. EVENTS AFTER THE END OF THE REPORTING PERIOD Acquisition of Covalent Software Limited (‘Covalent’) On 5 August 2016, Ideagen plc acquired the whole of the issued share capital of Covalent Software Limited, a company domiciled in England. Covalent has developed and commercialised a proprietary GRC platform with significant traction in the UK public sector. The acquisition of Covalent is expected to enhance the Group’s existing business through the addition of its cloud-based intellectual property and its strong recurring revenue base. The total consideration for the acquisition of Covalent was £4,655,000 which was paid in cash on completion of the acquisition. No deferred or contingent consideration is payable. The cash balance acquired in Covalent at the date of acquisition was £1,113,000 and accordingly the net cash outflow on acquisition of Covalent was £3,542,000. Acquisition of Logen EOOD On 18 August 2016, Ideagen plc acquired the whole of the issued share capital of Logen EOOD, a company domiciled in Bulgaria. Logen is a reseller of Ideagen’s GRC audit management and risk assessment solution, Pentana and has significant experience in audit-based analytics, particularly within the financial and public sectors. 16 Ideagen | ANNUAL REPORT 2016 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 APRIL 2016 (CONTINUED) The acquisition will give Ideagen’s existing customers access to this expertise, as well as create a solid operational base in central Europe from which we can enhance our sales reach and future software development capacity. The initial consideration for the acquisition of £78,000 was paid on completion. Up to a further £50,000 may become payable 12 months after completion depending on the achievement of certain post acquisition revenue targets. Issues of ordinary shares In order to satisfy the exercise of share options, the company issued 221,000 shares at 37.63 pence each on 4 May 2016, 80,000 shares at 10 pence on 27 July 2016, 130,000 shares at 37.63 pence on 11 August 2016 and 110,000 shares at 32.12 pence on 31 August 2016. The company also issued 500,000 shares at 1 penny on 11 August 2016 in order to satisfy the exercise of share options granted under the Long Term Incentive Plan. AUDITOR In accordance with the Companies Act 2006 a resolution proposing the reappointment of RSM UK Audit LLP (formerly Baker Tilly UK Audit LLP) as auditor will be put to the members at the forthcoming Annual General Meeting. DISCLOSURE OF INFORMATION TO AUDITOR So far as the directors are aware, there is no relevant audit information of which the Group’s auditor is unaware. Additionally, the directors have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the Group’s auditor is aware of that information. GOING CONCERN The Group’s business activities and the factors likely to affect its future development, performance and position together with a review of the financial position of the Group, its cash flows and liquidity position are set out in the Strategic Report on pages 8 to 15. The directors have a reasonable expectation that the company and Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. FUTURE DEVELOPMENTS The Strategic Report on pages 8 to 15 refers to the Group’s ongoing product strategy and development. In addition, the directors will continue to seek to acquire businesses with strong intellectual property and recurring revenues operating within appropriate markets. CURRENT TRADING & OUTLOOK The market for GRC management solutions remains fragmented and the drivers are long term and highly strategic. Trading since the year end has remained robust. Whilst we remain alert to prevailing economic and political conditions we have a strong presence in a variety of different markets across the globe, which, together with the high levels of recurring revenues and repeat business derived from our 2,200 customer base, provide the Board with confidence in the future prospects for the Group. Approved by the Board and signed on its behalf by: ......................................... Graeme Spenceley Director & Company Secretary 4 October 2016 17 Ideagen | ANNUAL REPORT 2016 STATEMENT OF DIRECTORS’ RESPONSIBILITIES The directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and company financial statements for each financial year. The directors are required by the AIM rules of the London Stock Exchange to prepare group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and have elected under company law to prepare the company financial statements in accordance with IFRS as adopted by the EU. The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the group and the company and the financial performance of the group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. Under company law the directors must not approve financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that period. In preparing the group and company financial statements, the directors are required to: ▪ select suitable accounting policies and then apply them consistently; ▪ make judgements and accounting estimates that are reasonable and prudent; ▪ state whether they have been prepared in accordance with IFRSs adopted by the EU; ▪ 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 sufficient to show and explain the group’s and the company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Ideagen plc website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. 18 Ideagen | ANNUAL REPORT 2016 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IDEAGEN PLC (REGISTRATION NUMBER: 02805019) We have audited the group and parent company financial statements (“the financial statements”) which comprise the Group and Parent Company Statements of Financial Position, the Group Statement of Comprehensive Income, the Group and Parent Company Statements of Cash Flows, the Group and Parent Company Statements of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR As more fully explained in the Statement of Directors’ Responsibilities set out on page 18, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. SCOPE OF THE AUDIT A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at http:// www.frc.org.uk/auditscopeukprivate OPINION ON FINANCIAL STATEMENTS In our opinion: ▪ the financial statements give a true and fair view of the state of the group’s and the parent’s affairs as at 30 April 2016 and of the group’s profit for the year then ended; ▪ the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; ▪ the parent financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies Act 2006; and ▪ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 19 Ideagen | ANNUAL REPORT 2016 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IDEAGEN PLC (CONTINUED) (REGISTRATION NUMBER: 02805019) MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: ▪ adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or ▪ the parent company financial statements are not in agreement with the accounting records and returns; or ▪ certain disclosures of directors’ remuneration specified by law are not made; or ▪ we have not received all the information and explanations we require for our audit. Neil Stephenson (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP (formerly Baker Tilly UK Audit LLP), Statutory Auditor 7th Floor, City Gate East Tollhouse Hill Nottingham NG1 5FS 4 October 2016 20 Ideagen | ANNUAL REPORT 2016 GROUP STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 APRIL 2016 Revenue Cost of sales Gross profit Operating costs Profit from operating activities before depreciation, amortisation, share-based payment charges and exceptional items Depreciation and amortisation Costs of acquiring businesses Share-based payment charges Profit from operating activities Movement in the fair value of contingent consideration Finance income Profit before taxation Taxation Profit for the year Other comprehensive income Items that may be subsequently reclassified to profit or loss: Exchange differences on translating foreign operations Corporation tax on exercise of options Total comprehensive income for the year attributable to the owners of the parent company Earnings per share Basic Diluted NOTES 2 3 3 18 21 15 5 7 8 8 2016 £’000 2015 £’000 21,936 14,389 (2,632) (1,892) 19,304 12,497 (13,047) (8,477) 6,257 4,020 (4,322) (2,503) - (936) 999 (4) 7 1,002 315 1,317 (450) (276) 791 (188) 5 608 (128) 480 88 27 (4) - 1,432 476 Pence Pence 0.74 0.71 0.35 0.34 21 Ideagen | ANNUAL REPORT 2016The notes on pages 32 to 74 form an integral part of these financial statements. GROUP STATEMENT OF FINANCIAL POSITION AT 30 APRIL 2016 Assets and liabilities Non-current assets Intangible assets Property, plant and equipment Deferred income tax assets Current assets Inventories Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Contingent consideration on business combinations Current income tax liabilities Deferred revenue Deferred consideration on business combinations Non-current liabilities Deferred consideration on business combinations Deferred income tax liabilities Net assets 22 NOTE 2016 £’000 2015 £’000 9 10 7 12 13 14 15 16 17 17 7 32,572 35,050 433 877 302 876 33,882 36,228 33 8,244 6,317 55 7,332 5,266 14,594 12,653 2,506 3,476 - 13 6,603 1,623 47 44 6,228 1,628 10,745 11,423 - 4,048 4,048 1,613 4,656 6,269 33,683 31,189 Ideagen | ANNUAL REPORT 2016The notes on pages 32 to 74 form an integral part of these financial statements. GROUP STATEMENT OF FINANCIAL POSITION AT 30 APRIL 2016 (CONTINUED) Equity Issued share capital Share premium Merger reserve Share-based payments reserve Retained earnings Foreign currency translation reserve NOTES 2016 £’000 2015 £’000 19 19 19 21 1,790 1,773 23,598 23,443 1,167 1,482 5,565 81 1,167 653 4,160 (7) Equity attributable to owners of the parent 33,683 31,189 Approved and authorised for issue by the Board on 4 October 2016 and signed on its behalf by: ..................................................... ..................................................... David Hornsby Director Graeme Spenceley Director 23 Ideagen | ANNUAL REPORT 2016The notes on pages 32 to 74 form an integral part of these financial statements. GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 APRIL 2016 L A T O T N G I E R O F T N E R A P E H T E V R E S E R E L B A T U B I R T T A Y C N E R R U C I D E N A T E R F O S R E N W O O T N O I T A L S N A R T I S G N N R A E D E S A B - E R A H S S T N E M Y A P E V R E S E R R E G R E M E V R E S E R E R A H S E R A H S I M U M E R P L A T I P A C 9 8 1 1 3 , ) 7 ( 0 0 0 £ ’ 0 0 0 £ ’ 0 0 0 £ ’ 0 6 1 4 , 0 0 0 £ ’ 3 5 6 0 0 0 £ ’ 7 6 1 1 , 0 0 0 £ ’ 0 0 0 £ ’ 3 4 4 3 2 , 3 7 7 1 , 5 1 0 2 y a M 1 t a e c n a a B l 2 7 1 1 2 9 - 5 7 2 ) 6 0 3 ( 2 6 0 1 , 5 1 1 7 1 3 1 , 2 3 4 1 , 3 8 6 3 3 , - - - - - - - 8 8 8 8 1 8 - - 2 9 5 7 2 ) 6 0 3 ( - 1 2 9 ) 2 9 ( - - 1 6 9 2 8 7 2 7 1 3 1 , 4 4 3 1 , - - - - - - - - - - - - 5 5 1 7 1 - - - - - - - - 5 5 1 7 1 - - - - - - r e d n u d e u s s i s e r a h S e m e h c s n o i t p o e r a h s ) 9 1 e t o n ( s t n e m y a p d e s a b - e r a h S ) 1 2 e t o n ( f o e s i c r e x e n o r e f s n a r T ) 1 2 e t o n ( s n o i t p o e r a h s d e s a b - e r a h s n o n o i t a x a T y t i u q e n i s t n e m y a p i d a p s d n e d i v i d y t i u q E ) 0 2 e t o n ( h t i w s n o i t c a s n a r t l a t o T d e s i n g o c e r s r e n w o y t i u q e n i y l t c e r i d e v i s n e h e r p m o c r e h t O r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T r a e y e h t r o f e m o c n i r a e y e h t r o f t fi o r P 5 6 5 5 , 2 8 4 1 , 7 6 1 1 , 8 9 5 3 2 , 0 9 7 1 , 6 1 0 2 l i r p A 0 3 t a e c n a l a B 24 Ideagen | ANNUAL REPORT 2016The notes on pages 32 to 74 form an integral part of these financial statements. GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 APRIL 2015 L A T O T N G I E R O F T N E R A P E H T E V R E S E R E L B A T U B I R T T A Y C N E R R U C F O S R E N W O O T N O I T A L S N A R T I D E N A T E R I S G N N R A E D E S A B - E R A H S S T N E M Y A P E V R E S E R R E G R E M E V R E S E R E R A H S I M U M E R P E R A H S L A T I P A C 9 6 3 3 1 , ) 3 ( 0 0 0 £ ’ 0 0 0 £ ’ 0 0 0 £ ’ 0 2 5 3 , 0 0 0 £ ’ 6 9 5 0 0 0 £ ’ 7 6 1 1 , 0 0 0 £ ’ 0 7 8 6 , 0 0 0 £ ’ 9 1 2 1 , 4 1 0 2 y a M 1 t a e c n a a B l ) 4 8 5 ( 0 0 5 7 1 , 1 1 2 2 4 1 - 4 9 2 ) 9 1 2 ( 4 4 3 7 1 , 0 8 4 ) 4 ( 6 7 4 9 8 1 1 3 , - - - - - - - - - ) 4 ( ) 4 ( ) 7 ( - - - - 5 8 4 9 2 ) 9 1 2 ( 0 6 1 0 8 4 - 0 8 4 - - - 2 4 1 ) 5 8 ( - - 7 5 - - - - - - - - - - - - - - ) 4 8 5 ( 2 7 1 - - - - - 9 3 - - - - 5 8 9 6 1 , 5 1 5 - - - - - - 3 7 5 6 1 , 4 5 5 s t s o c e u s s i l g n i c a p e r a h S e r a h s r e d n u d e u s s i s e r a h S ) 9 1 e t o n ( e m e h c s n o i t p o s t n e m y a p d e s a b - e r a h S ) 1 2 e t o n ( f o e s i c r e x e n o r e f s n a r T ) 1 2 e t o n ( s n o i t p o e r a h s d e s a b - e r a h s n o n o i t a x a T y t i u q e n i s t n e m y a p i d a p s d n e d i v i d y t i u q E ) 0 2 e t o n ( h t i w s n o i t c a s n a r t l a t o T d e s i n g o c e r s r e n w o y t i u q e n i y l t c e r i d r a e y e h t r o f t fi o r P e v i s n e h e r p m o c r e h t O r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T r a e y e h t r o f e m o c n i ) 9 1 e t o n l ( g n i c a p e r a h S 0 6 1 4 , 3 5 6 7 6 1 1 , 3 4 4 3 2 , 3 7 7 1 , 5 1 0 2 l i r p A 0 3 t a e c n a l a B 25 Ideagen | ANNUAL REPORT 2016The notes on pages 32 to 74 form an integral part of these financial statements. GROUP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 APRIL 2016 Cash flows from operating activities Profit for the year Depreciation of property, plant and equipment Amortisation of intangible assets Loss on disposal of property, plant and equipment Share-based payment charges Finance income recognised in profit or loss Taxation (credit)/charge recognised in profit or loss Business acquisition costs in profit or loss Movement in fair value of contingent consideration Decrease in inventories Increase in trade and other receivables Decrease in trade and other payables Increase in deferred revenue liability Cash generated by operations Interest received Income tax paid Business acquisition costs paid Net cash generated by operating activities Cash flows from investing activities Net cash outflow on acquisition of businesses net of cash acquired Payments of deferred consideration on business combinations Payments of contingent consideration on business combinations Payments for development costs Payments for property, plant and equipment Proceeds of disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from placing of equity shares Payments for share issue costs Proceeds from issue of shares under the share option schemes Equity dividends paid Net cash (used)/generated by financing activities Net increase in cash and cash equivalents during the year Cash and cash equivalents at the beginning of the year Effect of exchange rate changes on cash balances held in foreign currencies Cash and cash equivalents at the end of the year 26 NOTES 10 9 3 21 5 7 18 15 18 15 9 10 19 19 20 25 25 2016 £’000 1,317 201 4,121 3 936 (7) (315) - 4 22 (834) (894) 348 4,902 7 (41) (92) 2015 £’000 480 156 2,347 - 276 (5) 128 450 188 334 (1,487) (661) 42 2,248 5 (185) (312) 4,776 1,756 - (15,879) (1,618) (51) (1,643) (347) 11 (50) (468) (941) (98) 9 (3,648) (17,427) - - 172 (306) (134) 994 5,266 57 6,317 17,500 (584) 211 (219) 16,908 1,237 4,011 18 5,266 Ideagen | ANNUAL REPORT 2016The notes on pages 32 to 74 form an integral part of these financial statements. COMPANY STATEMENT OF FINANCIAL POSITION AS AT 30 APRIL 2016 Assets and liabilities Non-current assets Intangible assets Property, plant and equipment Investments in subsidiaries Deferred income tax asset Current assets Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Contingent consideration on business combinations Deferred revenue Deferred consideration on business combinations Non-current liabilities Deferred consideration on business combinations Net assets NOTES 2016 £’000 2015 £’000 9 10 11 7 13 14 15 17 17 221 13 300 18 26,076 25,498 375 236 26,685 26,052 4,997 977 5,974 431 - 233 1,623 2,287 5,728 1,409 7,137 796 47 259 1,628 2,730 - 1,613 30,372 28,846 27 Ideagen | ANNUAL REPORT 2016The notes on pages 32 to 74 form an integral part of these financial statements. COMPANY STATEMENT OF FINANCIAL POSITION AS AT 30 APRIL 2016 (CONTINUED) Equity Issued share capital Share premium Merger reserve Share-based payments reserve Retained earnings NOTES 2016 £’000 2015 £’000 19 19 19 21 1,790 1,773 23,598 23,443 1,218 1,482 2,284 1,218 653 1,759 Equity attributable to the owners of the parent 30,372 28,846 Approved and authorised for issue by the Board on 4 October 2016 and signed on its behalf by: ..................................................... ..................................................... David Hornsby Director Graeme Spenceley Director 28 Ideagen | ANNUAL REPORT 2016The notes on pages 32 to 74 form an integral part of these financial statements. COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 APRIL 2016 L A T O T E L B A T U B I R T T A F O S R E N W O O T T N E R A P E H T I D E N A T E R I S G N N R A E D E S A B - E R A H S S T N E M Y A P E V R E S E R R E G R E M E V R E S E R E R A H S I M U M E R P E R A H S L A T I P A C 0 0 0 £ ’ 3 5 6 0 0 0 £ ’ 8 1 2 1 , 0 0 0 £ ’ 3 4 4 3 2 , 0 0 0 £ ’ 3 7 7 1 , 0 0 0 £ ’ 6 4 8 8 2 , 2 7 1 1 2 9 - 5 2 1 0 0 0 £ ’ 9 5 7 1 , - - 2 9 5 2 1 ) 6 0 3 ( ) 6 0 3 ( - 1 2 9 ) 2 9 ( - - 2 1 9 ) 9 8 ( 9 2 8 7 8 5 7 2 4 1 6 7 8 5 7 2 4 1 6 - - - - - - - - - - - - 5 5 1 7 1 - - - - - - - - 5 5 1 7 1 n o i t p o e r a h s r e d n u d e u s s i s e r a h S ) 9 1 e t o n ( e m e h c s ) 1 2 e t o n ( s t n e m y a p d e s a b - e r a h S e r a h s f o e s i c r e x e n o r e f s n a r T ) 1 2 e t o n ( s n o i t p o s t n e m y a p d e s a b - e r a h s n o n o i t a x a T y t i u q e n i ) 0 2 e t o n ( i d a p s d n e d i v i d y t i u q E s r e n w o h t i w s n o i t c a s n a r t l a t o T y t i u q e n i y l t c e r i d d e s i n g o c e r 5 1 0 2 y a M 1 t a e c n a a B l - - - - - - e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T r o f e m o c n i e v i s n e h e r p m o c r e h t O r a e y e h t r a e y r a e y e h t r o f t fi o r P 2 7 3 0 3 , 4 8 2 2 , 2 8 4 1 , 8 1 2 1 , 8 9 5 3 2 , 0 9 7 1 , 6 1 0 2 l i r p A 0 3 t a e c n a l a B 29 Ideagen | ANNUAL REPORT 2016The notes on pages 32 to 74 form an integral part of these financial statements. COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 APRIL 2015 0 0 0 £ ’ 7 6 9 1 1 , ) 4 8 5 ( 0 0 5 7 1 , 1 1 2 2 4 1 - 4 9 2 ) 9 1 2 ( 4 4 3 7 1 , ) 5 6 4 ( ) 5 6 4 ( 0 0 0 £ ’ 4 6 0 2 , 0 0 0 £ ’ 6 9 5 0 0 0 £ ’ 8 1 2 1 , 0 0 0 £ ’ 0 7 8 6 , 0 0 0 £ ’ 9 1 2 1 , 4 1 0 2 y a M 1 t a e c n a a B l - - - - 5 8 4 9 2 ) 9 1 2 ( 0 6 1 ) 5 6 4 ( ) 5 6 4 ( - - - 2 4 1 ) 5 8 ( - - 7 5 - - - - - - - - - - - - ) 4 8 5 ( 2 7 1 - - - - - 9 3 - - - - 5 8 9 6 1 , 5 1 5 3 7 5 6 1 , 4 5 5 - - - - ) 1 2 e t o n ( s t n e m y a p d e s a b - e r a h S e r a h s f o e s i c r e x e n o r e f s n a r T ) 1 2 e t o n ( s n o i t p o d e s a b - e r a h s n o n o i t a x a T y t i u q e n i s t n e m y a p ) 0 2 e t o n ( i d a p s d n e d i v i d y t i u q E s r e n w o h t i w s n o i t c a s n a r t l a t o T y t i u q e n i y l t c e r i d d e s i n g o c e r s t s o c e u s s i l g n i c a p e r a h S e r a h s r e d n u d e u s s i s e r a h S ) 9 1 e t o n ( e m e h c s n o i t p o r o f e m o c n i e v i s n e h e r p m o c l a t o T r a e y e h t r a e y e h t r o f s s o L ) 9 1 e t o n l ( g n i c a p e r a h S 6 4 8 8 2 , 9 5 7 1 , 3 5 6 8 1 2 1 , 3 4 4 3 2 , 3 7 7 1 , 5 1 0 2 l i r p A 0 3 t a e c n a l a B L A T O T E L B A T U B I R T T A F O S R E N W O O T T N E R A P E H T I D E N A T E R I S G N N R A E D E S A B - E R A H S S T N E M Y A P E V R E S E R R E G R E M E V R E S E R E R A H S I M U M E R P E R A H S L A T I P A C 30 Ideagen | ANNUAL REPORT 2016The notes on pages 32 to 74 form an integral part of these financial statements. COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 APRIL 2016 Cash flows from operating activities NOTES Profit/(loss) for the year Depreciation of property, plant and equipment Amortisation of intangible assets Share-based payment charge Finance income recognised in profit or loss Taxation credit recognised in profit or loss Business acquisition costs in profit or loss Movement in fair value of contingent consideration Decrease/(increase) in trade and other receivables Movement in intra-group balances (Decrease)/increase in trade and other payables (Decrease)/increase in deferred revenue Cash generated by operations Interest received Business acquisition costs paid Net cash generated by operating activities Cash flows from investing activities Payments for investments in subsidiaries Payment of deferred consideration on business combinations Payment of contingent consideration on business combinations Receipts from warranty claims on business combinations Payments for development costs Payments for property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from placing of equity shares Payments for share issue costs Proceeds from issue of shares under the share option schemes Equity dividends paid Net cash (used)/generated by financing activities Net decrease in cash and cash equivalents during the year Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 10 9 15 18 15 9 10 19 19 20 25 25 2016 £’000 587 15 79 183 (1) (33) - 4 364 413 (289) (26) 1,296 1 (92) 1,205 2015 £’000 (465) 23 93 120 (2) (23) 450 188 (466) 2,775 80 118 2,891 2 (312) 2,581 - (19,284) (1,618) (51) 176 - (10) (50) (468) - (77) (17) (1,503) (19,896) - - 172 (306) (134) (432) 1,409 977 17,500 (584) 211 (219) 16,908 (407) 1,816 1,409 31 Ideagen | ANNUAL REPORT 2016The notes on pages 32 to 74 form an integral part of these financial statements. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 1 | ACCOUNTING POLICIES REPORTING ENTITY Ideagen plc is a public limited company, incorporated and domiciled in England & Wales. The ordinary shares of the company are traded on the AIM market of the London Stock Exchange. STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with all International Financial Reporting Standards (“IFRS”), as adopted by the European Union, and IFRIC interpretations applicable as at 30 April 2016 and with those parts of the Companies Act 2006 applicable to those companies reporting under IFRS. PRINCIPAL ACTIVITIES The principal activities of the group are the development and sale of information management software to businesses in highly regulated industries and the provision of associated professional services and support. BASIS OF PREPARATION These financial statements have been prepared in sterling on an historical cost basis, unless otherwise stated, and have been rounded to the nearest thousand pounds. The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to present its individual Statement of Comprehensive Income and related notes. The profit for the year dealt with in the financial statements of the Parent Company for the year ended 30 April 2016 was £587,000 (2015: loss of £465,000). A summary of the significant accounting policies used in the preparation of these financial statements is set out below. BASIS OF CONSOLIDATION The group financial statements include the financial statements of the Company and all of its subsidiary undertakings made up to 30 April 2016. Subsidiaries are consolidated from the date of acquisition, being the date on which the group obtains control, and continue to be consolidated until the date that such control ceases. All intra-group balances and transactions are eliminated. The financial statements of all subsidiaries are prepared up to the same date as the parent Company. REVENUE RECOGNITION Revenue is measured at the fair value of the consideration received from the sale of software licences and the rendering of services, net of value added tax and any discounts. Revenue is recognised as follows: a. Software licences Revenue on perpetual software licences is recognised on delivery of the licence to the customer. Software as a service, hosted software and software sold on a subscription basis are invoiced quarterly or annually in advance and revenue is recognised on a time-basis over the appropriate service or subscription period. A deferred revenue liability is recognised in the statement of financial position to represent the element of the service or subscription revenue deferred to be recognised as revenue in the future. 32 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 1 | ACCOUNTING POLICIES (CONTINUED) b. Professional services and hardware sales Revenue in respect of professional services such as consulting days, training and bespoke development are recognised as these services are delivered. Revenue in respect of sales of third party hardware are recognised on delivery. c. Annual support and maintenance Revenue is recognised on a time-basis over the length of the support period. Annual support and maintenance is normally invoiced in advance and a deferred revenue liability is recognised in the statement of financial position to represent the element of the support and maintenance revenue deferred to be recognised as revenue in the future. Products owned and supported by third parties where there is no further liability to the group are invoiced in advance and revenue and the associated third party costs are recognised on delivery. FOREIGN CURRENCIES In preparing the financial information of each individual group entity, transactions in currencies other than the entity’s functional currency are recognised at the rates of exchange prevailing at the date of those transactions. At the end of the financial year, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognised in profit or loss in the period in which they arise. For the purposes of the consolidated financial information, the assets and liabilities of foreign operations are translated into sterling using exchange rates prevailing at the end of each financial year. Income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the year, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising are recognised in other comprehensive income and accumulated in a foreign currency translation reserve within equity. LEASES Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are expensed in the Statement of Comprehensive Income on a straight line basis over the lease term. EXCEPTIONAL ITEMS The Group presents as exceptional items on the face of the Statement of Comprehensive Income those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to better understand the elements of financial performance in the year, so as to facilitate comparison with prior years. TAXATION The tax charge or credit is based on the result for the year and comprises current and deferred income tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the year end date and includes any adjustment to tax payable in respect of previous years. Deferred income tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities included in the financial statements and the tax base of those assets and liabilities. Deferred income tax assets are recognised only to the extent that the directors consider that it is probable that there will be suitable taxable profits in the future against which an asset can be utilised. 33 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 1 | ACCOUNTING POLICIES (CONTINUED) Deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the year end date. Deferred income tax assets and deferred income tax liabilities arising in different tax jurisdictions are not offset. PENSIONS AND POST RETIREMENT BENEFITS The group operates a defined contribution pension scheme for certain employees. The assets of the scheme are held separately from those of the Group in independently administered funds. Payments are made by the group to both this scheme and to individual private defined contribution pension arrangements for certain other employees. Contributions are charged in the Statement of Comprehensive Income as they become payable. GOODWILL Goodwill arising on business combinations is initially measured at cost being the excess of the fair value of the consideration paid over the group’s interest in the net fair value of the identifiable assets and liabilities acquired. Costs of acquiring businesses are expensed as incurred. Goodwill is subsequently measured at cost less any accumulated impairment losses. Goodwill is not amortised but is reviewed annually for impairment. Impairment is determined by assessing the recoverable amount of the cash-generating unit which contains the goodwill. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in the Statement of Comprehensive Income. OTHER INTANGIBLE ASSETS Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. The estimated useful life and amortisation method are reviewed annually with the effect of any changes being reflected on a prospective basis. Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at their initial fair value less amortisation and accumulated impairment losses. Research costs are expensed as incurred. An intangible asset arising from development expenditure on a project is only recognised if management considers that it is technically feasible and that there are sufficient resources available to complete the asset so that it will be available for use or sale, that it intends to complete and is able to sell or use the asset to generate future economic benefits and that the costs of the development project can be measured reliably. Following the initial recognition of the expenditure, the asset will be carried at cost less accumulated amortisation and impairment losses. Amortisation is applied once the asset is available for sale to write off the cost over the period which is expected to benefit from the sale of the asset. The annual amortisation rates currently applied to the group’s intangible assets are as follows: Software Development costs Customer relationships 20% or 25% 20% or 25% 10% Amortisation charges are included in ‘Depreciation and amortisation’ in the Statement of Comprehensive Income. THE COMPANY’S INVESTMENTS IN SUBSIDIARIES The Company recognises its investments in subsidiaries at cost less any impairment in its separate financial statements. Costs of acquiring businesses are expensed as incurred. Impairment is determined by assessing the recoverable amount of the investment. Where the recoverable amount is less than the carrying amount, an impairment loss is recognised in the Statement of Comprehensive Income. 34 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 1 | ACCOUNTING POLICIES (CONTINUED) PROPERTY, PLANT AND EQUIPMENT Plant and equipment are stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated at the annual rates shown below so as to write off the cost, less any estimated residual values, over the expected useful economic lives of the assets concerned: ▪ Office equipment at 25% or 33% on a straight line basis ▪ Motor vehicles at 25% on a reducing balance basis ▪ Leasehold improvements over the remaining lease term ▪ All other plant and equipment assets at 25% on a straight line basis. The remaining useful lives and residual values of plant and equipment are reassessed by the directors each year. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any indication exists, the carrying values are written down to the recoverable amount. IMPAIRMENT OF ASSETS The Group reviews the carrying amounts of its tangible and intangible assets at least annually to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount provided that this does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. INVENTORIES Inventories are stated at the lower of cost and net realisable value. Net realisable value represents the estimated selling price for the inventories less all costs necessary to complete the sale. TRADE AND OTHER RECEIVABLES Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade and other receivables are measured at amortised cost using the effective interest method less any impairment provision. An impairment provision is made against a trade receivable only when there is objective evidence that the Group may not be able to recover the whole invoiced amount as a result of events occurring after the initial recognition of the asset. CASH AND CASH EQUIVALENTS Cash and cash equivalents in the Statement of Financial Position comprise cash at bank and in hand. For the purpose of the Statement of Cash Flows, cash and cash equivalents as defined above are stated net of any outstanding bank overdrafts. 35 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 1 | ACCOUNTING POLICIES (CONTINUED) FINANCIAL LIABILITIES AND EQUITY INSTRUMENTS Equity and debt instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. The Group’s financial liabilities include trade and other payables and borrowings which are measured at amortised cost using the effective interest rate method. An equity instrument is any contract which evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group, such as share capital and share premium, are recognised at the proceeds received net of direct issue costs. CONTINGENT CONSIDERATION Contingent consideration is initially measured at fair value at the date of completion of the acquisition. The accounting for changes in the fair value of contingent consideration arising on business combinations that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as a liability is remeasured to fair value at subsequent reporting dates and the corresponding gain or loss is recognised in the Statement of Comprehensive Income. SHARE-BASED PAYMENTS The cost of equity settled transactions with employees is measured by reference to the fair value on the date they are granted. Where there are no market conditions attaching to the exercise of the options, the fair value is determined using a range of inputs into a Black-Scholes pricing model. Where there are market conditions attaching to the exercise of the options a trinomial option pricing model is used to determine fair value based on a range of inputs. The fair value of equity-settled transactions is charged to the Statement of Comprehensive Income over the period in which the service conditions are fulfilled with a corresponding credit to a share-based payments reserve in equity. On the exercise of share options, an amount equal to the fair value of the option at the date it was granted is transferred from the share-based payments reserve into retained earnings. DIVIDENDS Dividends distributed to the Company’s shareholders are recognised as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders or, in the case of interim dividends, when they are paid. NEW ACCOUNTING STANDARDS There are no new standards or amendments to standards which are mandatory for the first time for the financial year ended 30 April 2016 which had a significant impact on the Group. Of the new standards, amendments to standards and interpretations which have been published but are not yet effective, only IFRS 15 “Revenue from contracts with customers” and IFRS 16 “Leases” are potentially considered to have a significant impact on the Group. The directors are currently reviewing these new standards and the effects, if any, of applying these standards to the financial statements of the Group and the Company have not yet been evaluated. 36 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 1 | ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES AND JUDGEMENTS The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets, liabilities, revenues and expenses. However the nature of estimation means that actual outcomes could differ from those estimates. In applying the Group’s accounting policies, management has made the following judgements and estimates which have the most significant effect on the amounts recognised in the financial statements. Acquisition intangibles The Group initially measures the separable intangible assets acquired in a business combination at their fair value at the date of acquisition. Management judgement is required in deriving a number of assumptions which are used in assessing the fair value of each acquisition intangible including the timing and amount of future incremental cash flows expected to be generated by the asset and in calculating an appropriate cost of capital. Management judgement is also required in assessing the useful economic lives of these assets for the purposes of amortisation. Deferred income tax assets Management judgement is required to determine the amount of deferred income tax assets that can be recognised, based on the likely timing and level of future taxable profits. Details of the deferred income tax assets recognised in respect of trading losses and share-based payments are given in Note 7. Share-based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Judgement is required in determining the most appropriate valuation model and the most appropriate inputs into the model including the level of volatility and the expected life of the option. Further information is given in Note 21. Impairment of goodwill The Group tests goodwill for impairment on an annual basis in line with the accounting policy noted above. This involves judgement regarding the future development of the business and the estimation of the level of future growth, cash flows and an appropriate discount rate to support the carrying value of goodwill. Impairment of other assets The Group reviews the carrying value of all other assets for indications of impairment at each period end. If indicators of impairment exist, the carrying value of the asset is subject to further testing to determine whether its carrying value exceeds its recoverable amount. This process will usually involve the estimation of future cash flows which are likely to be generated by the asset. Trade and other receivables Trade and other receivables are recognised to the extent that they are considered recoverable. Management judgement is required in considering the recoverability of debts and in the estimation of any provisions which may be required where recoverability is considered to be uncertain. 37 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 2 | REVENUE The directors consider that the Group has a single business segment, being the sale of information management software to highly regulated industries. The operations of the Group are managed centrally with group-wide functions covering sales and marketing, development, professional services, customer support and finance and administration. An analysis of revenue by product or service is given below. Software licences Maintenance and support Professional services Hardware sales 2016 £’000 7,196 10,000 4,636 104 2015 £’000 4,242 6,606 2,905 636 21,936 14,389 An analysis of external revenue by location of customers and non-current assets by location of assets is given below: United Kingdom United States of America Europe Middle East Rest of the World Unallocated External revenue by location of customers Non-current assets by location of assets* 2016 £’000 12,709 2,837 2,471 1,456 2,463 2015 £’000 9,435 1,628 1,437 858 1,031 2016 £’000 2015 £’000 29,933 32,081 - - - - 2 - - - - 3,072 3,269 21,936 14,389 33,005 35,352 * Non-current assets exclude deferred income tax assets. No single customer accounted for more than 10% of total revenue in either year. 38 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 3 | OPERATING COSTS Wages and salaries (note 4) Operating lease charges – land & buildings Loss on disposal of property, plant and equipment Foreign exchange (gains) / losses Other operating costs Depreciation and amortisation: Amortisation of acquisition-related intangible assets Amortisation of other intangible assets Total amortisation of intangible assets Depreciation of property, plant and equipment Total depreciation and amortisation Total research and development costs Less: development costs capitalised Research and development costs expensed Auditor’s remuneration - The audit of the company’s annual accounts Fees payable for other services provided by the Auditor: - The audit of the company’s subsidiaries’ annual accounts - Tax compliance and advisory services 2016 £’000 9,593 356 3 (81) 3,176 13,047 3,715 406 4,121 201 4,322 2015 £’000 6,044 194 - 82 2,157 8,477 2,090 257 2,347 156 2,503 3,538 1,938 (1,643) 1,895 (941) 997 12 54 13 12 67 25 39 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 4 | PARTICULARS OF EMPLOYEES The average number of staff employed by the group during the year, analysed by category, was as follows: 2016 2015 NUMBER NUMBER 27 60 161 248 2016 £’000 10,049 1,027 160 19 34 110 163 2015 £’000 6,200 690 95 11,236 6,985 (1,643) (941) 9,593 6,044 921 15 142 134 10,529 6,320 2016 £’000 7 2015 £’000 5 Administrative staff Sales and marketing Technical and support The aggregate payroll costs of these employees were as follows: Wages and salaries Social security costs Other pension costs Less: internal development costs capitalised Share based payment costs (note 21) - on options granted - national insurance 5 | FINANCE INCOME Bank interest receivable 40 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 6 | DIRECTORS’ REMUNERATION AND SHARE OPTIONS The total remuneration of the directors (including fees) for the year was as follows: Directors’ remuneration Directors’ pension contributions 2016 £’000 329 - 329 2015 £’000 466 - 466 The remuneration of each of the directors of the company during the year ended 30 April 2016 was as follows: David Hornsby Graeme Spenceley Jonathan Wearing Alan Carroll SALARY OR FEES BONUSES TOTAL £ £ £ 159,167 15,000 174,167 105,167 15,000 120,167 12,500 21,996 - - 12,500 21,996 298,830 30,000 328,830 The bonuses for David Hornsby and Graeme Spenceley were in respect of achieving certain business related targets. The remuneration for Alan Carroll was paid to Ultris Limited as set out in note 26. The remuneration of each of the directors of the company during the year ended 30 April 2015 was as follows: David Hornsby Graeme Spenceley Jonathan Wearing Alan Carroll Les Paul (resigned 31 July 2014) SALARY OR FEES BONUSES TOTAL £ £ £ 150,000 130,000 280,000 96,000 10,000 18,327 12,000 50,000 146,000 - - - 10,000 18,327 12,000 286,327 180,000 466,327 The bonuses for David Hornsby and Graeme Spenceley were in respect of the successful completion of the acquisition and integration of Gael Ltd and EIBS Ltd during the year and on achieving certain business related targets. The remuneration of the highest paid director during the year ended 30 April 2016 was £174,167 (2015: £280,000). None of the directors received or accrued any benefits under company pension schemes or received any benefits in kind. 41 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 6 | DIRECTORS’ REMUNERATION AND SHARE OPTIONS (CONTINUED) No options were exercised by directors during the year ended 30 April 2016. During the year ended 30 April 2015, David Hornsby exercised 2,800,000 options over the shares of the Company at 2.5 pence when the share price of the Company was 35 pence and Graeme Spenceley exercised 200,000 options over the shares of the Company at 7 pence when the share price of the Company was 35 pence. Following his resignation as a director in the year ended 30 April 2015, Les Paul exercised 333,333 options over the shares of the Company at 22.38 pence when the share price of the Company was 32.38 pence. Mr Paul’s remaining 666,667 options lapsed on leaving employment with the Company. The following options over shares in the Company granted to the directors remain outstanding at 30 April 2016: Director Number of outstanding options at 30 April 2016 and 30 April 2015 Exercise price (pence) Number of options exercisable at 30 April 2016 Number of options exercisable at 30 April 2015 Date granted Date exercisable by David Hornsby 1,333,333 9.0 1,333,333 1,333,333 20 October 2011 19 October 2021 David Hornsby 500,000 22.38 500,000 333,333 30 January 2013 29 January 2023 Graeme Spenceley 800,000 9.0 800,000 800,000 20 October 2011 19 October 2021 Graeme Spenceley 1,000,000 22.38 1,000,000 666,666 30 January 2013 29 January 2023 In addition to the options outstanding as at 30 April 2016 noted above, 1,000,000 options over the shares of the Company with an exercise price of 1 penny each were granted to Graeme Spenceley on 22 July 2015 under the Company’s Long Term Incentive Plan. These options are exercisable from 23 July 2016 subject to the following vesting criteria: one half may be exercised on the Company’s share price reaching 51 pence for 20 consecutive business days and the other half on the share price reaching 68 pence for 20 consecutive business days. These options are exercisable by 22 July 2018. No other share options were granted to the directors during the years ended 30 April 2016 or 30 April 2015. Further information on share options is included at note 21 to the financial statements. The contracts of employment of the executive directors include notice periods of 6 months. 42 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 7 | TAXATION The taxation (credit) / expense recognised in the Statement of Comprehensive Income can be analysed as follows: Current income tax UK corporation tax on profit for the current year Overseas income tax charge for the current year Adjustments in respect of prior years Deferred income tax Deferred income tax credit for the current year Total taxation (credit) / expense recognised in the current year 2016 £’000 2015 £’000 27 32 (40) 19 (334) (315) 201 51 (92) 160 (32) 128 The taxation (credit) / expense for the year is higher than the standard rate of corporation tax in the UK of 20% (2015: 21%). The differences are reconciled below: Profit before taxation Tax on profit at standard rate of 20% (2015: 21%) Expenses not deductible for tax purposes Deferred taxation not provided on accelerated capital allowances Movement in fair value of contingent consideration not taxable Charge to income statement from movement in deferred tax asset Enhanced R&D tax relief Effect on deferred tax from change in current tax rate Different tax rates in overseas jurisdictions Utilisation of brought forward trading losses Deferred tax assets not previously recognised Tax deduction in income statement on exercise of share options Adjustments recognised in current year tax in respect of prior years 2016 £’000 1,002 200 2 (33) 1 - (195) (131) 12 - (131) - (40) 2015 £’000 608 128 114 8 39 236 (47) 7 5 (220) - (50) (92) Taxation (credit) / expense recognised for the current year (315) 128 43 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 7 | TAXATION (CONTINUED) A further taxation credit of £275,000 (2015: £294,000) in respect of share-based payment charges was reflected directly in equity reserves. The movements in recognised deferred income tax assets during the year were as follows: Trading losses Share- based payments Total £’000 £’000 £’000 137 846 (293) - 690 (442) - 248 36 - 57 93 186 168 275 629 173 846 (236) 93 876 (274) 275 877 Trading losses Share- based payments Total £’000 £’000 £’000 137 (36) - 101 (15) - 86 - 42 93 135 29 125 289 137 6 93 236 14 125 375 Deferred income tax assets: Group At 1 May 2014 On acquisition of businesses Recognised in profit or loss Recognised in equity At 30 April 2015 Recognised in profit or loss Recognised in equity At 30 April 2016 Deferred income tax assets: Company At 1 May 2014 Recognised in profit or loss Recognised in equity At 30 April 2015 Recognised in profit or loss Recognised in equity At 30 April 2016 44 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 7 | TAXATION (CONTINUED) The deferred income tax assets at 30 April 2016 are expected to be utilised as follows: Group Within 1 year After more than 1 year Company Within 1 year After more than 1 year Trading losses Share-based payments £’000 £’000 Total £’000 175 73 248 44 42 86 - 629 629 - 289 289 175 702 877 44 331 375 The deferred income tax assets on trading losses and share-based payments have only been recognised to the extent that it is considered probable that they can be recovered against future taxable profits based on profit forecasts for the foreseeable future. In addition to the recognised deferred income tax assets set out above, at 30 April 2016 there are also unrecognised deferred income tax assets in respect of trading losses of £274,000 (2015: £207,000) in the Group and £219,000 (2015: £207,000) in the Company. The movements in deferred income tax liabilities during the year were as follows: Group At 1 May 2014 Recognised in profit or loss Recognised on business combinations At 30 April 2015 Recognised in profit or loss At 30 April 2016 The deferred tax liabilities at 30 April 2016 are expected to crystallise as follows: Group Within 1 year After more than 1 year Deferred tax liability: Intangibles £’000 (1,377) 268 (3,547) (4,656) 608 (4,048) Deferred tax liability: Intangibles £’000 (851) (3,197) (4,048) 45 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 7 | TAXATION (CONTINUED) FACTORS THAT MAY AFFECT FUTURE TAX CHARGES Legislation to reduce the main rate of corporation tax from 20% to 19% from 1 April 2017 and from 19% to 18% from 1 April 2020 was enacted in October 2015. At the 2016 Budget, the government announced a further reduction in the rate to 17% from 1 April 2020 which has not yet been enacted so has not been considered in the determination of deferred tax. The deferred tax balances within these financial statements have been reassessed to reflect these rates within the period that any related timing difference is expected to reverse. 8 | EARNINGS PER SHARE Basic earnings per share is computed by dividing the profit for the year attributable to equity holders of the parent by the weighted-average number of ordinary shares outstanding during the year. Diluted earnings per share is computed by dividing the profit for the year attributable to equity holders of the parent by the weighted-average number of ordinary shares outstanding during the year as adjusted for the effect of all dilutive potential ordinary shares. The following tables set out the computations for basic and diluted earnings per share: Year ended 30 April 2016 Basic EPS Profit for the year attributable to equity holders of the parent Effect of dilutive securities: share options Diluted EPS Earnings Weighted average number of shares Per-share amount £’000 1,317 - pence 178,379,433 0.74 7,936,922 Profit for the year attributable to equity holders of the parent 1,317 186,316,355 0.71 Year ended 30 April 2015 Basic EPS Earnings £’000 Weighted average number of shares Per-share amount pence Profit for the year attributable to equity holders of the parent Effect of dilutive securities: share options Diluted EPS Profit for the year attributable to equity holders of the parent 480 - 480 138,783,359 0.35 4,285,025 143,068,384 0.34 46 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 8 | EARNINGS PER SHARE (CONTINUED) In order to better demonstrate the performance of the Group, an adjusted earnings per share calculation has been presented below which adds back or deducts items typically adjusted for by users of financial statements. The calculations of the adjusted basic and diluted earnings per share amounts are based on the following information: Profit for the year attributable to equity holders of the parent Adjustments: Costs of acquiring businesses Share-based payment charges Deferred taxation on share-based payment charges Amortisation of acquisition-related intangibles (Note 3) Deferred taxation on amortisation of acquisition-related intangibles Movement in fair value of contingent consideration 2016 £’000 1,317 - 936 (168) 3,715 (851) 4 2015 £’000 480 450 276 (57) 2,090 (409) 188 Adjusted earnings 4,953 3,018 Weighted average number of shares: Basic adjusted EPS calculation 178,379,433 138,783,359 Effect of dilutive securities: share options 7,936,922 4,285,025 Weighted average number of shares: Diluted adjusted EPS calculation 186,316,355 143,068,384 Adjusted earnings per share: Basic Diluted 2016 pence 2.78 2015 pence 2.17 2.66 2.11 47 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 9 | INTANGIBLE ASSETS Group Cost At 1 May 2014 Acquisition through business combinations Additions from internal development Goodwill Software Customer relationships Development costs Total £’000 £’000 £’000 £’000 £’000 4,358 6,915 - 3,975 7,787 - 4,302 9,947 - 1,151 - 941 13,786 24,649 941 At 30 April 2015 11,273 11,762 14,249 2,092 39,376 Additions from internal development - - - At 30 April 2016 11,273 11,762 14,249 1,643 3,735 1,643 41,019 Amortisation At 1 May 2014 Amortisation expense At 30 April 2015 Amortisation expense At 30 April 2016 Net carrying amount At 30 April 2016 At 30 April 2015 Goodwill - - - - - 11,273 11,273 1,120 1,322 2,442 2,290 4,732 7,030 9,320 655 784 1,439 1,425 2,864 204 241 445 406 851 1,979 2,347 4,326 4,121 8,447 11,385 12,810 2,884 1,647 32,572 35,050 The carrying amount of goodwill has been allocated to the following Cash Generating Units (“CGUs”): Ideagen Gael CGU Ideagen Content CGU £’000 10,023 1,250 11,273 The Ideagen Gael CGU comprises the businesses of the acquisitions of Gael, Pentana, Ideagen Software, Ideagen Capture and Proquis. The Ideagen Content CGU comprises the businesses of the acquisitions of Plumtree, MSS and EIBS. 48 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 9 | INTANGIBLE ASSETS (CONTINUED) These goodwill amounts were tested for impairment at 30 April 2016 by comparing the carrying value of the cash-generating unit with the recoverable amount. The recoverable amount was determined using a value in use methodology based on discounted cash flow projections. The key assumptions used in the value in use calculations were as follows: i. The operating cash flows for these businesses for the year to 30 April 2017 are taken from the budget approved by the Board which is closely linked with recent historical performance and current sales opportunities. The operating cash flow budget is most sensitive to the level of new business sales; ii. No growth has been assumed in operating cash flows for the remainder of the value in use calculation period; iii. A pre-tax discount rate of 11% has been used; iv. The use of cash flow projections over longer than a 5 year period is considered appropriate as the businesses of both of the CGUs have been operating for over 20 years, have strong recurring revenue bases and the Group continues to invest in the development of the products in both CGUs. IDEAGEN GAEL CGU On the basis of the above assumptions and using projection periods of 10 years, 15 years and in perpetuity, the recoverable amount of the CGU, based on a value in use methodology, is estimated to exceed the carrying amount of the CGU by the amounts shown in the table below. Future annual operating cash inflows, which are most sensitive to the level of new business sales, would need to be consistently lower than the no-growth assumption used in the value in use calculation by the percentages shown in the table below to reduce the recoverable amount of the CGU to below the carrying amount. Based on the historic sales performance of the business and actions being taken to grow the business, the directors do not currently expect this reduced level of future annual operating cash flows to occur. Projection period in value in use calculations In perpetuity 15 years 10 years 22,781 14,771 8,904 52% 42% 30% Amount by which recoverable amount of the CGU, based on value in use, exceeds the carrying amount (£’000) Reduction in annual operating cash flows below the no-growth assumption used in value in use calculations required to reduce the recoverable amount of the CGU below the carrying amount IDEAGEN CONTENT CGU On the basis of the above assumptions and using projection periods of 10 years, 15 years and in perpetuity, the recoverable amount of the CGU, based on a value in use methodology, is estimated to exceed the carrying amount of the CGU by the amounts shown in the table below. Future annual operating cash inflows, which are most sensitive to the level of new business sales, would need to be consistently lower than the no-growth assumption used in the value in use calculation by the percentages shown in the table below to reduce the recoverable amount of the CGU to below the carrying amount. Based on the historic sales performance of the business and actions being taken to grow the business, the directors do not currently expect this reduced level of future annual operating cash flows to occur. Projection period in value in use calculations In perpetuity 15 years 10 years Amount by which recoverable amount of the CGU, based on value in use, exceeds the carrying amount (£’000) 2,297 1,412 Reduction in annual operating cash flows below the no-growth assumption used in value in use calculations required to reduce the recoverable amount of the CGU below the carrying amount 43% 32% 618 17% 49 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 9 | INTANGIBLE ASSETS (CONTINUED) DEVELOPMENT COSTS Development costs are internally generated. At 30 April 2016, the carrying amount of ongoing development projects on which amortisation has not yet commenced was £520,000 (2015: £707,000). At 30 April 2016, the carrying amount of completed development projects on which amortisation is being charged was £2,364,000 (2015: £939,000). The weighted average remaining amortisation period of these assets at 30 April 2016 is 3.7 years (2015: 3.5 years). The remaining amortisation periods and carrying amounts of the Group’s other intangible assets are as follows: 2016 Remaining amortisation period 2015 Remaining amortisation period 2016 Carrying amount 2015 Carrying amount (years) (years) £’000 £’000 4.2 4.9 - 5.7 0.6 6.6 1.6 7.5 2.5 7.2 2.2 8.2 3.2 8.7 3.7 5.2 5.9 0.9 6.7 1.6 7.6 2.6 8.5 3.5 8.2 3.2 9.2 4.2 9.7 4.7 202 250 207 - 233 75 720 379 249 25 274 185 828 610 1,175 644 1,331 896 250 248 818 450 285 363 919 593 7,780 5,234 8,675 6,649 Group Ideagen Capture Customer relationships Ideagen Software Customer relationships Software Proquis Customer relationships Software Plumtree Customer relationships Software Pentana Customer relationships Software MSS Customer relationships Software EIBS Customer relationships Software Gael Customer relationships Software 50 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 9 | INTANGIBLE ASSETS (CONTINUED) COMPANY The intangible assets of the Company are as follows: Cost At 1 May 2014 Additions from internal development At 30 April 2015 Additions from internal development At 30 April 2016 Amortisation At 1 May 2014 Amortisation expense At 30 April 2015 Amortisation expense At 30 April 2016 Net carrying amount At 30 April 2016 At 30 April 2015 Software Development costs Total £’000 £’000 £’000 121 - 121 - 121 106 15 121 - 121 - - 412 77 489 - 489 111 78 189 79 268 221 300 533 77 610 - 610 217 93 310 79 389 221 300 51 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 10 | PROPERTY, PLANT AND EQUIPMENT GROUP Fixtures and fittings Office equipment Motor vehicles Leasehold improvements Loan equipment Total £’000 £’000 £’000 £’000 £’000 £’000 Cost At 1 May 2014 Additions Acquisition through business combinations Disposals Foreign currency exchange differences At 30 April 2015 Additions Disposals At 30 April 2016 Depreciation At 1 May 2014 Depreciation expense Foreign currency exchange differences At 30 April 2015 Depreciation expense Disposals Foreign currency exchange differences At 30 April 2016 Net carrying amount At 30 April 2016 At 30 April 2015 65 2 7 - - 74 92 - 166 47 18 - 65 24 - - 89 77 9 326 92 96 - - 514 230 - 744 222 97 1 320 139 - 1 460 284 194 - - 95 (9) - 86 16 (16) 86 - 6 - 6 20 (2) - 24 62 80 39 - 5 - 1 45 9 - 54 18 21 - 39 8 - - 47 7 6 39 4 - - - 469 98 203 (9) 1 43 762 - - 347 (16) 43 1,093 16 14 - 30 10 - - 40 3 13 303 156 1 460 201 (2) 1 660 433 302 52 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 10 | PROPERTY, PLANT AND EQUIPMENT (CONTINUED) COMPANY Cost At 1 May 2014 Additions At 30 April 2015 Additions At 30 April 2016 Accumulated depreciation At 1 May 2014 Depreciation expense At 30 April 2015 Depreciation expense At 30 April 2016 Net carrying amount As at 30 April 2016 As at 30 April 2015 Fixtures and fittings Office equipment Leasehold improvements £’000 £’000 £’000 Total £’000 23 - 23 - 23 21 2 23 - 23 - - 155 17 172 - 172 133 21 154 13 167 5 18 - - - 10 10 - - - 2 2 8 - 178 17 195 10 205 154 23 177 15 192 13 18 53 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 11 | FIXED ASSET INVESTMENTS COMPANY Cost As at 1 May 2014 Additions in the year Transfers of shares to other group companies Capital contributions to subsidiary companies As at 30 April 2015 Amounts claimed under warranties relating to business combinations Capital contributions to subsidiary companies As at 30 April 2016 Impairments As at 1 May 2014 Transfer of shares to other group companies As at 30 April 2015 and 30 April 2016 Net carrying amount As at 30 April 2016 As at 30 April 2015 Shares in subsidiaries £’000 11,362 22,525 (8,545) 156 25,498 (176) 754 26,076 1,368 (1,368) - 26,076 25,498 At 30 April 2016 the Company held 100% of the nominal value of all classes of the share capital of the companies set out below. All of these companies are incorporated in England & Wales with the exception of Ideagen Gael Limited and Gael Products Limited which are incorporated in Scotland and Ideagen Inc. which is incorporated in the United States of America. 54 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 11 | FIXED ASSET INVESTMENTS (CONTINUED) Name of subsidiary Nature of business Class of shares Ideagen Gael Limited Development and sale of software licences, software maintenance and related professional services Ideagen Content Limited Development and sale of software licences, software maintenance and related professional services Ordinary and ‘B’ Ordinary Ordinary and ‘B’ Ordinary Ideagen Inc. Sale of software licences, software maintenance and related professional services Ideagen Software Limited Pentana Limited EIBS Limited Dormant from 30 April 2015. Previously engaged in the development and sale of software licences, software maintenance and related professional services Dormant from 30 April 2015. Previously engaged in the development and sale of software licences, software maintenance and related professional services Dormant from 30 April 2015. Previously engaged in the development and sale of software licences, software maintenance and related professional services MSS Management Systems Services Limited Dormant Ideagen Capture Limited Dormant Proquis Limited Filebutton Limited Dormant Dormant Root3 Systems Limited Dormant Ideagen Systems Limited Dormant Gael Products Limited Dormant Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary ‘A’ Ordinary and ‘B’ Ordinary Ordinary Ordinary Ordinary 55 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 12 | INVENTORIES GROUP Goods for resale 2016 £’000 33 2015 £’000 55 Inventory costs recognised as an expense within Cost of sales in the group Statement of Comprehensive Income amounted to £22,000 (2015: £334,000). 13 | TRADE AND OTHER RECEIVABLES GROUP Trade receivables Prepayments and accrued income Other receivables COMPANY Trade receivables Prepayments and accrued income Amounts receivable from subsidiaries Other receivables 56 2016 £’000 6,117 2,127 - 8,244 2016 £’000 774 275 3,948 - 4,997 2015 £’000 6,481 772 79 7,332 2015 £’000 1,179 203 4,316 30 5,728 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 13 | TRADE AND OTHER RECEIVABLES (CONTINUED) All trade and other receivables have been reviewed for impairment. Unless specific agreement has been reached with individual customers, sales invoices are due for payment either 30 or 60 days after the date of the invoice. Where customers delay making payment, an assessment of the potential loss of customer goodwill arising from the enforcement of contractual payment terms may take place when considering actions to be taken to secure payment. Trade receivables include amounts that are past due at the reporting date for which no allowance for doubtful debts has been recognised because these amounts are still considered to be recoverable. The group does not hold any collateral or other credit enhancements over its trade receivable balances. An analysis of trade receivables ageing based on due date is set out below. GROUP Not yet overdue 1 – 30 days overdue 30 – 60 days overdue 60+ days overdue Allowance for doubtful debts (all against debts 60+ days overdue) COMPANY Not yet overdue 1 – 30 days overdue 30 – 60 days overdue 60+ days overdue Allowance for doubtful debts (all against debts 60+ days overdue) 2016 £’000 2,381 1,329 502 2,052 6,264 (147) 6,117 2016 £’000 224 184 15 371 794 (20) 774 2015 £’000 2,939 1,582 504 1,672 6,697 (216) 6,481 2015 £’000 517 232 - 450 1,199 (20) 1,179 57 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 13 | TRADE AND OTHER RECEIVABLES (CONTINUED) Trade receivables are shown net of an allowance for doubtful debts, movements on which are set out below. 2016 £’000 216 - 10 (79) 147 2016 £’000 20 - - 20 2015 £’000 51 124 92 (51) 216 2015 £’000 38 20 (38) 20 GROUP Balance at the start of the year On acquisition of businesses Impairment losses recognised Amounts written off as uncollectable Balance at the end of the year COMPANY Balance at the start of the year Impairment losses recognised Amounts written off as uncollectable Balance at the end of the year 58 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 14 | TRADE AND OTHER PAYABLES GROUP Trade payables Other taxes and social security Accruals Other payables COMPANY Trade payables Other taxes and social security Amounts payable to subsidiaries Accruals Other payables 2016 £’000 740 1,156 610 - 2,506 2016 £’000 73 65 7 286 - 431 2015 £’000 942 1,494 848 192 3,476 2015 £’000 126 148 6 325 191 796 59 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 15 | CONTINGENT CONSIDERATION ON BUSINESS COMBINATIONS GROUP AND COMPANY Contingent consideration on the acquisition of MSS Management Systems Services Ltd 2016 £’000 - - 2015 £’000 47 47 Part of the consideration for the acquisition of MSS Management Systems Services Limited in July 2013 was contingent on the achievement of certain revenue targets in the period following acquisition to 30 April 2014. At the date of acquisition, the directors assessed the fair value of the contingent consideration payable under this arrangement at £47,000. The contingent consideration payable was agreed during the year ended 30 April 2016 at a total of £51,000 resulting in a charge of £4,000 which was included as a movement in the fair value of contingent consideration in the Statement of Comprehensive Income for the year ended 30 April 2016. MOVEMENT IN THE FAIR VALUE OF CONTINGENT CONSIDERATION IN THE YEAR ENDED 30 APRIL 2015 Part of the consideration for the acquisition of Pentana Limited in November 2013 was contingent on the achievement of certain revenue targets in the 12 month period following the completion of the acquisition. At the date of acquisition, the directors assessed the fair value of the contingent consideration payable under this arrangement at £280,000. The contingent consideration payable was agreed during the year ended 30 April 2015 at a total of £468,000 resulting in a charge of £188,000 which was included as a movement in the fair value of contingent consideration in the Statement of Comprehensive Income for the year ended 30 April 2015. 16 | CURRENT INCOME TAX LIABILITIES GROUP Current income tax liabilities 2016 £’000 13 13 2015 £’000 44 44 60 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 17 | DEFERRED CONSIDERATION ON BUSINESS COMBINATIONS GROUP AND COMPANY Current liabilities Deferred consideration on the acquisition of Gael Limited Deferred consideration on the acquisition of EIBS Limited Non-current liabilities Deferred consideration on the acquisition of Gael Limited 2016 £’000 1,613 10 1,623 - - 2015 £’000 1,613 15 1,628 1,613 1,613 The deferred consideration payable in respect of the acquisition of Gael Limited of £3,226,000 is not subject to any performance criteria and is payable in two equal amounts of £1,613,000. The first of these payments was made in January 2016 and the second payment is due in January 2017. 61 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 18 | BUSINESS COMBINATIONS BUSINESS COMBINATIONS COMPLETED IN THE YEAR ENDED 30 APRIL 2015 Acquisition of Gael Limited On 13 January 2015, the company acquired 100% of all classes of the issued ordinary share capital of Gael Limited, a company incorporated and domiciled in Scotland, for £20.9 million. The acquisition is expected to enhance the Group’s existing business through increased scale, marketing strength and management expertise together with a strong entry point into the transport sector and a significant recurring revenue stream. The fair values of the identifiable assets acquired and liabilities recognised at the date of acquisition are summarised in the table below. Non-current assets Customer relationships intangible Software intangible Property, plant and equipment Deferred income tax asset Current assets Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Deferred revenue Non-current liabilities Deferred income taxation Net identifiable assets acquired The fair value of the consideration at the date of acquisition is as follows: Cash paid at completion Deferred consideration payable in cash in January 2016 (note 17) Deferred consideration payable in cash in January 2017 (note 17) Total consideration Goodwill arising on the acquisition is as follows: Fair value of consideration at date of acquisition Less: fair value of net identifiable assets acquired Goodwill arising on acquisition 62 £’000 8,943 7,073 176 755 1,914 3,109 (1,245) (3,143) (3,203) 14,379 £’000 17,699 1,613 1,613 20,925 £’000 20,925 (14,379) 6,546 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 18 | BUSINESS COMBINATIONS (CONTINUED) Goodwill arose on the acquisition of Gael Limited as the consideration paid for the combination effectively included amounts in relation to the benefit of revenue growth, expected synergies and the assembled workforce. These benefits are not recognised separately from goodwill because they do not meet the criteria for recognition as identifiable intangible assets. None of this goodwill is expected to be deductible for tax purposes. The costs of the acquisition of £406,000 have been expensed within a separate line in the Group Statement of Comprehensive Income for the year ended 30 April 2015. The Group Statement of Comprehensive Income for the year ended 30 April 2015 includes revenue of £3,510,000 and profit after taxation, excluding amortisation of relevant acquisition intangibles, of £1,014,000 in respect of the subsidiary acquired. Disclosure of information on revenue and profit or loss for the combined entity as though the acquisition of Gael Limited had been completed on 1 May 2014 is impracticable as the accounting reference date of this company was previously 31 December and it did not prepare comparable revenue and profit information on a monthly basis. Net cash outflow on acquisition of Gael Limited: Consideration paid in cash Less: cash acquired in subsidiary Net cash outflow on acquisition of subsidiary Acquisition of EIBS Limited £’000 17,699 (3,109) 14,590 On 24 June 2014, the company acquired 100% of the issued ordinary share capital of EIBS Limited, a company incorporated and domiciled in England, for £1.6 million. The acquisition is expected to enhance the Group’s existing business through the addition of portal, internet and mobile intellectual property and increases the group’s customer base in the NHS and in a number of regulated market sectors. The fair values of the identifiable assets acquired and liabilities recognised at the date of acquisition are summarised in the table below. Non-current assets Customer relationships intangible Software intangible Property, plant and equipment Deferred income tax asset Current assets Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Deferred revenue Non-current liabilities Deferred income taxation Net identifiable assets acquired £’000 1,004 714 26 91 288 296 (183) (661) (344) 1,231 63 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 18 | BUSINESS COMBINATIONS (CONTINUED) The fair value of the consideration at the date of acquisition is as follows: Cash paid at completion Deferred consideration payable in cash (note 17) Total consideration Goodwill arising on the acquisition is as follows: Fair value of consideration at date of acquisition Less: fair value of net identifiable assets acquired Goodwill arising on acquisition £’000 1,585 15 1,600 £’000 1,600 (1,231) 369 Goodwill arose on the acquisition of EIBS Limited as the consideration paid for the combination effectively included amounts in relation to the benefit of revenue growth, expected synergies and the assembled workforce. These benefits are not recognised separately from goodwill because they do not meet the criteria for recognition as identifiable intangible assets. None of this goodwill is expected to be deductible for tax purposes. The costs of the acquisition of £40,000 have been expensed within a separate line in the Group Statement of Comprehensive Income for the year ended 30 April 2015. The Group Statement of Comprehensive Income for the year ended 30 April 2015 includes revenue of £1,534,000 and profit after taxation of £181,000 in respect of the subsidiary acquired. Disclosure of information on revenue and profit or loss for the combined entity as though the acquisition of EIBS Limited had been completed on 1 May 2014 is impracticable as the accounting reference date of this company was previously 31 July and it did not prepare comparable revenue and profit information on a monthly basis. Net cash outflow on acquisition of EIBS Limited: Consideration paid in cash Less: cash acquired in subsidiary Net cash outflow on acquisition of subsidiary £’000 1,585 (296) 1,289 64 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 19 | EQUITY SHARE CAPITAL, SHARE PREMIUM AND OTHER RESERVES GROUP AND COMPANY 2016 £’000 2015 £’000 Issued and fully paid share capital: 178,963,428 ordinary shares of £0.01 each (2015: 177,341,678 shares) 1,790 1,773 Share premium 23,598 23,443 Shares issued in the year ended 30 April 2016 Ordinary shares issued during the year on the exercise of share options were as follows: Date shares issued Number of shares issued Issue price (pence) Share premium (£) 6 May 2015 7 August 2015 14 October 2015 14 October 2015 21 December 2015 24 March 2016 470,000 18,000 940,000 88,750 25,000 80,000 Shares issued in the year ended 30 April 2015 8.50 20.00 8.50 20.00 2.50 37.63 35,250 3,420 70,500 16,862 375 29,304 On 15 May 2014, 500,000 ordinary shares were issued at 2.5 pence per share on the exercise of share options. On 2 June 2014, 129,100 ordinary shares were issued at 28 pence per share on the exercise of share options. On 1 August 2014, 333,333 ordinary shares were issued at 22.38 pence per share on the exercise of share options. In January 2015, a total of 51,470,589 ordinary shares were issued in three tranches under a share placing at 34 pence per share. The first tranche of 1,975,631 shares was issued on 7 January 2015 and the second and third tranches of 12,730,251 and 36,764,707 shares respectively were issued separately on 8 January 2015. Share premium of £16,985,000 arose on the three tranches of shares issued under the share placing. On 24 February 2015, 18,000 ordinary shares were issued at 20 pence per share on the exercise of share options. On 17 April 2015, 2,800,000 ordinary shares were issued at 2.5 pence per share and a further 200,000 ordinary shares were issued at 7 pence per share on the exercise of share options. The total share issue costs during the year ended 30 April 2015 of £584,000 have been deducted from share premium. Details of outstanding options over the shares of the Company are provided in note 21. 65 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 19 | EQUITY SHARE CAPITAL, SHARE PREMIUM AND OTHER RESERVES (CONTINUED) MERGER RESERVE Group Company 2016 £’000 2015 £’000 1,167 1,167 1,218 1,218 The merger reserve is in respect of the premium arising on shares issued as part of the consideration on business combinations completed in previous years. Retained earnings Retained earnings of both the Group and the Company include an amount of £1,336,000 which does not represent a realised profit and is not distributable. 20 | DIVIDENDS A final dividend in respect of the year ended 30 April 2015 of 0.11 pence per ordinary share (in respect of the year ended 30 April 2014: 0.1 pence) was paid to shareholders on 12 November 2015. The total cost of this dividend was £197,000 (in respect of the year ended 30 April 2014: £123,000). An interim dividend in respect of the year ended 30 April 2016 of 0.061 pence per ordinary share (2015: 0.055 pence) was paid to shareholders on 10 March 2016. The total cost of this dividend was £109,000 (2015: £96,000). The directors have proposed the payment of a final dividend of 0.122 pence per ordinary share (2015: 0.11 pence) on 15 November 2016 subject to approval by shareholders at the forthcoming Annual General Meeting. The total estimated cost of this dividend is £220,000. 66 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 21 | SHARE-BASED PAYMENTS AND SHARE OPTIONS The company has issued share options under three different arrangements. The principal arrangements are an Enterprise Management Incentive Scheme used for granting share options to directors and employees and a Long Term Incentive Plan under which share options were granted to certain directors and managers. In addition, a small number of other share options granted in 2005 and 2006 outside these arrangements remain outstanding. Ideagen Enterprise Management Incentive Scheme The company operates an Enterprise Management Incentive Scheme which permits the grant to directors and staff of share options in respect of ordinary shares in the company. Some of the options granted under this scheme do not have the tax benefits normally associated with Enterprise Management Incentive options however these options are identical in all other respects. The Scheme is an equity-settled arrangement and options granted under the scheme have a maximum life of 10 years from the date of grant. Options are capable of being exercised in stages. One third can be exercised one year after grant date, a further third can be exercised two years after grant date and all options are capable of being exercised three years from the grant date. All options can be exercised in the event of a takeover of the company. There are no other vesting conditions except to note that the options will lapse on leaving employment with the company. The following is a summary of the movements in outstanding share options under the Ideagen Enterprise Management Incentive Scheme. Year ended 30 April 2016 Outstanding at 1 May 2015 Granted during the year Exercised during the year Lapsed during the year Outstanding at 30 April 2016 Exercisable as at 30 April 2016 Number of options Weighted average exercise price (pence) 9,994,333 1,650,000 (1,533,000) (443,000) 9,668,333 6,079,666 21.2 38.3 10.0 37.63 25.2 18.4 Of the options outstanding at 30 April 2016, 2,133,333 options have an exercise price of 9 pence, 3,500,000 options have an exercise price of 22.38 pence, 1,330,000 options have an exercise price of 32.12 pence, 1,125,000 options have an exercise price of 35 pence, 1,055,000 options have an exercise price of 37.63 pence and 525,000 options have an exercise price of 45.5 pence. 67 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 21 | SHARE-BASED PAYMENTS AND SHARE OPTIONS (CONTINUED) During the year, 1,125,000 options were granted at 35 pence and 525,000 options were granted at 45.5 pence. The fair values of the options granted during the year were estimated at the date of grant using a Black-Scholes option pricing model. The inputs to the option pricing model are summarised below. Date of grant Share price at grant date Exercise price Expected volatility Expected dividend yield Expected option life Risk-free interest rate Fair value of option 1,125,000 options at 35 pence 525,000 options at 45.5 pence 12 May 2015 7 September 2015 35 pence 35 pence 32% 0.4% 5 years 1.4% 45.5 pence 45.5 pence 32% 0.4% 5 years 1.26% 10.16 pence 13.20 pence Future share price volatility has been estimated by using historic share price volatility over the most recent period commensurate with the expected life of the option. The fair values at the date the options were granted of those options exercised during the year and the price of Ideagen plc ordinary shares on the date of exercise were as follows. Number of options exercised Exercise price (pence) Ideagen plc share price on date of exercise (pence) Fair value per option at date of grant (pence) 470,000 18,000 940,000 25,000 80,000 1,533,000 8.50 20.00 8.50 2.50 37.63 35.00 47.00 46.50 54.50 49.00 5.70 - 5.70 1.28 13.69 During the year, 443,000 options lapsed. These options had an exercise price of 37.63 pence and a fair value at grant date of 13.69 pence per option. The total fair value of the options exercised during the year at the date the options were granted was £92,000. This amount was transferred from the share-based payment reserve to retained earnings during the year. The weighted average remaining contractual life of the options outstanding at 30 April 2016 was 7.4 years. 68 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 21 | SHARE-BASED PAYMENTS AND SHARE OPTIONS (CONTINUED) Year ended 30 April 2015 Outstanding at 1 May 2014 Granted during the year Exercised during the year Lapsed during the year Outstanding at 30 April 2015 Exercisable as at 30 April 2015 Number of options Weighted average exercise price (pence) 11,604,333 2,908,000 (3,851,333) (666,667) 9,994,333 5,586,333 12.3 35.1 4.5 22.38 21.2 13.7 Of the options outstanding at 30 April 2015, 18,000 options have an exercise price of 20 pence, 25,000 options have an exercise price of 2.5 pence, 1,410,000 options have an exercise price of 8.5 pence, 2,133,333 options have an exercise price of 9 pence, 3,500,000 options have an exercise price of 22.38 pence, 1,330,000 options have an exercise price of 32.12 pence and 1,578,000 options have an exercise price of 37.63 pence. During the year, 1,330,000 options were granted at 32.12 pence and 1,578,000 options were granted at 37.63 pence. The fair values of the options granted during the year were estimated at the date of grant using a Black-Scholes option pricing model. The inputs to the option pricing model are summarised below. Share price at grant date Exercise price Expected volatility Expected dividend yield Expected option life Risk-free interest rate Fair value of option 1,330,000 options at 32.12 pence 1,578,000 options at 37.63 pence 32.12 pence 32.12 pence 42% 0.4% 5 years 1.87% 37.63 pence 37.63 pence 42% 0.4% 5 years 1.02% 12.12 pence 13.69 pence Future share price volatility has been estimated by using historic share price volatility over the most recent period commensurate with the expected life of the option. The fair values at the date the options were granted of those options exercised during the year and the price of Ideagen plc ordinary shares on the date of exercise were as follows. Number of options exercised Exercise price (pence) Ideagen plc share price on date of exercise (pence) Fair value per option at date of grant (pence) 500,000 333,333 18,000 2,800,000 200,000 3,851,333 2.50 22.38 20.00 2.50 7.00 41.12 32.38 37.25 35.00 35.00 1.28 11.80 - 1.28 1.28 69 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 21 | SHARE-BASED PAYMENTS AND SHARE OPTIONS (CONTINUED) During the year, 666,667 options lapsed. These options had an exercise price of 22.38 pence and a fair value at grant date of 11.8 pence per option. The total fair value of the options exercised during the year at the date those options were granted was £85,000. This amount was transferred from the share-based payment reserve to retained earnings during the year. The weighted average remaining contractual life of the options outstanding at 30 April 2015 was 7.7 years. Ideagen Long Term Incentive Plan On 22 July 2015, the company introduced a Long Term Incentive Plan and 4,000,000 share options were granted under the plan at an exercise price of 1 penny to certain directors and managers. 2,000,000 of these options can be exercised when the Ideagen plc share price for the immediately preceding 20 dealing days is at least 51 pence on each of those days provided that this occurs within 3 years of the date of grant of the options. The remaining 2,000,000 options can be exercised when the Ideagen plc share price for the immediately preceding 20 dealing days is at least 68 pence provided that this occurs within 3 years of the date of grant of the options. No options can be exercised in the 12 month period immediately following the date of grant. In the event of a takeover of the company, different rules will apply and all of these options may become exercisable at that point. None of these options were exercisable at 30 April 2016 and no options were exercised during the year. During the year ended 30 April 2016, 500,000 of the options with a 68 pence share price exercise condition lapsed. The fair value of the options granted were estimated at the date of grant using a trinomial option pricing model. The inputs to the option pricing model are summarised below. Share price at grant date Exercise price Share price condition (barrier) Expected volatility Expected dividend yield Expected option life Risk-free interest rate Fair value of option 51 pence share price exercise condition 68 pence share price exercise condition 45.5 pence 1 penny 51 pence 32% 0.4% 3 years 0.54% 45.5 pence 1 penny 68 pence 32% 0.4% 3 years 0.54% 35.25 pence 22.70 pence Future share price volatility has been estimated by using historic share price volatility over the most recent period commensurate with the expected life of the option. 70 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 21 | SHARE-BASED PAYMENTS AND SHARE OPTIONS (CONTINUED) Other outstanding share options In addition to the share options granted under the terms of the Enterprise Management Incentive Scheme and the Long Term Incentive Plan disclosed above, a total of 297,850 further share options were granted by the company in 2005 and 2006 and remained outstanding at 30 April 2014. Of the total outstanding at 30 April 2014, 129,100 options were exercised at an exercise price of 28 pence during the year ended 30 April 2015 when the price of Ideagen plc ordinary shares was 40 pence per share. A further 88,750 of these options were exercised during the year ended 30 April 2016 at an exercise price of 20 pence when the price of Ideagen plc ordinary shares was 46.5 pence. At 30 April 2016, 80,000 options with an exercise price of 10 pence remained outstanding. Since 30 April 2016, these options have now been exercised. Effect of share options on the Group Statement of Comprehensive Income and Equity reserves During the year ended 30 April 2016 the group recognised a total charge of £936,000 (2015: £276,000) in the Consolidated Statement of Comprehensive Income in relation to its equity-settled share option schemes. Of this, £649,000 (2015: £nil) related to share options granted under the Long Term Incentive Plan, £272,000 (2015: £142,000) related to options granted under the Enterprise Management Incentive Scheme and £15,000 (2015: £134,000) related to national insurance costs on non-EMI qualifying options. With the exception of the national insurance costs, these charges have been credited to a share- based payment reserve within equity. The balance on this reserve at 30 April 2016 amounted to £1,482,000 (2015: £653,000). The total fair value at the date the options were granted of the options exercised during the year ended 30 April 2016 was £92,000 (2015: £85,000). This was transferred from the share-based payment reserve to retained earnings during the year. 22 | CAPITAL MANAGEMENT The group’s objective when managing capital is to safeguard the group’s ability to continue as a going concern so that it can continue to provide a return to shareholders and benefits for other stakeholders. The capital monitored by the group consists of all components of equity attributable to owners of the parent as set out in the Group Statement of Changes in Equity other than the foreign currency translation reserve, any long or short term borrowings, contingent and deferred liabilities arising from business combinations disclosed in Notes 15 and 17 and cash and cash equivalents. The group currently maintains a capital structure which is appropriate for its needs principally through a combination of cash flow management and forecasting and the issue of new shares, primarily in connection with the funding of business acquisitions. The group does not currently have any short or long term borrowings. The group is not subject to externally imposed capital requirements other than the minimum capital requirements imposed by the Companies Act 2006 on all public limited companies. 71 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 23 | OPERATING LEASE COMMITMENTS As at 30 April 2016 the group had aggregate commitments under non-cancellable operating leases in respect of land & buildings which expire as follows: Within one year Between one and two years Between two and five years 24 | PENSION SCHEMES 2016 £’000 63 - 816 879 2015 £’000 40 63 461 564 The group operates several defined contribution pension schemes for certain employees. The pension cost charge for the year represents contributions payable by the group into both these schemes and into individual pension arrangements in respect of certain employees on a defined contribution basis and amounted to £160,000 (2015: £95,000). 25 | CASH AND CASH EQUIVALENTS For the purposes of the statement of cash flows, cash and cash equivalents include cash on hand and in banks, net of outstanding overdrafts as follows. 2016 £’000 2015 £’000 6,317 5,266 977 1,409 GROUP Cash and bank balances COMPANY Cash and bank balances 72 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 26 | RELATED PARTY TRANSACTIONS Ideagen plc is the parent company of the group. There was no overall control of Ideagen plc. Balances between the Company and its wholly owned subsidiaries, which are related parties of the Company, are disclosed in notes 13 and 14. During the year, the Company recharged £416,000 (2015: £139,000) of costs including management charges to its wholly owned subsidiaries and suffered recharges of £196,000 (2015: £338,000) from its wholly owned subsidiaries. Details of transactions between the Company and other related parties are disclosed below. At 30 April 2016, trade and other payables in the Company included £4,800 (2015: £3,998) payable to Ultris Limited, a company in which Mr A M Carroll is a director and major shareholder. This amount is in respect of fees payable to Mr A M Carroll as a director of the Company. The amounts payable to Ultris Limited for the services of Mr A M Carroll as a director of the Company are as per the remuneration of directors disclosed in note 6. Other creditors in the Company at 30 April 2016 included £nil (2015: £73,087) payable to Mr D R K Hornsby and £nil (2015: £3,217) payable to Mr G P Spenceley. These amounts related to outstanding balances payable by the Company from the sale of Ideagen plc shares through the Company in order to fund the tax liabilities of these individuals associated with the exercise of HMRC-unapproved Ideagen share options. Mr Hornsby and Mr Spenceley are directors of the Company. Total dividends paid to the directors of the company during the year were as follows: Jonathan Wearing £7,591 (2015: £7,036), David Hornsby £16,107 (2015: £12,996), Graeme Spenceley £107 (2015: £nil) and Alan Carroll £349 (2015: £316). Key management are considered to be the directors of the Company. The remuneration of the directors of the company is disclosed in note 6 of these financial statements. The total remuneration of key management is set out below: Salaries, bonuses and fees Share based payments 2016 £’000 367 180 547 2015 £’000 520 133 653 73 Ideagen | ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2016 27 | EVENTS AFTER THE END OF THE REPORTING PERIOD Acquisition of Covalent Software Limited (‘Covalent’) On 5 August 2016, Ideagen plc acquired the whole of the issued share capital of Covalent Software Limited, a company domiciled in England. Covalent has developed and commercialised a proprietary GRC platform with significant traction in the UK public sector. The acquisition of Covalent is expected to enhance the Group’s existing business through the addition of its cloud-based intellectual property and its strong recurring revenue base. The total consideration for the acquisition of Covalent was £4,655,000 which was paid in cash on completion of the acquisition. No deferred or contingent consideration is payable. The cash balance acquired in Covalent at the date of acquisition was £1,113,000 and accordingly the net cash outflow on acquisition of Covalent was £3,542,000. With the exception of the cash balance acquired in Covalent, the initial review of the fair values of other separable assets and liabilities acquired has not yet been completed and accordingly information has not been presented on the fair values of assets and liabilities acquired, including the recoverability of receivables and the fair value of acquired goodwill. The costs of the acquisition will be expensed within a separate line in the Group Statement of Comprehensive Income for the year ending 30 April 2017. Acquisition of Logen EOOD On 18 August 2016, Ideagen plc acquired the whole of the issued share capital of Logen EOOD, a company domiciled in Bulgaria. Logen is a reseller of Ideagen’s GRC audit management and risk assessment solution, Pentana and has significant experience in audit-based analytics, particularly within the financial and public sectors. The acquisition will give Ideagen’s existing customers access to this expertise, as well as create a solid operational base in central Europe from which we can enhance our sales reach and future software development capacity. The initial consideration for the acquisition of £78,000 was paid on completion. Up to a further £50,000 may become payable 12 months after completion depending on the achievement of certain post acquisition revenue targets. The initial review of the fair values of the separable assets and liabilities acquired has not yet been completed and accordingly information has not been presented on the fair values of assets and liabilities acquired, including the recoverability of receivables and the fair value of acquired goodwill. The costs of the acquisition will be expensed within a separate line in the Group Statement of Comprehensive Income for the year ending 30 April 2017. Issues of ordinary shares In order to satisfy the exercise of share options, the company issued 221,000 shares at 37.63 pence each on 4 May 2016, 80,000 shares at 10 pence on 27 July 2016, 130,000 shares at 37.63 pence on 11 August 2016 and 110,000 shares at 32.12 pence on 31 August 2016. The company also issued 500,000 shares at 1 penny on 11 August 2016 in order to satisfy the exercise of share options granted under the Long Term Incentive Plan. 74 Ideagen | ANNUAL REPORT 2016 Ideagen plc Ergo House, Mere Way, Ruddington Fields Business Park, Ruddington, Nottinghamshire. NG11 6JS t:+44 (0) 1629 699100 | e : info@ideagen.com | w : ideagen.com All rights reserved worldwide. Copyright © 2016 Ideagen Plc
Continue reading text version or see original annual report in PDF format above