Ideagen plc Ideagen plc Annual Report and Annual Report and Accounts for the Year Ended 30 April 2019 Accounts for the Year Ended 30 April 2019 Registration number: 02805019 Registration number: 02805019 CONTENTS WELCOME TO IDEAGEN OFFICERS ADVISERS AND REGISTERED OFFICE FINANCIAL AND OPERATIONAL HIGHLIGHTS STRATEGIC REPORT CORPORATE GOVERNANCE STATEMENT 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 3 4 5 6 7 18 23 26 27 30 31 33 35 36 38 40 41 1 Ideagen | ANNUAL REPORT 2019 Welcome to Ideagen 2 Ideagen | ANNUAL REPORT 2019 Ideagen is a UK-headquartered global technology company quoted on the AIM market of the London Stock Exchange (Ticker: IDEA.L) and is a leading supplier of information management software solutions to highly regulated industries. The Group has established a global business supplying Governance, Risk and Compliance (GRC) solutions predominantly to the Aviation, Life Sciences, Banking and Finance, Aerospace and Defence, and Automotive sectors. Ideagen has operations in the UK, the United States, Bulgaria, Malaysia, Ireland 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 4,700 customers including 7 of the top 10 UK accounting firms, over 80% of NHS Trusts the top 7 global Aerospace and Defence companies and 35 of the top global Life Sciences companies. The Group has grown both organically and through a number of strategic acquisitions, with this year’s results representing the 10th consecutive year of growth in revenue, adjusted EBITDA* and adjusted earnings per share**. £50,000,000 £40,000,000 £35,000,000 £30,000,000 £25,000,000 £20,000,000 £15,000,000 £10,000,000 £5,000,000 6.00 5.00 4.00 3.00 2.00 1.00 0.00 -1.00 -2.00 -3.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Revenue Adjusted EBITDA Diluted adjusted Earnings per share 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 * Before share-based payments and exceptional items ** Before share-based payments, amortisation of acquisition intangibles and exceptional items 3 Ideagen | ANNUAL REPORT 2019 OFFICERS David Hornsby Executive Chairman Aged 52 Ben Dorks Chief Executive Officer Aged 45 David was the Chief Executive Officer of Ideagen plc between June 2009 and May 2018 when he became Executive Chairman. David has over 20 years’ experience in the technology sector and 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. Ben joined Ideagen via the acquisition of Plumtree Group in December 2012 and joined the Board in January 2017 as Chief Customer Officer. He became Chief Executive Officer in May 2018. Ben has over 15 years’ experience helping companies fast-track their growth strategy and at Plumtree Group consistently exceeded annual growth and delivered on corporate strategy. Previous to this, Ben held a variety of sales and management roles for Applied Group, TSF Group, and others. Graeme Spenceley Chief Financial Officer & Company Secretary Aged 54 Barnaby Kent Chief Operating Officer Aged 42 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. Barnaby joined Ideagen via the acquisition of Plumtree Group in 2012, where he was the CEO. Plumtree specialised in software for the Content and Clinical markets. He has over 15 years’ experience within the Technology sector, prior to that working at Corus Group plc, now Tata Steel. Barnaby has a BSc (Hons) from the University of Southampton and an MBA from Edinburgh Business School. He joined the Board in January 2017. Alan Carroll Senior Independent Non-Executive Director Aged 68 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. He was appointed to the Board in June 2012. Time commitment to Ideagen is typically one to two days per month. 4 Ideagen | ANNUAL REPORT 2019 OFFICERS (CONTINUED) Jonathan Wearing Non-Executive Director Aged 66 Tony Rodriguez Independent Non-Executive Director Aged 50 Jonathan was formerly the Chairman of Ideagen until May 2018 when he was succeeded by David Hornsby. He was previously 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. Time commitment to Ideagen is typically one to two days per month. Tony is an experienced technology entrepreneur and software developer. After an early career in a number of blue-chip technology companies, he founded Avellino Technologies Ltd in 1997, and personally led the development of its data profiling software product, now known as TS Discovery, before its acquisition in 2004 by Harte Hanks Trillium. Subsequently he founded X88 Software, since acquired by Experian in 2014, where he led, as CEO and CTO, the development of its data management product (now known as Experian Pandora), which was recognised as visionary by Gartner. Time commitment to Ideagen is typically one to two days per month. ADVISERS AND REGISTERED OFFICE NOMAD & JOINT BROKER finncap 60 New Broad Street London EC2M 1JJ JOINT BROKER Canaccord Genuity 88 Wood Street London EC2V7QR SHARE REGISTRAR SOLICITORS AUDITOR SLC Registrars Elder House St Georges Business Park Brooklands Road Weybridge Surrey KT13 0TS Howard Kennedy No.1 London Bridge London SE1 9BG Peregrine Law Amadeus House 27b Floral Street London WC2E 9DP RSM UK Audit LLP Suite A, 7th Floor, City Gate East Tollhouse Hill Nottingham NG1 5FS REGISTERED OFFICE Ergo House Mere Way Ruddington Fields Business Park Ruddington Nottinghamshire NG11 6JS 5 Ideagen | ANNUAL REPORT 2019 FINANCIAL HIGHLIGHTS 29% 8% 67% Revenue increased by 29% to £46.7m (2018: £36.1m) Underlying organic revenue growth of 8% (2018: 11%)* Recurring revenues of £31.2m (2018: £22.2m) representing 67% (2018: 62%) of total revenues 30% 15% 15% Adjusted EBITDA** increased by 30% to £14.3m (2018: £11.0m) Adjusted diluted EPS*** increased by 15% to 4.80 pence (2018: 4.16 pence) Proposed final dividend of 0.188 pence per share making a total of 0.278 pence (2018: 0.241 pence) per share for the year representing a 15% increase £1.4m £12.3m £1.3m Profit before tax of £1.4m (2018: £1.4m) Cash generated by operations of £12.3m (2018: £9.4m) Net debt at year end of £1.3m (2018: cash of £0.8m) OPERATIONAL HIGHLIGHTS ▪ Acquisition of InspectionXpert Corp. adding 900 US manufacturing customers, IP, growing Software as a Service (SaaS) recurring revenues and a platform for further growth in North America ▪ Acquisition of Morgan Kai adding 400 internal audit customers, doubling the size of our internal audit business ▪ Acquisition of Scannell Solutions, a SaaS company that has developed a functionally rich content-enabled Environmental, Health, and Safety platform ▪ 77% increase in SaaS bookings (2018: 174%) ▪ Strong international growth with 87% (2018: 78%) of all new SaaS logo wins outside of the UK ▪ 273 new logo SaaS customer wins including Glaxo SmithKline, Keolis, Green Climate Fund, Boston Biomedical, Fidelity National Finance, Air Nostrum, Immunomedics Inc ▪ 140 new logo on-premise customer wins including Transport For London, Cancer Research UK, Thompson Aero Seating, Addiko Bank, TP Aerospace, SAMREF ▪ Strong account management with significant contract extensions from Triumph Group, Pfizer, Regeneron Pharmaceuticals, Meggitt PLC, Thales Group, International Energy Agency ▪ Continued high levels of customer retention with support and maintenance contract renewal rate of 95% (2018: 96%) ▪ Ongoing product innovation and investment across all products with a strong emphasis on cloud Comparison calculated on a pro-forma basis as if acquired businesses had been in the Group for the same period in the previous year Before share-based payments and exceptional items Before share-based payments, amortisation of acquisition intangibles and exceptional items * ** *** 6 Ideagen | ANNUAL REPORT 2019 STRATEGIC REPORT CHAIRMAN’S STATEMENT I am pleased to report on another strong performance for the year to 30 April 2019, representing Ideagen’s 10th consecutive year of revenue and EBITDA growth. The Group met or exceeded all key financial and operational objectives for the year including targets for revenue, profitability, organic growth, cash generation and customer retention. These results are underpinned by Ideagen’s world class customer base, strong global reach, outstanding product set and proven and effective management team. These are the first set of results that we have announced following the appointment of Ben Dorks as Chief Executive in May 2018 and the Board is delighted with the progress made under Ben’s leadership. The Group continues to source and execute acquisitions and has an extensive pipeline of opportunities that would increase our product capability, scale and recurring revenues, which the Board expect would further enhance shareholder value for the long term. The Group has a clear vision for the future and has a number of growth and financial objectives for the coming years. These are based on achieving a targeted £100 million in run rate revenues by 2022, with recurring revenues representing a minimum of 75%, EBITDA margins at a minimum of 30% and operating cash collection in excess of 90% of EBITDA. The Board believes that approximately £70 million in revenue will be achieved from our current business through organic growth with £30 million being generated through acquisitions. ‘C Level’ management In May 2018, Ben Dorks was appointed as Chief Executive to provide the necessary operational leadership for the Group. I moved from Chief Executive to Executive Chairman, to focus on M&A activities and the 3-year strategic plan. Over the past 12 months, the Group has also recruited and promoted a number of key individuals to provide the necessary depth and breadth of senior management to support our continued growth. During the year Ian Hepworth, formerly Divisional CTO at Thompson Reuters was appointed as Chief Technical Officer and Arun Varma, formerly Global Vice President of Marketing at Kaspersky as Chief Marketing Officer. Both Ian and Arun have an excellent pedigree having worked at a senior level with global innovators and leaders such as RAC, Nokia, Cambridge University Press and Segura Systems during their careers. In April 2019, Paul Marshall was promoted to Chief Customer Officer as the Group continues to drive customer success and the ongoing expansion of its products within the customer base. Paul is an Ideagen veteran of over 10 years, having served as a Project Consultant, Sales Manager and Head of Sales and is a trusted advisor to many of Ideagen’s most strategic customers. They join Alex Hewitt (Chief Legal Officer), Barnaby Kent (Chief Operating Officer) and Graeme Spenceley (Chief Financial Officer) to make up Ben’s senior leadership team. Market Opportunity The Board is confident in the long-term prospects of the Group. The Integrated Risk Management market was, according to Gartner, worth $5.4 billion globally in 2018 and is estimated to be growing at 13% per annum. We believe we have a compelling business platform that has been significantly enhanced over the past year through the acquisitions of InspectionXpert, Morgan Kai and Scannell Solutions and the acquisition of Redland in the current year. Highly regulated organisations require the tools we provide to help them identify, assess and manage corporate risk while complying with international industry standards. Many of these organisations are only in the early stages of adopting an enterprise-wide approach. The Board believes that the Group’s cloud solutions will be a particular growth area for the Group which will increase the percentage of total revenues derived from recurring contracts providing further visibility of earnings. Dividend 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 0.188 pence per share making a total dividend of 0.278 pence for the year (2018: 0.241 pence) an increase of 15%. Subject to approval at the forthcoming AGM, the final dividend will be payable on 26 November 2019 to shareholders on the register on 8 November 2019. The corresponding ex-dividend date is 7 November 2019. The success of Ideagen is the result of the excellence and dedication of our employees and on behalf of the Board, I would like to thank all of them for their continued hard work. The new financial year has started well and I look forward to continuing our track record of growth and delivering on our strategic objectives. David Hornsby Executive Chairman 7 Ideagen | ANNUAL REPORT 2019 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2019 CHIEF EXECUTIVE’S REVIEW BUSINESS REVIEW I am delighted to report that 2019 has been another successful year for Ideagen. We have announced a further year of solid financial performance during which our organic revenue growth was 8% and ARR grew by 44%. I am encouraged by the success in our priority international markets which continue to form a significant expansion opportunity. Excellent strategic progress has been made, in particular with the three acquisitions completed during the year. This has strengthened our product range and keeps us well-placed to support our customers and capitalise on the significant market opportunities ahead. Total revenue of £46.7 million (2018: £36.1 million), represented overall growth of 29% and adjusted EBITDA grew by 30% to £14.3 million (2018: £11.0 million). A key financial metric for the Group continues to be adjusted EPS and I am pleased to report an increase in adjusted diluted EPS of 15% to 4.80 pence for the year (2018: 4.19 pence). MARKET DRIVERS AND GROWTH OPPORTUNITIES Ideagen operates in a global market with a number of drivers for structural growth. Businesses around the world need innovative solutions to help them meet increasingly stringent compliance, quality, safety, and regulatory risk requirements. Ideagen’s product-market strategy is focussed in two areas: QHSE – Quality, Health & Safety and Environmental Management – covering: ARC – Audit, Risk and Compliance Management – covering: ▪ Compliance with existing and new standards, laws ▪ Pursuit of sustainable competitive advantage through and regulations ▪ Conformance with customer requirements, including, for example, new pressures for risk-based shop floor quality management in manufacturing supply chains ▪ Efficiency and productivity in quality, safety and environmental management; for example, being able to comply with new or more stringent requirements without increasing headcount in the compliance team ▪ Improving performance in these areas, for example by reducing the number of safety incidents in which employees are harmed, ensuring that important quality audits are passed successfully risk-based compliance and oversight ▪ Establishing a strong governance model to deliver resilience, compliance and strategic goals ▪ Productivity of internal audit teams through automation of their business processes ▪ Compliance with laws and regulations such as SOX, UK Companies Act, SM&CR or ASC 275 ▪ Stewardship of brand and reputation These key market opportunities overlaid with vertical concentration in aviation, aerospace, automotive and defence manufacturing, life sciences, healthcare, financial services and banking, provide global opportunity for growth with the accelerating shift towards a cloud economy. OVERVIEW Following another strong financial performance in 2019, Ideagen has the capability and resources to continue to make important investments across the Group. These investments will support further growth in line with our People, Products and Customers. Organic investment will be directed at developing and launching additional world-class products, improving the value-based outcomes for our customer, and recruiting and developing the very best people. We intend to support this organic investment by considering acquisitions that broaden our geographic reach and strengthen our product capabilities. 8 Ideagen | ANNUAL REPORT 2019 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2019 CHIEF EXECUTIVE’S REVIEW (CONTINUED) STRATEGIC FOCUS AREAS In the past year we have increased our focus on our three core business areas that underpin our strategy: People, Products and Customers. This has not only contributed to the strong performance in the period but in a complex and rapidly changing environment, this approach allows us to prioritise and align our resource and developments with customer demand and capitalise on market trends. We have strengthened the capabilities of all our teams, particularly in development, marketing and sales. With the creation of 4 centres of excellence in Nottingham, Glasgow, Kuala Lumpur and Raleigh (North Carolina). This investment will provide resource, technology and infrastructure to further support the Group’s growth strategy. Our customer strategy continues to mature with the introduction of new customer success profiling, people, and systems. We are pleased with the progress we have made during the period which is demonstrated by the industry high retention rate of 95% of recurring revenue. We had a 30% increase in customer engagement for our Net Promoter Score (NPS) which is a customer loyalty metric measured on a scale of -100 to +100, where NPS of greater than Zero (0) is considered good within the enterprise software space. During the year we established that our overall NPS score is +12 (2018: +23). The reduction in score was due to a lower NPS from the acquisitions made in year, like many small businesses, our acquired businesses whilst successful, did not proactively and scientifically manage customer success but are now benefitting from Ideagen’s dedicated resource in this area. This year we have significantly advanced the technology that underpins our customer propositions. The shift to a cloud operational model is a strategic priority, which will continue to evolve through our partnerships with Amazon Web Services and Azure. This innovation means the business is able to scale faster and can continue to support our evolving customer requirements in the UK and international markets. CORPORATE TRANSACTIONS Ideagen has a strong track record of acquiring companies. During the year we completed three further acquisitions to strengthen our product and technology capabilities, broaden our international reach and customer base, and take us closer to our strategic goal of being global leader in our chosen markets. The first of these was InspectionXpert (IX) in Raleigh, North Carolina, USA. IX is a profitable and growing Software as a Service (SaaS) company that has developed a digital Quality Inspection solution for the advanced engineering and manufacturing sector. Increasingly OEMs are driving automated inspection initiatives through their supply chains in order to reduce costs and improve product quality. This acquisition further consolidated our position within the fast-growing Quality market and strengthened our US presence. This was followed by our largest transaction to date, the acquisition of Morgan Kai, a profitable and growing software company that has developed a leading Internal Audit Management product ‘MKinsight’. Customers include the UK’s National Audit Office, the Federal Reserve, Investec, the New York Stock Exchange, Shell, Bombardier and Blue Cross Blue Shield; with 77% of them being international and 28% in the US. The addition of MKinsight to the Group doubles the existing Ideagen Internal Audit business providing scale, enhanced technology, and a strong competitive position. Our third acquisition was Scannell Solutions, a SaaS company that has developed a functionally rich content enabled Environmental, Health, and Safety platform. This acquisition supports the Group’s product roadmap providing the technology and content to accelerate our market leading QHSE strategy. Together, these acquisitions mean that we now have businesses of genuine scale and ability to execute on the market opportunity. The Board remains committed to our ongoing buy and build strategy and we expect to complete further acquisitions in the future. Our acquisition strategy focusses on recurring revenues and compelling product offerings, and we apply strict criteria to ensure that acquisitions represent value for shareholders. 9 Ideagen | ANNUAL REPORT 2019 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2019 CHIEF EXECUTIVE’S REVIEW (CONTINUED) CUSTOMER CASE STUDIES CADENCE BANK A subsidiary of Cadence Bancorporation, Cadence Bank N.A. is a regional bank with $17.6 billion in assets. Cadence operates 98 branch locations in Alabama, Florida, Georgia, Mississippi, Tennessee and Texas, and provides corporations, middle-market companies, small businesses and consumers with a full range of innovative banking and financial solutions. Like many businesses today, Cadence Bank recognised a need for their audit and risk functions to be as integrated as possible in order to remain agile in a volatile, uncertain and increasingly complex business risk environment. This led to the audit group looking for a software solution that allowed them to work fluidly with the rest of the business and provide the Enterprise Risk Management group with a complete view of their collective risks in a single, easy-to-access system. “We pride ourselves on being very resourceful and responsive to our clients so that we can build long lasting relationships,” says Lana Blackmon, Vice President and Audit Group Manager at Cadence Bank. “To do this, every arm of the bank needs to be aware of their existing and emerging risks. We have utilised Pentana Audit as a complete GRC tool. Our Enterprise Risk Management Group collects risk and control assessments from the different lines of business, and we utilize those risk and control self-assessments to test and assess the controls, ensuring they are operating just as they are designed to.” Lana explains that with the use of Pentana, the risk culture within Cadence has evolved into something much more proactive and constructive: “It’s been an incredibly effective way for us to build the risk culture within the organization. Our lines of business are now accustomed to seeing their risks and controls regularly, they are used to being tested on them, and can see how the conversation really flows.” Cadence have come to release a wealth of time and cost savings since implementing Pentana Audit, especially in their communication channels. “With Pentana, we can communicate very well with our other second and third line of defence functions, as well as our CRM group and our lines of business. With everything in the system paperless and with this baseline understanding from all the different groups that use it, we avoid a lot of time wasting trying to translate from one system to another. Everyone understands when we say we’re looking at the entity risk, or we’re looking at a review risk.” “Pentana Audit has given us a level of discipline and consistency that has led to us getting some really satisfactory reviews from regulators. In future, we want to do more on risk assessments, and build the product out more to other lines of business. We are also looking for ways to leverage the information in Pentana to produce some advanced reports that incorporates all the key information management need to make decisions.” With Pentana, we can communicate very well with our other second and third line of defence functions, as well as our CRM group and our lines of business. With everything in the system paperless and with this baseline understanding from all the different groups that use it, we avoid a lot of time wasting trying to translate from one system to another. Everyone understands when we say we’re looking at the entity risk, or we’re looking at a review risk 10 Ideagen | ANNUAL REPORT 2019 CHIEF EXECUTIVE’S REVIEW (CONTINUED) CHIEF EXECUTIVE’S REVIEW (CONTINUED) CUSTOMER CASE STUDIES CUSTOMER CASE STUDIES STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2019 WALES RESEARCH AND DIAGNOSTIC PET IMAGING CENTRE Wales Research and Diagnostic PET Imaging Centre is a major facility which is part of Cardiff University, and was a result of a £16.5 million investment by the Welsh Government. It provides researchers and doctors with a far greater ability to detect malignant tissue and track the effects of drugs in incredible detail. In highly regulated environments such as the pharmaceutical sector, where not only is there pharmaceutical legislation to deal with but radiation legislation among others, it is essential to have a good quality management system in place to ensure regulatory requirements are met consistently. In previous roles within other organisations Professor Marshall has seen the use of paper-based documentation systems. However these were incredibly time consuming and managing change proved difficult with draft versions spending time on different desks waiting for review and sign off. Although risk assessments have always been controlled documents the continued adoption of quality risk management approaches in pharmaceutical manufacturing meant that this paper-based risk assessment approach was no longer appropriate. Q-Pulse is widely known in the Medical Physics industry and is broadly used across the fields of Radiotherapy and Nuclear Medicine where a strong quality management system is essential to meet the stringent regulatory requirements. Professor Marshall said: “Given the key role that quality management and risk management play in complying with regulations such as the Environmental Permitting Regulations (2010), Ionising Radiation (Medical Exposure) Regulations (2017), The Carriage of Dangerous Goods and Use of Transportable Pressure Equipment Regulations 2009, Good Manufacturing Practice and many more, a robust electronic risk management system is essential to ensure compliance. The introduction of Q-Pulse Risk has been beneficial in ensuring we increase our compliance in an efficient manner.” “During the training and installation of Q-Pulse Risk, it became apparent that we were underutilising the Incident and Occurrence modules, which are key to unlocking the potential of the system. As a result, we transferred numerous paper forms into electronic forms where data can be captured using the Q-Pulse iPad app. As a result, we now have access to more data in an electronic format.” In addition, the installation of Q-Pulse Risk has also enabled the migration to a paper free clean room, reducing the risk of contamination of the facility. The team now has visibility of the effectiveness of their controls and risks to patients, staff and the company, which enables them to better manage their business as well as ensuring the safety of patients and staff. The goal is to migrate all risk assessments to Q-Pulse Risk and complete the migration of paper-based forms to the Occurrences and Incidents module. A significant part of the business process has already been transferred, and it is clear to see that the work involved in completing this migration will significantly improve the management of the facility and processes. During the training and installation of Q-Pulse Risk, it became apparent that we were underutilising the Incident and Occurrence modules, which are key to unlocking the potential of the system. As a result, we transferred numerous paper forms into electronic forms where data can be captured using the Q-Pulse iPad app. As a result, we now have access to more data in an electronic format. 11 Ideagen | ANNUAL REPORT 2019 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2019 CHIEF EXECUTIVE’S REVIEW (CONTINUED) OPERATIONAL Cash generated by operations remained strong in the year at over 90% of EBITDA on an adjusted basis. Net debt as at 30 April 2019 was £1.3 million (30 April 2018: net cash of £0.8million) having raised £19.4 million in September 2018 through a share placing and having paid a total of £28.2 million in consideration and costs for the acquisitions of InspectionXpert, Morgan Kai, Scannell Solutions and IPI (deferred) and £0.6 million in dividend. The Group continues to benefit from a strong and growing base of recurring revenues, which represented 67% of total revenue in the year (2018: 62%). The Group is committed to increasing the percentage of total revenue derived from recurring contracts through the medium-term transition from a traditional licence model to a SaaS subscription-based model. This transition is well underway and recurring SaaS revenues increased by 63% to £13.7 million (2018: £8.4 million) with 25% organic SaaS revenue growth. The Medforce acquisition completed in April 2018 has been successfully integrated using our mature integration framework which provided the delivery of true synergies and enabled an acceleration of sales execution. The acquisition broadened Ideagen’s relationships in our existing core sector of healthcare and provides an additional source of recurring revenue. In order to facilitate growth, Ideagen has invested heavily in ‘best of breed’ cloud systems that have scalability, functionality and reporting at their core. Salesforce.com remains the most important system for the organisation, providing the internal platform for sales and marketing. This is supported by NetSuite, recently introduced into the finance function, and several functionally specific cloud solutions such as Zendesk, Natero, Peakon, Krow, and Jira. These packages are collectively used to provide analytics and Management Information (MI) in support of strategic decision making across Ideagen. As Ideagen develops, significant resource is invested in benchmarking processes and systems to ensure best practice is standard and that Ideagen remains fit for growth. Ideagen remains committed to relevant accreditations and currently holds Microsoft Gold Partner status, ISO 9001, ISO 27001, and ISO 14001. The Group has membership of a significant number of leading bodies including the Chartered Quality Institute (CQI), Institute of Internal Auditors (IIA), Flight Safety Foundation, and the Institute of Biomedical Science (IBMS). GROWTH: SALES AND MARKETING We have seen good performance in terms of new business and customer retention. This includes key wins across all our core markets and geographies within each of our solution areas. We have invested into our marketing teams to generate qualified sales leads and to enhance the global recognition and reputation of our brand and solutions. This is achieved through content driven product and vertical marketing covering blogs, white papers, webinars, a dedicated digital team and over 50 global events per year. We have increased the number of marketing qualified leads significantly and also introduced a new Sales Development team to support lead generation and qualification. We sell our products primarily through a direct sales force which generates 97% (2018: 95%) of Group revenue. Our sales force operates globally with a focus on UK, Europe, North America, and Asia. The team is organised by both vertical market and product focus area and includes 57 ‘quota carrying’ sales executives and account managers supported by technical sales and domain experts. We generate revenues from sales to new customers and through repeat licence and services sales to our existing customers. Key highlights of the year have been the success of the Ideagen Sales Excellence Academy and continued growth of our geographical expansion in Asia and the US. In order to drive growth, we have successfully added new customers to the Group across all of our key verticals, with aviation, financial services and life sciences providing particularly notable success in the year. We also continue to maintain a strong focus on customer success with continuous investment in customer teams, technology, and product enhancement. This has resulted in significant revenues from strong retention of recurring contracts and new projects from our extensive customer base. 12 Ideagen | ANNUAL REPORT 2019 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2019 CHIEF EXECUTIVE’S REVIEW (CONTINUED) PEOPLE At 30 April 2019 Ideagen had 442 (2018: 423) employees based across its UK and international office network, with the majority located at our Centres of Excellence: Nottingham HQ (UK), Glasgow (UK), Kuala Lumpur (Malaysia) and Raleigh (US). A combined total of 120 (2018: 57) people are based internationally. The organisation is committed to significant investment within our development teams, with 35% of resource dedicated to this area, primarily based in Nottingham and Malaysia. Ideagen maintains its focus upon building domain expertise within core markets and delivering excellence across the customer base. As a result, the Group has 21% of its resource within Sales & Marketing and 31% in Customer Delivery, Support and Success. Ideagen continues to believe a broad talent pool across the company is the best way to ensure sustainable growth. As such it is pleased to confirm that 48% of employees have been with the Group for 3 or more years, and 31% have been with the company for 6 years or more. The Group is delighted that this traditionally male dominated sector continues to see strong growth in female applications, resulting in an improved ratio of 64% (2018: 67%) male to 36% (2018: 33%) female. I am immensely proud to work every day with such a committed and talented team and delighted to see it reflected in positive feedback from customers. CURRENT TRADING & OUTLOOK Trading since the year end has remained robust and we continue to see strong demand for our products from new potential customers. With acquisitions made during the previous year performing well, and with a base of over 4,700 customers generating growing recurring revenues and repeat business, the Board has every confidence in the continued prospects for the Group. Ben Dorks Chief Executive Officer 13 Ideagen | ANNUAL REPORT 2019 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2019 FINANCIAL REVIEW OF THE YEAR Revenue for the year ended 30 April 2019 increased by 29% to £46.7 million (2018: £36.1 million). Within this, pro-forma organic revenue growth was 8% (2018: 11%). This is calculated based on a comparison with pro-forma revenue for FY2018 of £43.3 million which includes revenues for Medforce Technologies, InspectionXpert, Morgan Kai and Scannell for the equivalent period that they were owned by the Group in FY2019. Revenues are analysed by revenue type in note 2 to the financial statements. Recurring revenues are a key strategic focus and they have grown strongly because of both the continuing emphasis on growing sales of our SaaS/Subscription-based products and the acquisitions of businesses with high levels of recurring revenues. The Annualised Recurring Revenue (ARR) book amounted to £36.4million at April 2019, an increase of 44%. Total recurring revenues increased by 40% to £31.2 million (2018: £22.2 million) representing 67% (2018: 62%) of overall revenues. This proportion has improved consistently since 2016 when recurring revenues represented only 53% of total revenues. SaaS revenues increased by 63% to £13.7million (2018: £8.4 million) representing 29% (2018: 23%) of Group revenue. Support & Maintenance revenues continued to grow both through new perpetual licence sales and through the acquisitions of Medforce and Morgan Kai where significant proportions of recurring revenues have historically come from the perpetual licence model. Support & Maintenance revenues increased by 27% to £17.5 million (2018: £13.8 million) but represented a slightly reduced proportion of total revenues at 37% (2018: 38%) due to the focus on SaaS growth. Professional services revenues represented 11% (2018: 14%) of total revenues. This decline is due to a lower proportion of professional services revenues inherent within the businesses acquired over the last two years and the increasing proportion of SaaS sales which require less configuration work. Licence & Software development kit sales, increased to £9.7 million (2018: £8.3 million) representing 21% (2018: 23%) of total revenue in line with the increasing emphasis on SaaS sales. Adjusted EBITDA increased by 30% to £14.3 million (2018: £11.0 million) and the adjusted EBITDA margin remained stable at 30.6% (2018: 30.5%). Gross margin improved slightly to 91.6% (2018: 91.2%). Operating costs continue to be tightly controlled representing 61.1% (2018: 60.7%) of revenue, however we recognise the need to continue targeting investment in our staff and the operational systems of the business to support continued organic growth and to provide a strong, scalable platform for the integration of future acquisitions. The Group has significant intangible assets, primarily from the acquisitions that it has made. Amortisation of acquisition intangibles of £7.5 million (2018: £5.8 million) represents the majority of the total depreciation and amortisation charge of £9.4 million (2018: £7.1 million). Amortisation of development costs amounted to £1.4 million (FY2018: £1.0 million). The share-based payment charge of £1.5 million (2018: £1.9 million) relates to the Group’s equity-settled share option schemes including the Long-Term Incentive Plan and the Share Incentive Scheme for employees. The charge included £0.4 million (2018: £0.3 million) of national insurance costs on the exercise of non-tax efficient options. The remainder of the share-based payment charge does not represent a cash cost to the Group. The Group incurred costs of £1.3 million (2018: £0.4 million) in acquiring the businesses of InspectionXpert, Morgan Kai and Scannell during the year. Only Medforce was acquired in the previous financial year. During the year we have significantly restructured the Group’s development function and reduced the number of offices we operate which has resulted in a restructuring cost of £0.5 million (2018: £0.2 million). The adjusted Group tax charge amounted to £1.5 million (2018: £1.0 million). This has been adjusted to exclude the deferred tax effects associated with the amortisation of acquisition intangibles and share based payment charges. The adjusted Group tax charge represents 12% (2018: 10%) of adjusted profit before tax of £12.2 million (2018: £9.7 million). The increased tax rate is largely due to the increased level of profits earned in the United States which attract higher rates of tax than in the UK. The Group’s use of R&D tax credit claims and tax deductions linked to the exercises of share options in particular have significantly reduced the Group’s liability to UK corporation tax on FY2019 profits. As a result of the above, adjusted diluted earnings per share increased by 15% to 4.80 pence (2018: 4.19 pence). The Group’s financial position has continued to strengthen during the year with net assets increasing to £73.7 million (2018: £50.5 million). 14 Ideagen | ANNUAL REPORT 2019 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2019 FINANCIAL REVIEW OF THE YEAR (CONTINUED) The value of intangible assets increased to £90.7 million (2018: £60.3 million) mainly as a result of the three acquisitions completed during the year. The Group capitalised £2.7 million (2018: £2.2 million) of R&D development costs during the year which represented 5.75% (2018: 6.2%) of total revenues. The increase is mainly due to costs capitalised in respect of the products being developed by the businesses acquired during the year and the prior year. Starting with the purchase of Medforce in April 2018, the Group’s approach to the funding of acquisitions has been more evenly balanced between using debt and equity together with the Group’s own cash generation. The strong cash flow and recurring revenue profile of the business mean that the Group has been able to secure relatively inexpensive debt funding. The acquisitions of Medforce, InspectionXpert and Scannell were funded through increases in the Group’s Revolving Credit Facility and the acquisition of Morgan Kai was primarily funded through a heavily oversubscribed share placing which raised £19.4 million net of costs. Cash generated by operations during the year amounted to £12.3 million (2018: £9.4 million) representing cash conversion of approximately 86% (2018: 85%) of adjusted EBITDA. However, this cash conversion figure was impacted by the receipt, prior to the FY2018 year-end, of £1.1 million of cash from option holders to cover payroll taxes arising on the exercise. The subsequent payment of this £1.1 million of taxes has therefore negatively impacted cash generated by operations during the year to 30 April 2019. Excluding this, cash generated by operations would have represented approximately 94% (2018: 83%) of adjusted EBITDA. Working capital increased by £0.9 million after adjusting for the £1.1 million of payroll tax liabilities on share options at 30 April 2018. Within this, receivables increased by £3.9 million due to significant organic growth in SaaS billings and increased organic growth in the wider business together with an increased bias of recurring billings in the final quarter on the acquired businesses and in the wider business as a whole. There was also a £2.4 million increase in the deferred revenue creditor as a result of the strong growth in recurring revenues and the additional bias towards final quarter billings. Free Cash Flow in the year amounted to £6.3 million (2018: £6.1 million) representing 44% (2018: 55%) of adjusted EBITDA or 13.5% of Revenue. However, adjusting for the cash outflow of payroll taxes on share options referred to above, adjusted Free Cash Flow would have been £7.3 million representing 51% of adjusted EBITDA or 15.7% of Revenue. Adjusted Free Cash Flow before payments of acquisition costs of £0.9 million was £8.2 million representing 58% of adjusted EBITDA or 17.7% of Revenue. The Group ended the year with net debt of £1.3 million (2018: net cash balances of £0.8 million). 15 Ideagen | ANNUAL REPORT 2019 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2019 FINANCIAL REVIEW OF THE YEAR (CONTINUED) 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. The risk of a worsening economic climate in the UK is perceived by many to have increased as a result of the uncertainties surrounding Brexit. However, the Group has a wide geographical spread of customers and the effects of Brexit on the Group have so far been quite limited. The Group also has products and solutions which can help customers lower their cost base in difficult trading conditions and which address compliance issues that, to a large extent, 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. We endeavour to retain employees through ongoing initiatives to foster good staff engagement and ensure that remuneration packages are competitive in the market. 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 and its strategic requirements. 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 subsidiaries and through invoicing a proportion of overseas customers in foreign currencies, most notably US dollars and euros. 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. 16 Ideagen | ANNUAL REPORT 2019 STRATEGIC REPORT FOR THE YEAR ENDED 30 APRIL 2019 FINANCIAL REVIEW OF THE YEAR (CONTINUED) KEY PERFORMANCE INDICATORS The Board measures the performance of the Group against budgets and its strategic objectives on a regular basis. The following key financial performance indicators are used by management as part of this ongoing assessment. PERFORMANCE INDICATOR Total revenue growth 2019 29% 2018 33% Organic revenue growth 8% 11% Recurring revenue as a percentage of total revenue 67% 62% Adjusted EBITDA (£million) 14.3 11.0 Adjusted EBITDA margin 30.6% 30.5% Adjusted diluted earnings per share (pence) Adjusted diluted earnings per share growth 4.80 4.19 15% 33% Cash generated by operations as a percentage of adjusted EBITDA 86% 85% Free cash flow as a percentage of adjusted EBITDA 51% 55% Net Promoter Score (NPS) +12 +23 COMMENTARY Revenue growth is used in the internal assessment of how is performing against strategy. the Group is calculated Organic revenue growth based on a comparison of current year revenue with prior year revenue as adjusted to include acquisitions for the same period as the current year. One of the Group’s strategic aims is to increase the proportion of contracted recurring revenues in the medium term. for adjusted share-based EBITDA payment charges and exceptional items. Management consider this to be a more appropriate measure of the underlying performance of the Group. Adjusted EBITDA as a percentage of revenue. The calculation of adjusted earnings per share is detailed in note 8 to the financial statements. Management consider that adjusted earnings per share is a better indicator of the underlying performance of the Group than unadjusted earnings per share. This is a measure of the rate of conversion of adjusted EBITDA into operating cash flow. Free cash flow is defined as cash generated by operating activities plus cash flows from investing activities excluding those cash flows associated with the acquisition of businesses. It is a measure of the cash generated by the Group which is available in business acquisitions for before taking into account any financing cash flows. investing NPS is a customer loyalty metric measured on a scale of -100 to +100, where NPS of greater than zero is considered good within the enterprise software space. The reduction in score was due to a lower NPS from the acquisitions made in year. Approved by the Board and signed on its behalf by Graeme Spenceley Director and Company Secretary 1 October 2019 17 Ideagen | ANNUAL REPORT 2019 CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 30 APRIL 2019 INTRODUCTION The Board understands the value and importance of good corporate governance and is committed to the ongoing development of practices within the Group to provide better governance. In this statement we explain our approach to this and how the Board and its committees operate. The corporate governance framework which the Group operates is proportional to the size, stage of development and complexity of the business. In order to meet the requirements of AIM Rule 26, we have decided to follow the Quoted Companies Alliance (“QCA”) guidance for smaller and mid-sized quoted companies. The QCA Code is constructed around ten broad principles and a set of disclosures. The QCA has stated what it considers to be appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures. We have considered how we apply each principle to the extent that the Board judges these to be appropriate in the circumstances. The QCA also provides recommendations as to whether the explanations in respect of each principle should be provided in the annual accounts or on the Company’s website or both. We have provided information below in respect of those principles which the QCA recommends should be explained in the annual accounts. Further information can be found on the Company’s website at www.ideagen.com. ESTABLISH A STRATEGY AND BUSINESS MODEL WHICH PROMOTE LONG-TERM VALUE FOR SHAREHOLDERS The purpose of the Group is to provide document and data centric Quality, Safety, Audit and Risk solutions to heavily regulated markets such as Aviation, Life Sciences, Banking and Finance, Aerospace and Defence, and Automotive. This is distributed through our Ideagen Cloud Service architecture (ICSA) and licensed software technology to deliver world class governance, risk and compliance outcomes for our customers on a long-term basis. Our business model is to deliver this through our own sales, marketing and customer delivery teams within our global network of offices in the UK, Europe, Middle East, Asia and the US. Our strategy is to develop, in conjunction with our 4,700+ global customers, leading proprietary software technology that acts as a competitive differentiator. This enables us to drive excellent return on investment and world class outcomes for our customers while providing high-quality long-term recurring revenue. In addition, we look to make acquisitions in complementary markets which deliver high value IP and strong recurring revenue growth. This will deliver a profitable and highly-valued business with competitive advantages over other providers of similar services. The key challenges we face include: ▪ Maintaining consistently high levels of quality development and market leading roadmap – With 35% of all employees engaged in our R&D teams we invest heavily in ensuring the continued development of our products. Very high standards are now expected by customers when it comes to software development. We have implemented automated testing wherever possible, and our software is 100% unit tested throughout its lifecycle. Our product roadmaps are developed through a 15-strong product team that works closely with customers and industry analysts such as Gartner. This delivers a product roadmap which maintains competitive advantage and ensures our continued high rate of customer retention. ▪ Customer Success and Loyalty – We continue to invest heavily in customer success and continually measure customer sentiment and health through an ongoing programme. This includes voice of the customer survey, transactional measurement of customer service and net promoter score as well as a full customer success platform. Additionally, we have a customer success team managing recurring revenue, subscriptions and attrition rates. ▪ Delivering continuous availability – A failure in the group’s systems could lead to an inability to deliver services to our customers. This is addressed by operating redundant systems across multiple availability zones using both AWS and Azure cloud infrastructure, and a comprehensive business continuity programme. In addition, we have a 24/7 global support operation in the UK and Kuala Lumpur which monitors availability and performance. 18 Ideagen | ANNUAL REPORT 2019 CORPORATE GOVERNANCE STATEMENT ▪ Acquisition and Integration – We apply strict criteria to ensure that acquisitions represent value for shareholders. A key element is the active integration of all the acquisition’s technology, organisational and sales capability. We have a dedicated integration team which actively bring together the integration through our 72-point programme. This is reviewed by the senior management and leadership team through a regular monthly meeting, and the PLC Board on a quarterly basis to ensure this is independently checked and verified and that the integration and return on capital is being fully maximised. ▪ Recruiting and retaining suitable staff – the group’s ability to execute its strategy is dependent on the skills and abilities of its staff. We undertake ongoing initiatives to foster good staff engagement and ensure that remuneration packages are competitive in the market. We believe we have the right strategy and service in place to deliver strong growth in sales over the medium to long term and we expect to continue growing our base of recurring revenues. This is achieved by increasing the percentage of total revenue derived from recurring contracts through the medium-term transition from a traditional licence model to a SaaS subscription- based model. This transition is well under way which will result in improving EBITDA margins and provide us with scope for additional investment in new services. This will enable us to deliver sustainable shareholder value. EMBEDDING EFFECTIVE RISK MANAGEMENT In the formation of the Ideagen medium term strategy the Group has documented the strategic drivers and key corporate risks that it needs to understand and manage. These 10 identified areas represent all aspects of the Ideagen operational model and specifically cover the risks attached to the Group’s acquisitive ‘Buy and Build’ strategy. CUSTOMERS COMPETITION & MARKETS TECHNOLOGY BRAND, REPUTATION & TRUST SUPPLIERS DATA SECURITY & DATA PRIVACY LIQUIDITY TRANSFORMATION & INTEGRATION PEOPLE ACQUISITIONS Overall accountability for risk management rests with the Board, which is actively engaged in setting risk appetite and monitoring the process of risk assessment and mitigation. However, through Ideagen’s proven organisational structure, the responsibility for all individual aspects of risk is passed down to the operational functions, ensuring that risk becomes a cultural part of the Group’s identity. When this is combined with open communication and a policy of honesty and transparency, the Board has confidence that all decisions are being made against the backdrop of a controlled process, clearly striking the balance between a drive for growth and an awareness of risk. A Risk Analyst has recently been recruited to further enhance our approach to risk management through the establishment of a comprehensive risk dashboard linked to a risk register which will be regularly reviewed by the Board. 19 Ideagen | ANNUAL REPORT 2019 CORPORATE GOVERNANCE STATEMENT MAINTAINING THE BOARD AS A WELL-FUNCTIONING BALANCED TEAM LED BY THE CHAIR The Board has a legal obligation to promote the interests of the Group, and the members of the Board are collectively responsible for defining the Group’s corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chairman. The Board consists of seven directors of which four are executives and three are non-executives. In May 2018, the roles of three members of the Board were changed. These changes are designed to optimise the talent and expertise within the Group and will provide a structure that ensures the Board’s skillset remains aligned to the Group’s ongoing growth strategy. David Hornsby moved from the role of Chief Executive Officer to become the Group’s Executive Chairman. The Board has a clear strategic objective to grow the business significantly both organically and through further acquisitions. Having led Ideagen’s significant growth since 2009, David now has responsibility for Ideagen’s medium and long-term growth plans and his particular areas of focus will include Group strategy, M&A and Investor Relations. David will continue to be involved with Ideagen on a full-time basis but will not be involved in the day to day operational management of the Group. Ben Dorks, formerly Ideagen’s Chief Customer Officer, succeeded David to become Ideagen’s Chief Executive Officer. In this role Ben is building upon his previous leadership responsibilities and his focus is on the Group’s overall operational performance, customer acquisition and retention and product development. Alan Carroll and Tony Rodriguez are considered to be independent non-executive directors and Alan Carroll is considered to be the senior independent non-executive. After stepping down from his role as non-executive chairman in May 2018, Jonathan Wearing remains on the Board as a non-executive director. However, due to the size of his shareholding in the Company, the Board takes the view that he should not be considered as independent within the meaning of the Code. Due to the further increase in the size and complexity of the Group, we are actively seeking to strengthen the non-executive representation on the Board in the short term. The Board is supported by an Audit Committee and a Remuneration Committee. The Board does not consider that it is of a size at present to require a separate nominations committee, and all members of the Board are involved in the appointment of new directors. In addition to attending Board meetings, non-executive directors are required to be available at other times as required for face-to-face and telephone meetings with the executive team and investors. During the year ended 30 April 2019, there were 11 scheduled Board meetings and other Board meetings as required to approve other business such as the acquisition of a business. All directors attended all 11 meetings with the exception of Alan Carroll and Tony Rodriguez who both attended 9 scheduled meetings. Absences were mainly due to illness. In addition, there were two Audit Committee meetings and two Remuneration Committee meetings which were all attended by Alan Carroll as committee chairman and Tony Rodriguez. The chairman is responsible for ensuring that directors receive accurate, sufficient and timely information. The company secretary compiles the board and committee papers which are circulated to directors prior to meetings. The company secretary provides minutes of each meeting and every director is aware of the right to have any concerns minuted and to seek independent advice at the group’s expense where appropriate. DIRECTOR EXPERIENCE, SKILLS AND CAPABILITIES The Board considers that it has an appropriate blend of sector, financial and public markets experience and personal skills and capabilities to enable it to deliver its strategy. Five members of the Board have been involved in the technology sector for many years and four of the directors have at least 7 years of public markets experience. Directors attend trade events and seminars to ensure that they remain up to date with current developments. The Board acknowledges that as the Group continues to develop, the mix of skills and experience of its members will need to change to reflect this. As noted above, the Board is now actively seeking to balance the number of executives and independent non-executives in the short term. Further information on the experience of each of the directors is provided on pages 4 and 5. 20 Ideagen | ANNUAL REPORT 2019 CORPORATE GOVERNANCE STATEMENT EVALUATING BOARD PERFORMANCE It is recognised by shareholders that the Board has performed well both in terms of the development of an effective business strategy and in its day to day execution. The Board has continued to evolve and a number of important changes have been implemented to ensure continuous improvement and performance. In January 2016 Ben Dorks, then Chief Customer Officer and Barney Kent, Chief Operating Officer joined the Board to provide deeper and broader input to board decision making. In September 2017 Tony Rodriguez joined the board as an independent non-executive Director with a specific responsibility for technology. Subsequently a further board evaluation process led by the Chairman took place between November 2017 and April 2018. All directors met with the Chairman about the effectiveness of the board and provided a self-assessment of their own contributions, skillset and future development. PROMOTING A CORPORATE CULTURE THAT IS BASED ON ETHICAL VALUES AND BEHAVIOURS Ideagen is an organisation built on the three core pillars of People, Customers, and Products. These provide the foundation for the company culture and identity, which revolves around investment in our people, to build great products for both existing and new customers. These customers in turn provide the revenue to feed back into the cycle for continuous improvement of our People. PEOPLE CUSTOMERS PRODUCTS This simple approach is at the heart of the Group, whereby all the functions and teams believe they contribute to the success of Ideagen and feel empowered to contribute to the delivery of the Group’s vision. Complimenting these three pillars are seven shared strategic drivers, which are used to ensure the actions of our employees are targeted towards improving the organisation in a sustainable and controlled manner and one that represents Ideagen’s core values and beliefs of open communication and transparency. In support of all actions within the Group is a strong organisational structure and a comprehensive suite of documented policies and processes to ensure all appropriate workflows have rigorous safeguards. However, as an organisation we are conscious to strike the balance to create a culture of openness and collaboration, where teamwork in delivering the Group’s objectives is the primary driver. The Group consults with employees through the employee forum and through regular focused short surveys designed to measure and improve employee engagement. These provide a continuous process for feedback allowing Ideagen to learn more about what drives our employees, areas we could improve and also what we are already doing well. Response rates to the surveys are generally good. 21 Ideagen | ANNUAL REPORT 2019 CORPORATE GOVERNANCE STATEMENT AUDIT COMMITTEE REPORT The Audit Committee is required to meet not less than twice each year. The audit committee receives and reviews reports from management and from the Group’s external auditors relating to the annual accounts and to the internal control procedures in use throughout the Group. It is responsible for ensuring that the financial performance of the Group is properly reported with particular regard to legal requirements, accounting standards and the AIM Rules for Companies. The ultimate responsibility for reviewing and approving the annual report and accounts and the interim reports remains with the Board. The Audit Committee comprises the two independent non-executive directors, Alan Carroll (as committee chairman) and Tony Rodriguez. During the year the Committee met with the external auditors on two occasions, prior to and after the annual audit. The members of the Committee also have direct access to the external auditors on an ongoing basis as required. REMUNERATION COMMITTEE REPORT The Remuneration Committee is required to meet not less than twice each year. It is responsible for considering and reviewing the terms and conditions of service (including remuneration) of executive directors and senior employees and the design and operation of the Company’s share option schemes and making appropriate recommendations to the Board. The Audit Committee comprises the two independent non-executive directors, Alan Carroll (as committee chairman) and Tony Rodriguez. The Company’s remuneration policy for directors is designed to retain and attract high-calibre executives and motivate them to develop and execute strategies aimed at optimising long-term shareholder value. When formulating remuneration policies for the directors, the Remuneration Committee considers external data on market rates for remuneration of directors of comparable seniority and type of other companies which are of a similar size and nature to Ideagen. The Company aims to pay its directors at the median level based on this comparison whilst aiming for top quartile long-term performance. The salaries of the Executive Directors are reviewed annually taking into account their experience, responsibilities and performance. Executive Directors have private medical insurance and the Company makes contributions into the Company’s contributory pension scheme on behalf of the Executive Directors. The fees of the Non-Executive Directors are determined by the Executive Directors. During the year ended 30 April 2019, the Company introduced the 2018 Long Term Incentive Plan and the 2018 Long Term Incentive Plan Extension. Under these plans, 1,200,000 share options with an exercise price of 1 penny each were granted to Ben Dorks and 750,000 share options were granted to both Graeme Spenceley and Barnaby Kent. In total, 1,350,000 of these options will become eligible to vest on the Company’s share price reaching 196 pence over 30 consecutive business days. The remaining 1,350,000 options will become eligible to vest on the Company’s share price reaching 259 pence over 30 consecutive business days. None of these options were exercisable at 30 April 2019. Any shares issued in respect of the exercise of any of these options cannot be sold until the fourth anniversary of the grant date and are subject to continued service throughout. During the year ended 30 April 2019, the final tranche of 1,800,000 share options linked to the 136 pence share price condition from the 2017 Long Term Incentive Plan were exercised by Ben Dorks, Graeme Spenceley and Barnaby Kent. Full details of the remuneration and share options of the directors are set out at notes 6 and 20 to the financial statements. By order of the Board David Hornsby Chairman 22 Ideagen | ANNUAL REPORT 2019 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 APRIL 2019 The directors are pleased to present their report and the audited financial statements for the year ended 30 April 2019. PRINCIPAL ACTIVITIES The principal activities of the Group are the development and supply of software solutions and the provision of associated professional and support services. 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 7 to 17 and details are set out in the financial statements on pages 30 to 93. A final dividend in respect of the year ended 30 April 2018 of 0.163 pence per ordinary share was paid to shareholders on 21 November 2018. The total cost of this dividend was £357,000. An interim dividend in respect of the year ended 30 April 2019 of 0.09 pence per ordinary share was paid to shareholders on 20 March 2019. The total cost of this dividend was £198,000. The directors propose a final dividend in respect of the year ended 30 April 2019 of 0.188 pence per share payable on 26 November 2019 to shareholders on the register on 8 November 2019. 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 were as follows: ▪ David R K Hornsby (Executive Chairman) ▪ Benjamin C Dorks (Chief Executive Officer) ▪ Graeme P Spenceley (Chief Financial Officer) ▪ Barnaby L Kent (Chief Operating Officer) ▪ Alan M Carroll (Non-Executive Director) ▪ Jonathan P Wearing (Non-Executive Director) ▪ Tony Rodriguez (Non-Executive Director) DIRECTORS’ INTERESTS IN THE SHARE CAPITAL OF THE COMPANY During the year ended 30 April 2019, the Company introduced the 2018 Long Term Incentive Plan and the 2018 Long Term Incentive Plan Extension. Under these plans, 1,200,000 share options with an exercise price of 1 penny each were granted to Ben Dorks and 750,000 share options were granted to both Graeme Spenceley and Barnaby Kent. In total, 1,350,000 of these options will become eligible to vest on the Company’s share price reaching 196 pence over 30 consecutive business days. The remaining 1,350,000 options will become eligible to vest on the Company’s share price reaching 259 pence over 30 consecutive business days. None of these options were exercisable at 30 April 2019. Any shares issued in respect of the exercise of any of these options cannot be sold until the fourth anniversary of the grant date and are subject to continued service throughout. During the year ended 30 April 2019, the final tranche of 1,800,000 share options linked to the 136 pence share price condition from the 2017 Long Term Incentive Plan were exercised by Ben Dorks, Graeme Spenceley and Barnaby Kent. 23 Ideagen | ANNUAL REPORT 2019 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 APRIL 2019 (CONTINUED) Full details of the remuneration and share options of the directors are set out at notes 6 and 20 to the financial statements. The directors who served during the year had the following interests in the share capital of the Company at the beginning and end of the year. David Hornsby Ben Dorks Graeme Spenceley Barnaby Kent Alan Carroll Jonathan Wearing Tony Rodriguez 30 April 2019 30 April 2018 8,650,066 8,648,853 2,000,533 1,699,320 828,253 827,040 2,278,193 1,976,980 204,171 204,021 4,189,066 4,189,066 - - 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. EMPLOYEES ‘People’ remains one of the three core pillars within Ideagen, alongside ‘Customers’ and ‘Products’. The evolution of how Ideagen manages, engages, and rewards its teams has progressed well over the last 12 months. All the primary benefits such as Life Insurance, contributory pension, Private Medical, and the Share Incentive Plan (SIP) have continued and, where appropriate, been expanded. In addition, Ideagen seeks to be creative in the use of soft benefits such as Personal Financial Planning initiatives, mental health workshops, holiday Buy/Sell, and informal flexi-time, all of which are supported by the full- time in-house Employee Engagement Officer. The Group has a targeted employee net promoter score (eNPS) provided through the leading employee engagement platform Peakon. This anonymous survey every 8 weeks allows the company to understand the pulse of each office / function / demographic, thereby ensuring that a broad and comprehensive plan can be established that touches all employees around the globe. There is no doubt that Technology continues to be a challenging recruitment market, but Ideagen invests heavily to ensure that all employees benefit from great facilities, excellent Learning & Development and best of breed tools, whilst enjoying a framework that aims to deliver #bestversionofyou in a stable, fulfilling environment. Although employee turnover is inevitable in an acquisition focused Technology company, the Board remains pleased that non-acquisition employee turnover of 11.3% is considerably better than the wider technology market where all indicators suggest it is 15%+. Ideagen is an equal opportunities employer and it is our policy to treat all employees, job applicants, customers and suppliers equally regardless of their age, disability, gender reassignment, marital status, pregnancy, race (including nationality, ethnic or national origins), religion or religious beliefs, sex or sexual orientation. 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 7 to 17. 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. 24 Ideagen | ANNUAL REPORT 2019 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 APRIL 2019 (CONTINUED) EVENTS AFTER THE END OF THE REPORTING PERIOD On 7 June 2019, the Group completed the acquisition of Redland Business Solutions Limited, a company incorporated and domiciled in England. The initial net cash consideration for the purchase was £15.8 million with a further £0.5 million payable 12 months after completion contingent upon the achievement of certain revenue objectives. The acquisition will strengthen the Group’s position in the financial services market and the combination of Redland’s Insight platform with Ideagen’s existing product set will provide a compelling proposition covering internal audit, risk management, certification and SMCR compliance. The acquisition was funded from the Group’s cash resources and from the extension of the Group’s existing Revolving Credit Facility with NatWest to £28 million. SUBSTANTIAL SHAREHOLDINGS As at 30 April 2019, the Company was notified of the following interests which represented 3% or more of the Ordinary share capital of the Company. Liontrust Asset Management Investec Wealth & Investment Vind LV AS Canaccord Genuity Wealth Management Gresham House Asset Management David Hornsby HL Fund Managers AUDITOR Number of shares held at 30 April 2019 Percentage of shares held at 30 April 2019 34,070,735 25,194,848 17,608,280 14,361,849 12,553,962 8,650,066 6,826,154 15.5% 11.5% 8.0% 6.5% 5.7% 3.9% 3.1% In accordance with the Companies Act 2006 a resolution proposing the reappointment of RSM UK Audit LLP as auditor will be put to the members at the forthcoming Annual General Meeting. DISCLOSURE OF INFORMATION TO THE 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. FUTURE DEVELOPMENTS The Strategic Report on pages 7 to 17 refers to the Group’s ongoing 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. Approved by the Board and signed on its behalf by: Graeme Spenceley Director & Company Secretary 1 October 2019 25 Ideagen | ANNUAL REPORT 2019 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. 26 Ideagen | ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IDEAGEN PLC (REGISTRATION NUMBER: 02805019) OPINION We have audited the financial statements of Ideagen plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 30 April 2019 which comprise the group statement of comprehensive income, group and company statements of financial position, group and company statements of changes in equity, group and company statements of cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: - - - the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 April 2019 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies Act 2006; and - the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. CONCLUSIONS RELATING TO GOING CONCERN We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: - - the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Group key audit matters - Revenue recognition – We focused on the recognition of revenue as the timing of revenue recognition and its presentation in the statement of comprehensive income is subject to inherent complexities in the software industry. We considered the controls over the recognition of revenue and whether these continued to be appropriate and consistently applied. We performed controls testing, cut-off testing and substantive analytical review procedures to validate the recognition of revenue throughout the year with additional procedures incorporated to assess the impact of IFRS 15 “Revenue from Contracts with Customers” on the Group. We also considered the adequacy of the Group’s revenue recognition accounting policy given in note 1. 27 Ideagen | ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IDEAGEN PLC (REGISTRATION NUMBER: 02805019) - Development costs - We focused on the capitalisation of development costs due to its impact on reported earnings and the judgements involved in assessing whether the IAS 38 criteria for capitalisation have been suitably met. We reconfirmed our understanding of management’s basis for capitalising development costs and reviewed whether the costs had been appropriately capitalised in accordance with IAS 38 and in accordance with the accounting policy in note 1. Our procedures included an assessment over the appropriateness of any management judgements including the future expected economic benefit of capitalised projects and substantive testing of the costs capitalised. We also assessed the reasonableness of the amortisation policies in place, potential impairment and the level of taxation credits recognised for eligible expenditure. Capitalised development costs are disclosed in note 9, with the key judgements in relation thereto in note 1. - Trade receivables provisioning – This is considered a key audit matter due to its judgemental nature and magnitude. We understood management’s basis for determining provisions against expected bad debts. The adequacy of the provisions was assessed by consideration and testing over the level of overdue debts, the historic track record of recovery, certain documentary evidence to support the debtors and cash receipts since the year end. We also performed additional procedures to critically assess management’s adoption of IFRS 9 “Financial instruments” and the adequacy of the accounting policy included within note 1. - Business combinations – The Group acquired InspectionXpert Corp, Morgan Kai Group Limited and Scannell Solutions Limited in the year. These transactions fall under the scope of IFRS 3 “Business Combinations” which requires management judgement in determining the fair value of assets acquired, including intangible assets. In conjunction with our valuation specialists, we reviewed the reasonableness of the methodology and inputs used to determine the acquired intangible values. Our work also included a review of management’s other fair value adjustments including those required to align revenue recognition to the Group’s accounting policy. We also reviewed the adequacy of the disclosures in the financial statements in notes 1 and 9. Parent company key audit matters - There were no key audit matters specifically related to the parent company in the 30 April 2019 financial statements. OUR APPLICATION OF MATERIALITY When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures. When evaluating whether the effects of misstatements, both individually and on the financial statements as a whole, could reasonably influence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements. During planning materiality for the group financial statements as a whole was calculated as £700,000, which was not significantly changed during the course of our audit. Materiality for the parent company financial statements as a whole was calculated as £400,000, which was not significantly changed during the course of our audit. We agreed with the Audit Committee that we would report to them all unadjusted differences in excess of £20,000, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. AN OVERVIEW OF THE SCOPE OF OUR AUDIT Our Group audit approach focused on the parent company, the UK trading subsidiaries and the consolidation which have been subject to a full scope audit to Group materiality. These audits covered 82% of Group revenue, 79% of Group profit from operating activities before depreciation, amortisation, share-based payment charges and exceptional items and 97% of Group total assets. In addition, we have performed desk top review procedures on the overseas subsidiaries corroborating any significant differences from expectations. OTHER INFORMATION The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 28 Ideagen | ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IDEAGEN PLC (REGISTRATION NUMBER: 02805019) OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, based on the work undertaken in the course of the audit: - the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and - the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: - adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or - the parent company financial statements are not in agreement with the accounting records and returns; or - certain disclosures of directors’ remuneration specified by law are not made; or - we have not received all the information and explanations we require for our audit. RESPONSIBILITIES OF DIRECTORS As explained more fully in the directors’ responsibilities statement set out on page 26, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. USE OF OUR REPORT This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Neil Stephenson (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants Suite A, 7th Floor, City Gate East Tollhouse Hill Nottingham, NG1 5FS 1 October 2019 29 Ideagen | ANNUAL REPORT 2019 GROUP STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 APRIL 2019 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 Restructuring costs Share-based payment charges Profit from operating activities Net finance costs 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 30 NOTES 2 3 3 17 20 5 7 8 8 2019 £’000 2018 £’000 46,667 36,120 (3,900) (3,166) 42,767 32,954 (28,494) (21,936) 14,273 11,018 (9,391) (7,122) (1,268) (479) (426) (151) (1,491) (1,880) 1,644 1,439 (263) 1,381 4 1,385 (40) 1,399 130 1,529 641 537 (133) 325 2,563 1,721 Pence Pence 0.65 0.62 0.77 0.74 Ideagen | ANNUAL REPORT 2019The notes on pages 41 to 93 form an integral part of these financial statements. GROUP STATEMENT OF FINANCIAL POSITION AT 30 APRIL 2019 Assets and liabilities Non-current assets Intangible assets Property, plant and equipment Current assets Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Current income tax liabilities Short term borrowings Deferred revenue Contingent consideration on business combinations Deferred consideration on business combinations Non-current liabilities Deferred income tax liabilities NOTE 2019 £’000 2018 £’000 9 10 90,749 60,289 1,069 787 91,818 61,076 12 17,547 12,482 6,199 5,532 23,746 18,014 13 15 14 16 6,043 387 7,500 5,400 147 4,750 18,570 12,527 769 1,269 - 460 34,538 23,284 7 7,344 5,322 Net assets 73,682 50,484 31 Ideagen | ANNUAL REPORT 2019The notes on pages 41 to 93 form an integral part of these financial statements. GROUP STATEMENT OF FINANCIAL POSITION AT 30 APRIL 2019 (CONTINUED) Equity Issued share capital Share premium account Merger reserve Share-based payments reserve Retained earnings Foreign currency translation reserve NOTES 2019 £’000 2018 £’000 18 18 18 20 2,198 2,027 53,948 34,257 1,658 1,440 1,658 1,148 13,597 11,194 841 200 Equity attributable to the owners of the parent 73,682 50,484 The Company reported a profit for the year of £77,000 (2018: £401,000). Approved and authorised for issue by the Board on 1 October 2019 and signed on its behalf by: David Hornsby Director Graeme Spenceley Director Registration number: 02805019 32 Ideagen | ANNUAL REPORT 2019The notes on pages 41 to 93 form an integral part of these financial statements. GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 APRIL 2019 L A T O T N G I E R O F T N E R A P E V R E S E R O T E L B A T U B I R T T A Y C N E R R U C E H T F O S R E N W O 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 T N U O C C A E R A H S L A T I P A C 0 0 0 £ ’ 4 8 4 0 5 , 0 0 0 0 2 , ) 5 2 6 ( 7 9 3 0 9 1 8 0 1 , ) 3 ( - - 0 5 2 ) 5 5 5 ( 5 3 6 0 2 , 5 8 3 1 , 8 7 1 1 , 3 6 5 2 , 0 0 0 £ ’ 0 0 2 0 0 0 £ ’ 4 9 1 1 1 , 0 0 0 £ ’ 8 4 1 1 , 0 0 0 £ ’ 8 5 6 1 , 0 0 0 £ ’ 7 5 2 4 3 , 0 0 0 £ ’ 7 2 0 2 , 8 1 0 2 y a M 1 t a e c n a a B l - - - - - - - - - - - - 1 4 6 1 4 6 - - - - - - 2 2 7 4 6 0 5 2 ) 5 5 5 ( 1 8 4 5 8 3 1 , 7 3 5 2 2 9 1 , - - - - 1 8 0 1 , ) 3 ( ) 2 2 7 ( ) 4 6 ( - - 2 9 2 - - - - - - - - - - - - - - - - - ) 5 2 6 ( 0 7 3 7 8 - - - - - - - 7 2 3 - - - - - - 9 5 8 9 1 , 1 4 1 1 9 6 9 1 , 1 7 1 - - - - - - s t s o c e u s s i l g n i c a p e r a h S ) 8 1 e t o n ( e r a h s r e d n u d e u s s i s e r a h S ) 8 1 e t o n ( s e m e h c s n o i t p o e r a h s e h t r e d n u d e u s s i s e r a h S ) 8 1 e t o n l ( g n i c a p e r a h S ) 9 1 e t o n ( e m e h c s e v i t n e c n i s e t o n ( s t n e m y a p d e s a b - e r a h S ) 0 2 & 4 e h t r e d n u d e s a h c r u p s e r a h S e m e h c s e v i t n e c n i 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 ) 0 2 e t o n ( s n o i t p o e r a h s f o t c e p s e r n i r e f s n a r T ) 0 2 e t o n ( e m e h c s e v i t n e c n i ) 9 1 e t o n ( i d a p s d n e d i v i d y t i u q E 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 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 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 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 r a e y e h t r o f t fi o r P 2 8 6 3 7 , 1 4 8 7 9 5 3 1 , 0 4 4 1 , 8 5 6 1 , 8 4 9 3 5 , 8 9 1 2 , 9 1 0 2 l i r p A 0 3 t a e c n a l a B 33 Ideagen | ANNUAL REPORT 2019The notes on pages 41 to 93 form an integral part of these financial statements. GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 APRIL 2018 0 0 0 £ ’ 9 1 4 6 4 , 3 3 8 5 6 5 4 5 1 , ) 6 ( - - 7 4 3 ) 0 4 4 ( 4 4 3 2 , 2 9 1 9 2 5 1 , 1 2 7 1 , - - - - - - - - - - ) 3 3 1 ( ) 3 3 1 ( - - - - 0 0 0 £ ’ 1 6 9 - - ) 6 ( 5 4 5 1 , 5 1 7 4 3 ) 0 4 4 ( ) 5 1 ( - - 9 5 2 1 , 7 8 1 5 2 3 9 2 5 1 , 4 5 8 1 , - - - 7 3 3 1 , ) 7 3 3 1 ( , - - - - - - - - - - - - 3 3 3 0 0 0 £ ’ 0 0 0 £ ’ 1 8 0 8 , L A T O T N G I E R O F T N E R A P E V R E S E R O T E L B A T U B I R T T A Y C N E R R U C E H T F O S R E N W O 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 0 0 0 £ ’ 8 5 6 1 , R E G R E M E V R E S E R 0 0 0 £ ’ 5 0 4 3 3 , E R A H S I M U M E R P T N U O C C A 3 9 7 9 5 - - - - - - 2 5 8 6 4 - - - - - - 0 0 0 £ ’ 1 8 9 1 , 0 4 6 E R A H S L A T I P A C - - - - - - 7 1 0 2 y a M 1 t a e c n a a B l s e m e h c s 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 ) 8 1 e t o n ( e h t r e d n u d e u s s i s e r a h S e m e h c s e v i t n e c n i e r a h s ) 8 1 e t o n ( s t n e m y a p d e s a b - e r a h S ) 0 2 e t o n ( r e d n u d e s a h c r u p s e r a h S e v i t n e c n i e r a h s e h t e m e h c s f o e s i c r e x e n o r e f s n a r T ) 0 2 e t o n ( s n o i t p o e r a h s e m e h c s e v i t n e c n i e r a h s f o t c e p s e r n i r e f s n a r T ) 0 2 e t o n ( 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 ) 9 1 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 34 4 8 4 0 5 , 0 0 2 4 9 1 1 1 , 8 4 1 1 , 8 5 6 1 , 7 5 2 4 3 , 7 2 0 2 , 8 1 0 2 l i r p A 0 3 t a e c n a l a B Ideagen | ANNUAL REPORT 2019The notes on pages 41 to 93 form an integral part of these financial statements. 0 0 0 ’ £ 9 1 4 , 6 4 3 3 8 5 6 5 4 5 , 1 ) 6 ( - - 7 4 3 ) 0 4 4 ( 4 4 3 , 2 2 9 1 9 2 5 , 1 1 2 7 , 1 L A T O T N G I E R O F T N E R A P E V R E S E R O T E L B A T U B I R T T A Y C N E R R U C E H T F O S R E N W O N O I T A L S N A R T D E N I A T E R S G N I 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 3 3 3 0 0 0 ’ £ 0 0 0 ’ £ 1 8 0 , 8 0 0 0 ’ £ 1 6 9 0 0 0 ’ £ 8 5 6 , 1 R E G R E M E V R E S E R 0 0 0 ’ £ 5 0 4 , 3 3 E R A H S M U I M E R P T N U O C C A - - - - - - - - - - ) 3 3 1 ( ) 3 3 1 ( - - - - 5 1 7 4 3 ) 0 4 4 ( 5 2 3 9 2 5 , 1 4 5 8 , 1 - - - - - - - ) 6 ( 5 4 5 , 1 ) 5 1 ( 7 3 3 , 1 ) 7 3 3 , 1 ( - - - - - - - - - - - - 3 9 7 9 5 - - - - - - - - - 9 5 2 , 1 7 8 1 2 5 8 6 4 0 0 0 ’ £ 1 8 9 , 1 0 4 6 E R A H S L A T I P A C - - - - - - - - - 7 1 0 2 y a M 1 t a e c n a l a B s e m e h c s 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 ) 8 1 e t o n ( e h t r e d n u d e u s s i s e r a h S e m e h c s e v i t n e c n i e r a h s s t n e m y a p d e s a b - e r a h S ) 8 1 e t o n ( ) 0 2 e t o n ( r e d n u d e s a h c r u p s e r a h S e v i t n e c n i e r a h s e h t e m e h c s f o e s i c r e x e n o r e f s n a r T ) 0 2 e t o n ( s n o i t p o e r a h s e m e h c s e v i t n e c n i e r a h s f o t c e p s e r n i r e f s n a r T ) 0 2 e t o n ( 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 d i a p s d n e d i v i d y t i u q E ) 9 1 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 4 8 4 , 0 5 0 0 2 4 9 1 , 1 1 8 4 1 , 1 8 5 6 , 1 7 5 2 , 4 3 7 2 0 , 2 8 1 0 2 l i r p A 0 3 t a e c n a l a B GROUP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 APRIL 2019 Cash flows from operating activities Profit for the year Depreciation of property, plant and equipment Amortisation of intangible non-current assets Profit on disposal of property, plant and equipment Share-based payment charges Net finance costs recognised in profit or loss Taxation credit recognised in profit or loss Business acquisition costs in profit or loss Restructuring costs in profit or loss Decrease in inventories Increase in trade and other receivables Decrease in trade and other payables Increase in deferred revenue liability Cash generated by operations Net finance costs paid Income tax paid Business acquisition costs paid Restructuring costs paid Employer’s national insurance paid on share-based payments 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 Proceeds from issue of shares under the share incentive scheme Cost of shares purchased under the share incentive scheme New short-term borrowings Repayment of short term borrowings Equity dividends paid Net cash generated by financing activities Net increase/(decrease) 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 NOTES 10 9 3 20 5 7 17 17 16 14 9 10 18 18 18 18 15 15 19 24 24 2019 £’000 1,385 463 8,928 (7) 1,491 263 (4) 1,268 479 - (3,914) (444) 2, 438 12,346 (323) (248) (915) (479) (730) 9,651 (27,252) (460) - (2,683) (679) 7 2018 £’000 1,529 320 6,802 (6) 1,880 40 (130) 426 - 10 (1,447) (259) 255 9, 420 (99) (21) (204) - (253) 8,843 (6,225) (1,640) (2,057) (2,246) (517) 6 (31,067) (12,679) 20,000 (625) 397 90 (3) 6,000 (3,250) (555) 22,054 638 5,532 29 6,199 - - 833 65 (6) 4,750 (2,000) (440) 3,202 (634) 6,205 (39) 5,532 35 Ideagen | ANNUAL REPORT 2019The notes on pages 41 to 93 form an integral part of these financial statements. COMPANY STATEMENT OF FINANCIAL POSITION AS AT 30 APRIL 2019 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 Short-term borrowings Deferred revenue Deferred consideration on business combinations Net assets NOTES 2019 £’000 2018 £’000 9 10 11 7 26 221 78 92 71,767 51,824 70 70 72,084 52,064 12 12,693 24,082 13 15 16 1,438 2,301 14,131 26,383 11,877 28,024 7,500 4,750 823 500 697 460 20,700 33,931 65,515 44,516 36 Ideagen | ANNUAL REPORT 2019The notes on pages 41 to 93 form an integral part of these financial statements. COMPANY STATEMENT OF FINANCIAL POSITION AS AT 30 APRIL 2019 (CONTINUED) Equity Issued share capital Share premium account Merger reserve Share-based payments reserve Retained earnings NOTES 2019 £’000 2018 £’000 18 18 18 20 2,198 2,027 53, 948 34,257 1,709 1,440 6,220 1,709 1,148 5,375 Equity attributable to the owners of the parent 65,515 44,516 Approved and authorised for issue by the Board on 1 October 2019 and signed on its behalf by: David Hornsby Director Graeme Spenceley Director Registration number: 02805019 37 Ideagen | ANNUAL REPORT 2019The notes on pages 41 to 93 form an integral part of these financial statements. COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 APRIL 2019 0 0 0 £ ’ 6 1 5 4 4 , ) 5 2 6 ( 0 0 0 0 2 , 7 9 3 0 9 1 8 0 1 , ) 3 ( - - ) 5 5 5 ( 5 8 3 0 2 , 7 7 7 3 5 4 1 6 0 0 0 £ ’ 5 7 3 5 , 0 0 0 £ ’ 8 4 1 1 , 0 0 0 £ ’ 9 0 7 1 , 0 0 0 £ ’ 7 5 2 4 3 , 0 0 0 £ ’ 7 2 0 2 , 8 1 0 2 y a M 1 t a e c n a a B l - - - - - - 2 2 7 4 6 ) 5 5 5 ( 1 3 2 7 7 7 3 5 4 1 6 - - - - 1 8 0 1 , ) 3 ( ) 2 2 7 ( ) 4 6 ( - 2 9 2 - - - - - - - - - - - - - - - - ) 5 2 6 ( 0 7 3 7 8 - - - - - - 7 2 3 - - - - - 9 5 8 9 1 , 1 4 1 ) 8 1 e t o n ( s t s o c e u s s i l g n i c a p e r a h S 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 ) 8 1 e t o n ( s e m e h c s e r a h s e h t r e d n u d e u s s i s e r a h S ) 8 1 e t o n l ( g n i c a p e r a h S ) 8 1 e t o n ( e m e h c s e v i t n e c n i e r a h s e h t r e d n u d e s a h c r u p s e r a h S e m e h c s e v i t n e c n i 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 ) 0 2 e t o n ( s n o i t p o e v i t n e c n i e r a h s f o t c e p s e r n i r e f s n a r T ) 0 2 e t o n ( e m e h c s ) 9 1 e t o n ( 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 ( s t n e m y a p d e s a b - e r a h S 1 9 6 9 1 , 1 7 1 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 - - - - - - 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 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 r a e y e h t r o f t fi o r P 5 1 5 5 6 , 0 2 2 6 , 0 4 4 1 , 9 0 7 1 , 8 4 9 3 5 , 8 9 1 2 , 9 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 T N U O C C A E R A H S L A T I P A C 38 Ideagen | ANNUAL REPORT 2019The notes on pages 41 to 93 form an integral part of these financial statements. COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 APRIL 2018 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 T N U O C C A E R A H S L A T I P A C 0 0 0 £ ’ 9 0 7 1 , 0 0 0 £ ’ 5 0 4 3 3 , 0 0 0 £ ’ 1 8 9 1 , 0 0 0 £ ’ 3 9 7 1 4 , 3 3 8 5 6 5 4 5 1 , ) 6 ( - - 0 4 4 7 9 9 1 , 1 0 4 5 2 3 6 2 7 0 0 0 £ ’ 7 3 7 3 , - - - - 0 0 0 £ ’ 1 6 9 - - ) 6 ( 5 4 5 1 , 7 3 3 1 , ) 7 3 3 1 ( , 5 1 ) 0 4 4 ( 2 1 9 1 0 4 5 2 3 6 2 7 ) 5 1 ( - 7 8 1 - - - - - - - - - - - - - - 3 9 7 9 5 - - - - - 0 4 6 - - - - - 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 ) 8 1 e t o n ( e m e h c s e r a h s e h t r e d n u d e u s s i s e r a h S 7 1 0 2 y a M 1 t a e c n a a B l ) 8 1 e t o n ( e m e h c s e v i t n e c n i e r a h s e h t r e d n u d e s a h c r u p s e r a h S e m e h c s e v i t n e c n i 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 ) 0 2 e t o n ( s n o i t p o e v i t n e c n i e r a h s f o t c e p s e r n i r e f s n a r T ) 0 2 e t o n ( e m e h c s ) 9 1 e t o n ( 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 ( s t n e m y a p d e s a b - e r a h S 2 5 8 6 4 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 - - - - - - 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 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 r a e y e h t r o f t fi o r P 6 1 5 4 4 , 5 7 3 5 , 8 4 1 1 , 9 0 7 1 , 7 5 2 4 3 , 7 2 0 2 , 8 1 0 2 l i r p A 0 3 t a e c n a l a B 39 Ideagen | ANNUAL REPORT 2019The notes on pages 41 to 93 form an integral part of these financial statements. COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 APRIL 2019 Cash flows from operating activities NOTES Profit for the year Depreciation of property, plant and equipment Amortisation of intangible assets Net finance costs recognised in profit or loss Taxation charge recognised in profit or loss Business acquisition costs in profit or loss (Increase)/decrease in trade and other receivables Movement in intra-group balances Increase/(decrease) in trade and other payables Increase in deferred revenue Cash generated by operations Net finance costs paid 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 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 Proceeds from issue of shares under the share incentive scheme Cost of shares purchased under the share incentive scheme New short-term borrowings Repayment of short term borrowings Equity dividends paid Net cash generated by financing activities Net (decrease)/increase 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 40 10 9 17 17 16 14 10 18 18 18 18 15 15 19 24 24 2019 £’000 77 71 52 266 413 1,268 (22) 1,205 908 126 4,364 (326) (915) 3,123 (25,380) (460) - (200) 2018 £’000 401 28 71 44 291 426 5 436 (123) 283 1,862 (102) (204) 1,556 - (1,640) (2,057) (77) (26,040) (3,774) 20,000 (625) 397 90 (3) 6,000 (3,250) (555) 22,054 (863) 2,301 1,438 - - 833 65 (6) 4,750 (2,000) (440) 3,202 984 1,317 2,301 Ideagen | ANNUAL REPORT 2019The notes on pages 41 to 93 form an integral part of these financial statements. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 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 2019 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 Company for the year ended 30 April 2019 was £77,000 (2018: £401,000). 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 2019. 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 with the exception of Ideagen EOOD in Bulgaria which makes its financial statements up to 31 December each year as required by Bulgarian law. GOING CONCERN 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. REVENUE RECOGNITION Revenue is recognised at the fair value of the consideration to which the Group is expected to be entitled in exchange for transferring services or goods to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the services or goods promised. Revenue from the sale of perpetual software licences or software development kits on a ‘right of use’ basis, where no customisation of the software is required, is recognised at a point in time once the licence has been delivered to the customer and the customer can obtain benefit from the licence or kit. 41 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 1 | ACCOUNTING POLICIES (CONTINUED) Revenue from the sale of perpetual software licences on a ‘right of use’ basis, where customisation of the software is required in order for the customer to obtain benefit from the licence, is recognised over the period of time during which the customisation work is carried out in a manner which reflects the varying level of effort involved. Revenues from the provision of customisation, configuration or training services are recognised over a period of time as these services are delivered to the customer. Revenues from supporting perpetual software licences and revenues from the sale of software on a ‘right of access’ basis including software as a service, software hosting and software sold on a subscription basis are recognised over the period of time that the customer benefits from the provision of these services. Revenues from the sale of third-party hardware are recognised once the associated performance obligation has been satisfied which will be once the hardware has been delivered and the customer is able to benefit from it. Software as a service, software hosting, software sold on a subscription basis and support for perpetual licences are invoiced in advance. A deferred revenue liability is recognised in the statement of financial position to represent the element of the service or support revenue deferred to be recognised as revenue in the future. 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. 42 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 1 | ACCOUNTING POLICIES (CONTINUED) 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. 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 which is available to all 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 this scheme and 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 applied to the group’s intangible assets on a straight line basis are as follows: Software Development costs Customer relationships 20% 20% or 25% 10% Amortisation charges are included in ‘Depreciation and amortisation’ in the Statement of Comprehensive Income. 43 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 1 | ACCOUNTING POLICIES (CONTINUED) 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. PROPERTY, PLANT AND EQUIPMENT Property, 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 15% - 33% on a straight line basis ▪ Motor vehicles at 25% - 33% on a reducing balance basis ▪ Leasehold improvements over the remaining lease term ▪ All other plant and equipment assets at 15% - 33% on a straight line basis. The remaining useful lives and residual values of property, plant and equipment are reassessed by the directors each year. The carrying values of property, 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 NON-FINANCIAL 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. 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 initially recognised at fair value and are subsequently measured at amortised cost using the effective interest method less any allowance for expected credit losses. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. The expected loss rate against certain balances is adjusted where there are specific indicators that the trade receivable is either irrecoverable or the risk of loss is high. Indicators include, amongst others, the failure of a debtor to engage in a repayment plan with the Group or a failure to make contractual payments for a period greater than 120 days past due. 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. 44 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 1 | ACCOUNTING POLICIES (CONTINUED) TRADE AND OTHER PAYABLES Trade and other payables are recognised initially at fair value. After initial recognition, they are measured at amortised cost using the effective interest method. 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. The Group has a Share Incentive Scheme under which all eligible employees can be awarded free shares. The fair value of shares awarded under the Scheme is the market value of those shares at the date of grant which is then recognised on a straight line basis over the vesting period. The free shares awarded are issued at nominal value and held in a trust managed by a third party trustee. On vesting, an amount equal to the fair value of the shares at the date the shares were awarded 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. 45 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 1 | ACCOUNTING POLICIES (CONTINUED) NEW OR AMENDED ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the International Accounting Standards Board (‘IASB’) that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The accounting policies are the same as those applied in the Group’s consolidated financial statements as at and for the year ended 30 April 2018 with the exception of the changes in respect of IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’, both of which were adopted on 1 May 2018. The effect of initially applying these standards is noted below. IFRS 9 ‘Financial Instruments’ IFRS 9 replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’. The standard applies a forward-looking impairment model that replaces the current applicable incurred loss model. New impairment requirements use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available. The adoption of IFRS 9 did not have a material impact on the reported results of previous years. IFRS 15 ‘Revenue from Contracts with Customers’ IFRS 15 replaces IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’ and related interpretations. It describes the principles an entity must follow to measure and recognise revenue using a five-step approach. The standard requires revenue to be recognised when goods or services are transferred to customers and the entity has satisfied its performance obligations under the contract, and at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The Group has applied IFRS 15 using the full retrospective method (adopting all practical expedients) with no impact on the reported results in the current or previous years. NEW AND REVISED IFRSs IN ISSUE BUT NOT YET EFFECTIVE Certain new accounting standards and interpretations have been published that are not mandatory for 30 April 2019 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below. IFRS 16 ‘Leases’ – to be adopted in the financial year ending 30 April 2020 This standard is applicable to annual reporting periods beginning on or after 1 January 2019 and the Group will adopt this standard in the accounts for the year ending 30 April 2020. The standard replaces IAS 17 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a ‘right-of-use’ asset will be capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration or removal costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset and an interest expense on the recognised lease liability to be included in finance costs. In the earlier periods of the lease, the expenses associated with the lease under IFRS 16 will be higher when compared to lease expenses under IAS 17. However, results from operating activities before depreciation, amortisation and share-based payment charges will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under IFRS 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. The Group is proposing to adopt the modified retrospective transition approach making use of the practical expedient not to apply the standard to leases of less than 12 months. The expected impact of applying IFRS 16 is that a right of use asset 46 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 1 | ACCOUNTING POLICIES (CONTINUED) of £2,330,000 and a capitalised lease liability of £2,260,000 will be initially recognised on 1 May 2019. The effect of this on the Statement of Comprehensive Income for the year to 30 April 2020 is estimated to be a reduction in operating costs by approximately £620,000, an increase in depreciation charges by approximately £600,000 and an increase in net finance costs by approximately £50,000. 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 20. 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. Trade and other receivables Management judgement is required in considering the recoverability of debts and in the estimation of expected credit losses which may be incurred. Further information is provided in note 12. 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. Development costs Management judgement is required in assessing the fair value of development costs capitalised including the future economic benefit expected to be generated by those assets and in calculating the attributable costs. Management judgement is also required in assessing the useful economic lives of these assets for the purposes of amortisation. The carrying value of development costs at 30 April 2019 was £6,752,000. 47 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 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. Recurring software subscription/SaaS Recurring support & maintenance Total recurring revenues Software – new licences & development kits Professional services Other revenues 2019 £’000 13,727 2018 £’000 8,442 17,452 13,793 31,179 22,235 9,694 5,307 487 8,339 5,052 494 46,667 36,120 An analysis of external revenue by location of customers and non-current assets by location of assets is given below: United Kingdom North America Europe Middle East Rest of the World Unallocated External revenue by location of customers Non-current assets by location of assets* 2019 £’000 17,682 17,822 5,429 2,354 3,380 - 2018 £’000 16,376 9,687 5,529 1,970 2,558 2019 £’000 70,114 14,834 4,229 3 155 2018 £’000 49,998 8,375 21 2 - - 2,483 2,680 46,667 36,120 91,818 61,076 * Non-current assets exclude deferred income tax assets. No single customer accounted for more than 10% of total revenue in either year. 48 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 3 | OPERATING COSTS Wages and salaries (note 4) Operating lease charges – land & buildings Profit 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 and its related entities: - The audit of the Company’s subsidiaries’ annual accounts - Tax compliance and advisory services 2019 £’000 2018 £’000 19,716 15,557 929 (7) (67) 598 (6) 40 7,923 5,747 28,494 21,936 7,548 1,380 8,928 463 9,391 5,819 983 6,802 320 7,122 6,424 5,136 (2,683) (2,246) 3,741 2,890 12 124 33 12 87 16 49 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 4 | PARTICULARS OF EMPLOYEES The average number of staff including directors employed by the Group during the year, analysed by category, was as follows: 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 (note 23) Less: internal development costs capitalised Share based payment costs (note 20) - on options granted - on share incentive scheme - national insurance 5 | NET FINANCE COSTS Borrowing facility fees amortised Interest payable on bank borrowings Bank interest receivable 50 2019 2018 NUMBER NUMBER 68 124 259 451 50 97 228 375 2019 £’000 2018 £’000 19,770 15,631 2,002 627 1,650 522 22,399 17,803 (2,683) (2,246) 19,716 15,557 802 279 410 1,429 116 335 21,207 17,437 2019 £’000 (35) (233) 5 (263) 2018 £’000 (25) (19) 4 (40) Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 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 2019 £’000 1,490 37 2018 £’000 1,214 27 1,527 1,241 Aggregate gains made by directors on the exercise of share options 2,718 1,944 The remuneration of each of the directors of the company during the year ended 30 April 2019 was as follows: David Hornsby Ben Dorks Graeme Spenceley Barnaby Kent Alan Carroll Jonathan Wearing Tony Rodriguez SALARY OR FEES BENEFITS IN KIND BONUSES NATIONAL INSURANCE ON SHARE OPTIONS TOTAL £’000 £’000 £’000 £’000 £’000 204 206 156 156 30 30 25 807 1 1 - 1 - - - 3 120 100 30 55 - - - - 125 125 125 - - - 325 432 311 337 30 30 25 305 375 1,490 51 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 6 | DIRECTORS’ REMUNERATION AND SHARE OPTIONS (CONTINUED) The remuneration of each of the directors of the Company during the year ended 30 April 2018 was as follows: SALARY OR FEES BENEFITS IN KIND BONUSES David Hornsby Ben Dorks Graeme Spenceley Barnaby Kent Alan Carroll Jonathan Wearing Tony Rodriguez £’000 £’000 185 181 136 136 24 24 17 703 1 1 1 1 - - - 4 NATIONAL INSURANCE ON SHARE OPTIONS TOTAL £’000 £’000 - 89 89 89 - - - 306 331 256 256 24 24 17 £’000 120 60 30 30 - - - 240 267 1,214 The bonuses for David Hornsby, Graeme Spenceley, Barnaby Kent and Ben Dorks were in respect of the successful completion of the acquisition and integration of the businesses acquired during the relevant years and on achieving certain business- related targets. The Group paid the employer’s national insurance costs outlined above in respect of the gains arising on non-tax-efficient share options exercised during the year. The associated income tax and employee national insurance costs were paid by the individual directors. The remuneration for Alan Carroll was paid to Ultris Limited and the remuneration for Tony Rodriguez was paid to X88 Ltd as set out in note 25. The remuneration of the highest paid director during the year ended 30 April 2019 was £432,000 (2018: £331,000). The Group paid contributions to a defined contribution pension scheme in respect of the following directors: David Hornsby Ben Dorks Graeme Spenceley Barnaby Kent Jonathan Wearing 52 2019 £’000 2018 £’000 10 10 8 8 1 37 8 6 6 6 1 27 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 6 | DIRECTORS’ REMUNERATION AND SHARE OPTIONS (CONTINUED) The following options over shares in the Company granted to the directors remain outstanding at 30 April 2019: Notes (see below) Balance at 30 April 2018 Granted in the year Exercised in the year 1,333,333 500,000 1,833,333 1,000,000 600,000 - - - - - Balance at 30 April 2019 Option exercise price (pence) Date exercisable 1,333,333 9.0 2014 - 2021 500,000 22.38 2016 - 2023 1,833,333 1,000,000 22.38 2016 - 2023 - - - - - 1,200,000 - 1,200,000 1,600,000 1,200,000 600,000 2,200,000 600,000 - 1.0 1.0 2021 - 2023 800,000 795,000 600,000 - - - - - 800,000 795,000 9.0 2014 - 2021 22.38 2016 – 2023 600,000 - 1.0 1.0 2022 - 2024 - 750,000 - 750,000 2,195,000 750,000 600,000 2,345,000 1,000,000 600,000 - - - - 1,000,000 22.38 2016 - 2023 600,000 - 1.0 1.0 2022 - 2024 - 750,000 - 750,000 1,600,000 750,000 600,000 1,750,000 Director David Hornsby Ben Dorks Graeme Spenceley Barnaby Kent Notes a b b c d a b c e b c e a. options were granted on 20 October 2011 under the Company’s EMI share option scheme. All options are exercisable at 30 April 2019. b. options were granted on 30 January 2013 under the Company’s EMI share option scheme. All options are exercisable at 30 April 2019. c. options were granted on 23 March 2017 under the Company’s 2017 Long Term Incentive Plan. All of these options had been exercised at 30 April 2019. d. options were granted on 22 October 2018 under the Company’s 2018 Long Term Incentive Plan. None of these options were exercisable at 30 April 2019. e. options were granted on 28 March 2019 under the Company’s 2018 Long Term Incentive Plan Extension. None of these options were exercisable at 30 April 2019. During the year ended 30 April 2019, 1,201 (30 April 2018: 2,197) “Free” shares were awarded to each of David Hornsby, Ben Dorks, Graeme Spenceley and Barnaby Kent under the Company’s Share Incentive Scheme. In addition, during the year ended 30 April 2018, each of these directors purchased 2,117 “Partnership” shares at 85 pence each through the Share Incentive Scheme. Further information on the Group’s share option schemes can be found at note 20 to the accounts. The contracts of employment of the executive directors include notice periods of 6 months. 53 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 7 | TAXATION The taxation credit 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 Deferred income tax Deferred income tax credit for the current year Total taxation credit recognised in the current year 2019 £’000 2018 £’000 610 377 987 (991) (4) 410 113 523 (653) (130) The taxation for the year is lower than the average rate of corporation tax in the UK of 19% (2018: 19%). The differences are reconciled below: Profit before taxation Tax on profit at average standard rate of 19% (2018: 19%) Expenses not deductible for tax purposes Deferred taxation not provided on accelerated capital allowances Movement in fair value of contingent consideration not taxable Enhanced R&D tax relief Effect on deferred tax from change in current tax rate Different tax rates in overseas jurisdictions Deferred tax asset not recognised on new trading losses 2019 £’000 1,381 262 228 19 - (506) (42) 119 (84) 2018 £’000 1,399 266 37 3 1 (422) (27) 45 (33) Taxation credit recognised for the current year (4) (130) 54 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 7 | TAXATION (CONTINUED) A further taxation credit of £250,000 (2018: £347,000) 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: Deferred income tax assets: Group At 1 May 2017 Recognised in profit or loss Recognised in equity Offset against deferred tax liabilities At 30 April 2018 On acquisition of businesses Recognised in profit or loss Recognised in equity Offset against deferred tax liabilities At 30 April 2019 Deferred income tax assets: Company At 1 May 2017 Recognised in profit or loss At 30 April 2018 and 30 April 2019 Trading losses £’000 322 (242) - (80) - 292 (292) - - - Share- based payments £’000 1,026 13 347 Total £’000 1,348 (229) 347 (1,386) (1,466) - - - 250 (250) - 292 (292) 250 (250) - - Total £’000 79 (9) 70 55 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 7 | TAXATION (CONTINUED) The deferred income tax assets at 30 April 2019 above are expected to be utilised after more than one year. The deferred income tax assets 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 2019 there are also unrecognised deferred income tax assets in respect of trading losses of £525,000 (2018: £519,000) in the Group and £363,000 (2018: £348,000) in the Company. The movements in deferred income tax liabilities during the year were as follows: Group At 1 May 2017 Recognised in profit or loss Recognised on business combinations Foreign exchange differences Offset against deferred tax assets At 30 April 2018 Recognised in profit or loss Recognised on business combinations Foreign exchange differences Offset against deferred tax assets At 30 April 2019 The deferred tax liabilities at 30 April 2019 are expected to crystallise as follows: Group Within 1 year After more than 1 year Intangibles £’000 (6,274) 882 (1,374) (22) 1,466 (5,322) 1,283 (3,478) (77) 250 (7,344) £’000 (1,828) (5,516) (7,344) FACTORS THAT MAY AFFECT FUTURE TAX CHARGES Legislation to reduce the main rate of UK corporation tax from 19% to 17% from 1 April 2020 has been enacted. 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. 56 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 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 2019 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 1,385 - pence 212,825,943 0.65 9,647,629 Profit for the year attributable to equity holders of the parent 1,385 222,473,572 0.62 Year ended 30 April 2018 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 1,529 - pence 199,462,389 0.77 7,671,592 Profit for the year attributable to equity holders of the parent 1,529 207,133,981 0.74 57 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 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 Restructuring costs Deferred taxation on share-based payment charges Amortisation of acquisition-related intangibles (Note 3) Deferred taxation on amortisation of acquisition-related intangibles 2019 £’000 1,385 1,268 1,491 479 1 7,548 (1,500) 2018 £’000 1,529 426 1,880 151 (14) 5,819 (1,109) Adjusted earnings 10,672 8,682 Weighted average number of shares: Basic adjusted EPS calculation 212,825,943 199,462,389 Effect of dilutive securities: share options 9,647,629 7,671,592 Weighted average number of shares: Diluted adjusted EPS calculation 222,473,572 207,133,981 Adjusted earnings per share: Basic Diluted 2019 pence 5.01 4.80 2018 pence 4.35 4.19 58 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 9 | INTANGIBLE ASSETS Group Cost At 1 May 2017 Goodwill Software Customer relationships Development costs Total £’000 £’000 £’000 £’000 £’000 21,521 17,870 24,766 5,723 69,880 Acquisition through business combinations (note 17) 3,199 1,767 3,320 Foreign exchange differences Additions from internal development 51 - 29 - 52 - At 30 April 2018 24,771 19,666 28,138 Acquisition through business combinations (note 17) 16,869 5,255 14,120 Foreign exchange differences Additions from internal development 178 - 101 - 186 - - - 2,246 7,969 - - 2,683 8,286 132 2,246 80,544 36,244 465 2,683 At 30 April 2019 41,818 25,022 42,444 10,652 119,936 Amortisation At 1 May 2017 Amortisation expense At 30 April 2018 Amortisation expense Foreign exchange differences At 30 April 2019 Net carrying amount At 30 April 2019 At 30 April 2018 Goodwill - - - - - - 7,301 3,319 10,620 4,614 2,500 7,114 1,538 983 2,521 13,453 6,802 20,255 3,915 3,634 1,379 8,928 2 2 - 4 14,537 10,750 3,900 29,187 41,818 10,485 24,771 9,046 31,694 21,024 6,752 5,448 90,749 60,289 The carrying amount of goodwill has been allocated to the following Cash Generating Units (“CGUs”): GRC CGU Content & clinical CGU £’000 40,568 1,250 41,818 59 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 9 | INTANGIBLE ASSETS (CONTINUED) The GRC CGU comprises the businesses of the acquisitions of Gael, Pentana, Covalent, Pleasetech, IPI Solutions, Logen, Ideagen Software, Ideagen Capture, Proquis, Medforce, InspectionXpert, Morgan Kai and Scannell Solutions. The Content & clinical CGU comprises the businesses of the acquisitions of Plumtree, MSS and EIBS. These goodwill amounts were tested for impairment at 30 April 2019 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 2020 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 10% has been used; iv. The use of cash flow projections over longer than a 5 year period is considered appropriate as many of the businesses comprising both of the CGUs have been operating for over 15 years, have strong recurring revenue bases and the Group continues to invest in the development of the products in both CGUs. GRC 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. 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 Projection period in value in use calculations In perpetuity 15 years 10 years 60,483 33,959 13,970 46% 32% 17% 60 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 9 | INTANGIBLE ASSETS (CONTINUED) CONTENT & CLINICAL 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. 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 Projection period in value in use calculations In perpetuity 15 years 10 years 7,828 5,996 4,615 87% 83% 79% 61 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 9 | INTANGIBLE ASSETS (CONTINUED) DEVELOPMENT COSTS Development costs are internally generated. At 30 April 2019, the carrying amount of ongoing development projects on which amortisation has not yet commenced was £1,946,000 (2018: £1,445,000). At 30 April 2019, the carrying amount of completed development projects on which amortisation is being charged was £4,806,000 (2018: £4,003,000). The weighted average remaining amortisation period of these assets at 30 April 2019 is 2.8 years (2018: 3.1 years). The remaining amortisation periods and carrying amounts of the Group’s other intangible assets are as follows: 2019 Remaining amortisation period 2018 Remaining amortisation period 2019 Carrying amount 2018 Carrying amount (years) (years) £’000 Customer relationships Ideagen Capture Ideagen Software Proquis Plumtree MSS Pentana EIBS Gael Covalent Logen IPI Solutions Pleasetech Medforce InspectionXpert Morgan Kai Scannell Solutions 62 1.2 1.9 2.7 3.6 4.2 4.5 5.2 5.7 7.3 7.3 7.6 7.9 8.9 9.3 9.4 9.7 2.2 2.9 3.7 4.6 5.2 5.5 6.2 6.7 8.3 8.3 8.6 8.9 9.9 - - - 56 81 110 395 146 709 517 £’000 105 123 151 503 180 864 618 5,097 5,992 1,529 1,739 129 146 2,083 2,357 4,347 4,897 3,187 3,349 2,428 9,308 1,572 - - - 31,694 21,024 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 9 | INTANGIBLE ASSETS (CONTINUED) 2019 Remaining amortisation period 2018 Remaining amortisation period 2019 Carrying amount 2018 Carrying amount (years) (years) £’000 Software MSS Pentana EIBS Gael Covalent Logen IPI Solutions Pleasetech Medforce InspectionXpert Morgan Kai Scannell Solutions - - 0.2 0.7 2.3 - 2.6 2.9 3.9 4.3 4.4 4.7 0.2 0.5 1.2 1.7 3.3 1.0 3.6 3.9 4.9 - - - - - 22 990 448 - £’000 19 140 164 2,405 646 1 853 1,180 2,024 2,721 1,493 1,770 1,001 3,034 620 - - - 10,485 9,046 63 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 9 | INTANGIBLE ASSETS (CONTINUED) COMPANY The intangible assets of the Company are as follows: Software Development costs Total £’000 £’000 £’000 121 - 121 - 121 121 - 121 - 121 - - 489 - 489 - 489 340 71 411 52 463 26 78 610 - 610 - 610 461 71 532 52 584 26 78 Cost At 1 May 2017 Additions from internal development At 30 April 2018 Additions from internal development At 30 April 2019 Amortisation At 1 May 2017 Amortisation expense At 30 April 2018 Amortisation expense At 30 April 2019 Net carrying amount At 30 April 2019 At 30 April 2018 64 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 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 2017 Additions Acquisition through business combinations Disposals Foreign currency exchange differences 244 197 - - - 1,014 240 6 - 1 At 30 April 2018 441 1,261 Additions Acquisition through business combinations Disposals Foreign currency exchange differences 43 - - 1 581 67 - (2) At 30 April 2019 485 1,907 Depreciation At 1 May 2017 Depreciation expense Disposals Foreign currency exchange differences At 30 April 2018 Depreciation expense Disposals Foreign currency exchange differences 120 63 - - 183 92 - - 626 212 - - 838 314 - - At 30 April 2019 275 1,152 Net carrying amount At 30 April 2019 At 30 April 2018 210 258 755 423 39 - - (15) - 24 - - (16) - 8 26 10 (15) - 21 3 (16) - 8 - 3 116 80 - - - 196 55 - - - 43 - - - - 1,456 517 6 (15) 1 43 1,965 - - - - 679 67 (16) (1) 251 43 2,694 58 35 - - 93 54 - - 43 - - - 873 320 (15) - 43 1,178 - - - 463 (16) - 147 43 1,625 104 103 - - 1,069 787 65 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 10 | PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Fixtures and fittings Office equipment Leasehold Total £’000 £’000 £’000 £’000 23 7 30 - 30 23 1 24 2 26 4 6 173 6 179 160 339 170 2 172 27 199 140 7 49 64 113 40 153 9 25 34 42 76 77 79 245 77 322 200 522 202 28 230 71 301 221 92 COMPANY Cost At 1 May 2017 Additions At 30 April 2018 Additions At 30 April 2019 Accumulated depreciation At 1 May 2017 Depreciation expense At 30 April 2018 Depreciation expense At 30 April 2019 Net carrying amount As at 30 April 2019 As at 30 April 2018 66 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 11 | FIXED ASSET INVESTMENTS COMPANY Cost As at 1 May 2017 Transfer of shares to other group companies Capital contributions to subsidiary companies As at 30 April 2018 Additions in the year Transfer of shares to other group companies Capital contributions to subsidiary companies As at 30 April 2019 Net carrying amount As at 30 April 2019 As at 30 April 2018 Shares in subsidiaries £’000 54,954 (4,675) 1,545 51,824 25,880 (7.018) 1,081 71,767 71,767 51,824 At 30 April 2019 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, Ideagen Inc, Ideagen Software Inc, Medforce Technologies Inc, Covalent Software Inc, InspectionXpert Corp and Morgan Kai Group Inc which are incorporated in the United States of America, Ideagen EOOD which is incorporated in Bulgaria and Scannell Solutions Limited which is incorporated in the Republic of Ireland. 67 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 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 Software Limited Development and sale of software licences, software maintenance and related professional services Pleasetech Limited IPI Solutions Limited Development and sale of software licences, software maintenance and related professional services Development and sale of software licences, software maintenance and related professional services Ideagen EOOD Development and sale of software licences, software maintenance and related professional services Ideagen Software Inc. Non-trading holding company based in the USA Ideagen Inc. Sale of software licences, software maintenance and related professional services Medforce Technologies Inc Sale of software licences, software maintenance and related professional services Ideagen MK Group Limited (formerly Morgan Kai Group Limited) UK-based holding company for the Morgan Kai companies Ideagen MK Limited (formerly Morgan Kai Limited) Development and sale of software licences, software maintenance and related professional services Ordinary and ‘B’ Ordinary Ordinary and ‘B’ Ordinary Ordinary Ordinary, A Ordinary and B Ordinary shares Ordinary Ordinary Ordinary Ordinary Ordinary and Cumulative Preference shares Ordinary Morgan Kai Group Inc. InspectionXpert Corp. Sale of software licences, software maintenance and related professional services Ordinary Development and sale of software licences, software maintenance and related professional services Ordinary A and Ordinary B shares Ordinary, B Ordinary and convertible Preference shares Scannell Solutions Limited Development and sale of software licences, software maintenance and related professional services 68 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 11 | FIXED ASSET INVESTMENTS (CONTINUED) Name of subsidiary Nature of business Filebutton Limited Dormant Covalent Software Limited Dormant Ideagen Solutions Limited Dormant Pentana Limited EIBS Limited MSS Management Systems Services Limited Dormant Dormant Dormant Ideagen Capture Limited Dormant Proquis Limited Root3 Systems Limited Dormant Dormant Ideagen Systems Limited Dormant Gael Products Limited Dormant Class of shares ‘A’ Ordinary and ‘B’ Ordinary Ordinary, Ordinary A and Ordinary non- voting shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary The registered office address of each of the above subsidiaries is Ergo House, Mere Way, Ruddington Fields Business Park, Nottinghamshire, NG11 6JS except for the following: Ideagen Gael Limited, Gael Products Limited Orion House, Bramah Avenue, SE Technology Park, East Kilbride, G75 0RD Ideagen Inc. Suite 2000, 11710 Plaza America Drive, Reston, Virginia 20190, USA Ideagen Software Inc. 251 Little Falls Drive, Wilmington, Delaware 19808, USA Medforce Technologies Inc Suite 410, 2 Executive Boulevard, Suffern, NY 10901, USA Covalent Software Inc. 4505 Chimney Creek Drive, Sarasota, FL34235, USA Ideagen EOOD InspectionXpert Corp. Morgan Kai Group Inc. 140 GS Rakovski Street, 1000 Sofia, Bulgaria 56 Hunter Street, Suite 330, Apex, North Carolina 27502-2325, USA 191 N. Wacker Drive, Chicago, Illinois 60606, USA Scannell Solutions Limited National Software Centre, Mahon, Cork, Republic of Ireland T12 R29P 69 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 12 | TRADE AND OTHER RECEIVABLES GROUP Trade receivables Prepayments and accrued income 2019 £’000 14,685 2,862 17,547 Trade receivables includes £385,000 (2018: £nil) which falls due for payment after more than one year. COMPANY Trade receivables Prepayments and accrued income Amounts receivable from subsidiaries 2019 £’000 800 595 11,298 12,693 2018 £’000 10,507 1,975 12,482 2018 £’000 1,023 290 22,769 24,082 The majority of sales invoices are due for payment 30 days after the date of the invoice however, in a small number of cases the due date for payment is extended by specific agreement with the customer. 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. An analysis of trade receivables ageing based on due date is set out below. GROUP Not yet due 1 – 30 days due 30 – 60 days overdue >60 days overdue Allowance for expected credit losses 70 2019 £’000 7,003 3,125 1,647 4,327 16,102 (1,417) 14,685 2018 £’000 4,078 2,756 801 3,703 11,338 (831) 10,507 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 12 | TRADE AND OTHER RECEIVABLES (CONTINUED) COMPANY Not yet due 1 – 30 days overdue 30 – 60 days overdue >60 days overdue Allowance for expected credit losses 2019 £’000 375 257 61 232 925 (125) 800 2018 £’000 154 460 135 344 1,093 (70) 1,023 The credit loss allowance is measured at an amount equal to lifetime expected credit losses. The expected rate of credit loss in respect of all debts except those more than 60 days overdue at 30 April 2019 is 0.5% of the gross balances which amounted to £59,000 in the Group and £3,000 in the Company. The expected rate of credit loss for all debts more than 60 days overdue at 30 April 2019 in the Group was 31.4% (in the Company: 52.6%) of the gross balances which amounted to £1,358,000 in the Group (£122,000 in the Company). Trade receivables are shown net of an allowance for expected credit losses, movements on which are set out below. GROUP Balance at the start of the year On acquisition of businesses Impairment losses recognised Amounts utilised 2019 £’000 831 209 553 (176) 2018 £’000 410 22 774 (375) Balance at the end of the year 1,417 831 71 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 12 | TRADE AND OTHER RECEIVABLES (CONTINUED) COMPANY Balance at the start of the year Impairment losses recognised Amounts utilised Balance at the end of the year 13 | TRADE AND OTHER PAYABLES GROUP Trade payables Other taxes and social security Accruals COMPANY Trade payables Other taxes and social security Amounts payable to subsidiaries Accruals 72 2019 £’000 70 121 (66) 125 2019 £’000 2,181 1,636 2,226 6,043 2019 £’000 689 525 9,685 978 2018 £’000 11 201 (142) 70 2018 £’000 916 2,930 1,554 5,400 2018 £’000 134 19 27,092 779 11,877 28,024 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 14 | CONTINGENT CONSIDERATION ON BUSINESS COMBINATIONS GROUP Contingent consideration on the acquisition of InspectionXpert Corp 2019 £’000 769 2018 £’000 - Part of the consideration for the acquisition of InspectionXpert Corp in September 2018 is contingent on the achievement of certain revenue targets in the year following acquisition. The contingent amount payable under this arrangement was between $nil and $1,000,000. At the date of acquisition, the directors assessed the fair value of the contingent consideration payable under this arrangement at $1,000,000, which was equivalent to £769,000. This remains the estimated amount payable. 15 | SHORT-TERM BORROWINGS In April 2018, the Group increased its 3-year revolving credit facility from £3,000,000 to £8,000,000 and this was subsequently further increased to £16,000,000 in January 2019. The facility has an interest rate of 3-month LIBOR plus 2% on borrowed funds and a rate of 0.8% on unutilised funds within the facility. Security for borrowings under the facility is provided by way of a debenture over the assets of the Group. GROUP AND COMPANY Balance at the start of the year New borrowings Amounts repaid 2019 £’000 4,750 6,000 (3,250) 7,500 2018 £’000 2,000 4,750 (2,000) 4,750 73 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 16 | DEFERRED CONSIDERATION ON BUSINESS COMBINATIONS GROUP Deferred consideration on the acquisition of InspectionXpert Corp. Deferred consideration on the acquisition of Scannell Solutions Limited Deferred consideration on the acquisition of IPI Solutions Limited COMPANY Deferred consideration on the acquisition of Scannell Solutions Limited Deferred consideration on the acquisition of IPI Solutions Limited 2019 £’000 769 500 - 1,269 2019 £’000 500 - 500 2018 £’000 - - 460 460 2018 £’000 - 460 460 No interest is payable on these deferred consideration balances and they are not subject to any performance criteria. The deferred consideration on the acquisition of InspectionXpert is $1,000,000 and is payable in September 2019 and the deferred consideration on the acquisition of Scannell Solutions of £500,000, is payable in January 2020. The final £460,000 of deferred consideration on the acquisition of IPI Solutions was paid in December 2018. 74 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 17 | BUSINESS COMBINATIONS Acquisition of InspectionXpert Corp. On 4 September 2018, the Group acquired 100% of the issued ordinary share capital of InspectionXpert Corp., a company incorporated and domiciled in the United States of America, for total consideration of $7,000,000 (£5,405,000). The acquisition is expected to enhance the Group’s existing business by consolidating its position in the Quality Inspection market, expanding the Group’s US presence and bringing strong recurring revenues. 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 assets Current assets Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Deferred revenue Non-current liabilities Deferred income tax liabilities Net identifiable assets acquired The fair value of the consideration at the date of acquisition is as follows: Cash paid at completion Deferred consideration Contingent 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 £’000 3,377 1,497 3 340 275 72 (159) (1,446) (1,146) 2,813 2,608 1,156 2 262 212 55 (123) (1,116) (884) 2,172 $’000 £’000 5,000 1,000 1,000 7,000 3,861 772 772 5,405 $’000 £’000 7,000 (2,813) 4,187 5,405 (2,172) 3,233 75 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 17 | BUSINESS COMBINATIONS (CONTINUED) Goodwill arose on the acquisition of InspectionXpert Corp. 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 £268,000 have been expensed within a separate line in the Group Statement of Comprehensive Income for the year ended 30 April 2019. The Group Statement of Comprehensive Income for the year ended 30 April 2019 includes revenue of £2,731,000 and profit after taxation, excluding amortisation of relevant acquisition intangibles, of £956,000 in respect of the business acquired. Disclosure of information on revenue and profit or loss for the combined entity as though the acquisition of InspectionXpert Corp. had been completed on 1 May 2018 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 InspectionXpert Corp: Consideration paid in cash Less: cash acquired in subsidiary Net cash outflow on acquisition of subsidiary £’000 3,861 (55) 3,806 Acquisition of Morgan Kai Group Limited On 27 September 2018, the Company acquired 100% of all classes of the issued ordinary and preference share capital of Morgan Kai Group Limited, a company incorporated and domiciled in the United Kingdom, together with its 100% owned subsidiaries, Morgan Kai Limited, a company incorporated in England, and Morgan Kai Group Inc., a company incorporated and domiciled in the United States, for total consideration of £22,398,000. The acquisition doubles the size of the Group’s Audit business thereby strengthening our competitive position, enhances our technology and capabilities and brings strong recurring revenues. 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 assets Current assets Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Corporation tax Deferred revenue Non-current liabilities Deferred income tax liabilities Net identifiable assets acquired 76 £’000 9,891 3,440 55 30 485 1,918 (797) (67) (2,059) (2,309) 10,587 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 17 | BUSINESS COMBINATIONS (CONTINUED) The fair value of the consideration at the date of acquisition is as follows: Cash paid at completion 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 22,398 £’000 22,398 (10,587) 11,811 Goodwill arose on the acquisition of Morgan Kai Group 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 £784,000 have been expensed within a separate line in the Group Statement of Comprehensive Income for the year ended 30 April 2019. The Group Statement of Comprehensive Income for the year ended 30 April 2019 includes revenue of £2,992,000 and profit after taxation, excluding amortisation of relevant acquisition intangibles, of £1,129,000 in respect of the business acquired. Disclosure of information on revenue and profit or loss for the combined entity as though the acquisition of Morgan Kai Group Limited had been completed on 1 May 2018 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 Morgan Kai Group Limited: Consideration paid in cash Less: cash acquired in subsidiary Net cash outflow on acquisition of subsidiary £’000 22,398 (1,918) 20,480 77 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 17 | BUSINESS COMBINATIONS (CONTINUED) Acquisition of Scannell Solutions Limited On 11 January 2019, the Group acquired 100% of all classes of the issued ordinary and preference share capital of Scannell Solutions Limited, a company incorporated and domiciled in the Republic of Ireland, for total consideration of £3,481,000. The acquisition is expected to enhance the Group’s product roadmap providing technology and content to accelerate the Group’s EHSQ strategy. The fair values of the identifiable assets acquired and liabilities recognised at the date of acquisition are summarised in the table below. €’000 £’000 Non-current assets Customer relationships intangible Software intangible Property, plant and equipment Current assets Trade and other receivables Corporation tax Cash and cash equivalents Current liabilities Trade and other payables Deferred revenue Non-current liabilities Deferred income tax liabilities 1,775 722 11 93 37 16 (136) (392) (312) 1,621 659 10 85 34 15 (125) (358) (285) Net identifiable assets acquired 1,814 1,656 The fair value of the consideration at the date of acquisition is as follows: Cash paid at completion Deferred 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 €’000 3,244 547 3,791 €’000 3,791 (1,814) £’000 2,981 500 3,481 £’000 3,481 (1,656) Goodwill arising on acquisition 1,977 1,825 78 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 17 | BUSINESS COMBINATIONS (CONTINUED) Goodwill arose on the acquisition of Scannell Solutions 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 £206,000 have been expensed within a separate line in the Group Statement of Comprehensive Income for the year ended 30 April 2019. The Group Statement of Comprehensive Income for the year ended 30 April 2019 includes revenue of £315,000 and profit after taxation, excluding amortisation of relevant acquisition intangibles, of £105,000 in respect of the business acquired. Disclosure of information on revenue and profit or loss for the combined entity as though the acquisition of Scannell Solutions Limited had been completed on 1 May 2018 is impracticable as the accounting reference date of this company was previously 31 March and it did not prepare comparable revenue and profit information on a monthly basis. Net cash outflow on acquisition Scannell Solutions: Consideration paid in cash Less: cash acquired in subsidiary Net cash outflow on acquisition of subsidiary £’000 2,981 (15) 2,966 Business combination completed during the year ended 30 April 2018 Acquisition of Medforce Technologies Inc. On 5 April 2018, the Group acquired 100% of the issued ordinary share capital of Medforce Technologies Inc., a company incorporated and domiciled in the United States of America, for total consideration of $9,000,000 (£6,438,000). The acquisition is expected to enhance the Group’s existing business by expanding the Group’s geographic footprint, the addition of a complementary solution offering, a talented workforce and strong recurring revenues and further consolidates the Group’s position in the healthcare sector. The acquisition also provides infrastructure and a platform for further growth in the important US market. 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 Current assets Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Deferred revenue Non-current liabilities Deferred income tax liabilities $’000 £’000 4,641 2,470 9 181 298 (156) (995) 3,320 1,767 6 130 213 (111) (712) (1,920) (1,374) Net identifiable assets acquired 4,528 3,239 79 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 17 | BUSINESS COMBINATIONS (CONTINUED) The fair value of the consideration at the date of acquisition is as follows: Cash paid at completion 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 9,000 £’000 6,438 $’000 9,000 (4,528) 4,472 £’000 6,438 (3,239) 3,199 Goodwill arose on the acquisition of Medforce Technologies Inc. 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 £426,000 have been expensed within a separate line in the Group Statement of Comprehensive Income for the year ended 30 April 2018. The Group Statement of Comprehensive Income for the year ended 30 April 2018 includes revenue of £266,000 and profit after taxation, excluding amortisation of relevant acquisition intangibles, of £71,000 in respect of the business acquired. Disclosure of information on revenue and profit or loss for the combined entity as though the acquisition of Medforce Technologies Inc. had been completed on 1 May 2017 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 Medforce Technologies Inc: Consideration paid in cash Less: cash acquired in subsidiary Net cash outflow on acquisition of subsidiary £’000 6,438 (213) 6,225 80 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 18 | EQUITY SHARE CAPITAL, SHARE PREMIUM AND OTHER RESERVES GROUP AND COMPANY Issued and fully paid share capital: 219,784,656 ordinary shares of £0.01 each (2018: 202,657,783 shares) 2,198 2,087 Share premium account 53,948 34,257 2019 £’000 2018 £’000 Number of shares in issue at beginning of the year Issued on exercise of share options Issued under the share incentive scheme Issued on share placing at 142 pence 2019 2018 Number Number 202,657,783 198,117,442 2,684,333 3,929,666 358,033 610,675 14,084,507 - Number of shares in issue at end of the year 219,784,656 202,657,783 The total share issue costs during the year ended 30 April 2019 of £625,000 (2018: £nil) have been deducted from the share premium account. Ordinary shares issued during the year ended 30 April 2019 on the exercise of share options were as follows: Date shares issued Number of shares issued Issue price (pence) Share premium account (£) 8 May 2018 15 May 2018 11 June 2018 18 June 2018 3 September 2018 21 September 2018 3 October 2018 4 October 2018 29 January 2019 22 February 2019 22 February 2019 22 February 2019 39,000 51,667 10,000 65,000 107,000 65,000 25,000 1,800,000 166,666 325,000 20,000 10,000 37.63 35.00 37.63 37.63 35.00 45.50 35.00 1.00 50.00 45.50 37.63 35.00 14,286 17,567 3,663 23,810 36,380 28,925 8,500 - 81,666 144,625 7,326 3,400 81 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 18| EQUITY SHARE CAPITAL, SHARE PREMIUM AND OTHER RESERVES (CONTINUED) Ordinary shares issued during the year ended 30 April 2018 on the exercise of share options were as follows: Date shares issued Number of shares issued Issue price (pence) Share premium account (£) 18 May 2017 27 September 2017 16 October 2017 23 October 2017 24 October 2017 6 November 2017 4 December 2017 4 December 2017 6 March 2018 10 April 2018 10 April 2018 10 April 2018 83,333 150,000 103,333 25,000 1,000,000 18,000 25,000 110,000 15,000 1,800,000 500,000 100,000 35.00 50.00 35.00 37.63 32.12 35.00 35.00 32.12 37.63 1.00 50.00 37.63 28,333 73,500 35,133 9,158 311,200 6,120 8,500 34,323 5,495 - 245,000 36,630 Details of outstanding options over the shares of the Company are provided in note 20. MERGER RESERVE Group Company 2019 £’000 1,658 1,709 2018 £’000 1,658 1,709 The merger reserve is in respect of the premium arising on shares issued as part of the consideration provided on business combinations. Retained earnings Retained earnings of both the Group and the Company include an amount of £1,336,000 (2018: £1,336,000) which does not represent a realised profit and is not distributable. 82 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 19 | DIVIDENDS A final dividend in respect of the year ended 30 April 2018 of 0.163 pence per ordinary share (in respect of the year ended 30 April 2017: 0.142 pence) was paid to shareholders on 21 November 2018. The total cost of this dividend was £357,000 (in respect of the year ended 30 April 2017: £284,000). An interim dividend in respect of the year ended 30 April 2019 of 0.09 pence per ordinary share (2018: 0.078 pence) was paid to shareholders on 20 March 2019. The total cost of this dividend was £198,000 (2018: £156,000). The directors have proposed the payment of a final dividend of 0.188 pence per ordinary share (2018: 0.163 pence) on 26 November 2019 subject to approval by shareholders at the forthcoming Annual General Meeting. 20 | SHARE-BASED PAYMENTS, SHARE OPTIONS AND SHARE INCENTIVE SCHEME At 30 April 2019 share options granted to directors and employees remain unexercised under four different arrangements. In addition, the Company has issued shares under a Share Incentive Scheme into a separate trust, which is managed by an external trustee, for the benefit of employees. The share option arrangements are an Enterprise Management Incentive Scheme, the 2016 Share Option Scheme, the 2017 Long Term Incentive Plan, the 2018 Long Term Incentive Plan and the 2018 Long Term Incentive Plan Extension. All options granted under the 2017 Long Term Incentive Plan had been exercised at 30 April 2019. Ideagen Enterprise Management Incentive Scheme The Company has an Enterprise Management Incentive Scheme which permitted the grant to directors and staff of share options in respect of ordinary shares in the Company. Since September 2015, no further options can be granted under this scheme. 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 Group. The following is a summary of the movements in outstanding share options under the Ideagen Enterprise Management Incentive Scheme. Year ended 30 April 2019 Outstanding at 1 May 2018 Exercised during the year Outstanding at 30 April 2019 Exercisable as at 30 April 2019 Number of options Weighted average exercise price (pence) 7,296,000 (717,667) 6,578,333 6,578,333 22.6 41.2 20.6 20.6 83 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 20 | SHARE-BASED PAYMENTS AND SHARE OPTIONS (CONTINUED) Of the options outstanding at 30 April 2019, 2,133,333 (2018: 2,133,333) options have an exercise price of 9 pence, 3,295,000 (2018: 3,295,000) options have an exercise price of 22.38 pence, 635,000 (2018: 828,667) options have an exercise price of 35 pence, 380,000 (2018: 514,000) options have an exercise price of 37.63 pence and 135,000 (2018: 525,000) options have an exercise price of 45.5 pence. The weighted average remaining contractual life of the options outstanding at 30 April 2019 was 3.8 years (2018: 5.0 years). The fair values of the options exercised during the year at the date they were granted 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) 39,000 41,667 10,000 75,000 107,000 65,000 25,000 325,000 20,000 10,000 717,667 37.63 35.00 35.00 37.63 35.00 45.50 35.00 45.50 37.63 35.00 115.00 122.13 120.00 130.00 154.00 172.00 161.50 127.00 127.00 127.00 13.69 10.16 10.16 13.69 10.16 13.20 10.16 13.20 13.69 10.16 Number of options Weighted average exercise price (pence) 8,817,333 (1,479,666) (41,667) 7,296,000 6,746,000 24.5 33.1 35.0 22.6 21.4 Year ended 30 April 2018 Outstanding at 1 May 2017 Exercised during the year Lapsed during the year Outstanding at 30 April 2018 Exercisable as at 30 April 2018 84 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 20| SHARE-BASED PAYMENTS AND SHARE OPTIONS (CONTINUED) Of the options outstanding at 30 April 2018, 2,133,333 (2017: 2,133,333) options have an exercise price of 9 pence, 3,295,000 (2017: 3,295,000) options have an exercise price of 22.38 pence, nil (2017: 1,110,000) options have an exercise price of 32.12 pence, 828,667 (2017: 1,100,000) options have an exercise price of 35 pence, 514,000 (2017: 654,000) options have an exercise price of 37.63 pence and 525,000 (2017: 525,000) options have an exercise price of 45.5 pence. The fair values of the options exercised during the year at the date they were granted 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) 83,333 40,000 63,333 25,000 1,000,000 18,000 25,000 110,000 15,000 100,000 1,479,666 35.00 35.00 35.00 37.63 32.12 35.00 35.00 32.12 37.63 37.63 95.00 84.00 82.00 80.00 80.00 85.00 98.19 98.19 107.00 109.00 10.16 10.16 10.16 13.69 12.12 10.16 10.16 12.12 13.69 13.69 Ideagen 2016 Share Option Scheme This scheme was introduced in the year ended 30 April 2017 to replace the Enterprise Management Incentive Scheme as no further option awards can be made under that scheme. 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 normally capable of being exercised in stages unless otherwise agreed by the Board. 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 Group if they have not been exercised. 85 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 20 | SHARE-BASED PAYMENTS AND SHARE OPTIONS (CONTINUED) The following is a summary of the movements in outstanding share options under the Ideagen 2016 Share Option Scheme. Outstanding at 1 May 2017 Granted during the year Exercised during the year Outstanding at 30 April 2018 Granted during the year Exercised during the year Outstanding at 30 April 2019 Exercisable as at 30 April 2019 Exercisable as at 30 April 2018 Number of options Weighted average exercise price (pence) 950,000 300,000 (650,000) 600,000 550,000 (166,666) 983,334 133,332 100,000 50.0 50.0 50.0 50.0 112.0 50.0 84.7 50.0 50.0 During the year ended 30 April 2019, 166,666 options were exercised when the Ideagen plc share price was 140 pence. During the year ended 30 April 2018, 150,000 options were exercised when the Ideagen plc share price was 82 pence and a further 500,000 options were exercised when the Ideagen plc share price was 109 pence. During the year, 550,000 (2018: 300,000) options were granted under this scheme with an exercise price of 112 pence (2018: 50 pence) each. The fair values of the options granted were estimated at the date of grant using a Black-Scholes option pricing model. The key inputs to the option pricing model are summarised below. Year ended 30 April 2019 30 April 2018 30 April 2017 Number of options granted in the year 550,000 Date of grant 3 May 2018 Share price at grant date 112 pence Exercise price 112 pence Expected volatility Expected dividend yield Expected option life Risk-free interest rate 33% 0.20% 5 years 1.11% 300,000 2 May 2017 88.5 pence 50 pence 33% 0.21% 5 years 0.51% 950,000 1 September 2016 54.5 pence 50 pence 33% 0.34% 5 years 0.23% Fair value of option 33.73 pence 44.46 pence 16.98 pence 86 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 20 | SHARE-BASED PAYMENTS AND SHARE OPTIONS (CONTINUED) Future share price volatility was estimated by using historic share price volatility over the most recent period commensurate with the expected life of the option. The average remaining contractual life of the options outstanding at 30 April 2019 was 8.5 years (2018: 8.6 years). Ideagen 2017 Long Term Incentive Plan On 23 March 2017, the Company introduced the 2017 Long Term Incentive Plan and 3,600,000 share options were granted under the plan at an exercise price of 1 penny to certain directors. 1,800,000 of these options were eligible to vest on the Company’s share price reaching 98 pence over 30 consecutive business days with the remainder becoming eligible to vest on the Company’s share price reaching 136 pence over 30 consecutive business days. Any shares issued in respect of the exercise of any of these options cannot be sold until the fourth anniversary of the grant date, except to cover the taxation charges arising on exercise, and are subject to continued service throughout. All options will lapse if the eligibility criteria are not satisfied or the options are not exercised within 5 years of the date of grant of the options. In the event of a takeover of the Company, different rules would apply and all of these options may become exercisable at that point. 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. Number of options granted on 23 March 2017 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 98 pence share price exercise condition 136 pence share price exercise condition 1,800,000 78 pence 1 penny 98 pence 33% 0.27% 3 years 0.6% 1,800,000 78 pence 1 penny 136 pence 33% 0.27% 3 years 0.6% 59.3 pence 33.58 pence Future share price volatility was estimated by using historic share price volatility over the most recent period commensurate with the expected life of the option. During the year ended 30 April 2018, the 98 pence share price condition in respect of 1,800,000 of these options was met. Accordingly, these 1,800,000 options were exercised in the year when the Ideagen plc share price was 109 pence. During the year ended 30 April 2019, the 136 pence share price condition in respect of the remaining 1,800,000 of these options was met. Accordingly, these 1,800,000 options were exercised in the year when the Ideagen plc share price was 152 pence. At 30 April 2019, all of the 2017 Long Term Incentive Plan options had been exercised. 87 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 20 | SHARE-BASED PAYMENTS AND SHARE OPTIONS (CONTINUED) Ideagen 2018 Long Term Incentive Plan On 22 October 2018, the Company introduced the 2018 Long Term Incentive Plan and 1,200,000 share options were granted under the plan at an exercise price of 1 penny to Ben Dorks, Chief Executive Officer. 600,000 of these options were eligible to vest on the Company’s share price reaching 196 pence over 30 consecutive business days with the remainder becoming eligible to vest on the Company’s share price reaching 259 pence over 30 consecutive business days. Any shares issued in respect of the exercise of any of these options cannot be sold until the fourth anniversary of the grant date, except to cover the taxation charges arising on exercise, and are subject to continued service throughout. All options will lapse if the eligibility criteria are not satisfied or the options are not exercised within 5 years of the date of grant of the options. In the event of a takeover of the Company, different rules would apply and all of these options may become exercisable at that point. 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 in the following table. Number of options granted on 22 October 2018 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 196 pence share price exercise condition 259 pence share price exercise condition 600,000 156.5 pence 1 penny 196 pence 32% 0.15% 3 years 0.66% 600,000 156.5 pence 1 penny 259 pence 32% 0.15% 3 years 0.66% 118.6 pence 72.4 pence Future share price volatility was estimated by using historic share price volatility over the most recent period commensurate with the expected life of the option. At 30 April 2019, none of the options under the 2018 Long Term Incentive Plan had been exercised and none were exercisable. Ideagen 2018 Long Term Incentive Plan Extension On 28 March 2019, the Company introduced the 2018 Long Term Incentive Plan Extension and 2,500,000 share options were granted under the plan at an exercise price of 1 penny to certain directors and senior managers. 1,250,000 of these options were eligible to vest on the Company’s share price reaching 196 pence over 30 consecutive business days with the remainder becoming eligible to vest on the Company’s share price reaching 259 pence over 30 consecutive business days. 88 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 20 | SHARE-BASED PAYMENTS AND SHARE OPTIONS (CONTINUED) Any shares issued in respect of the exercise of any of these options cannot be sold until the fourth anniversary of the grant date, except to cover the taxation charges arising on exercise, and are subject to continued service throughout. All options will lapse if the eligibility criteria are not satisfied or the options are not exercised within 5 years of the date of grant of the options. In the event of a takeover of the Company, different rules would apply and all of these options may become exercisable at that point. 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. Number of options granted on 28 March 2019 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 196 pence share price exercise condition 259 pence share price exercise condition 1,250,000 146.5 pence 1 penny 196 pence 32% 0.17% 3 years 0.66% 1,250,000 146.5 pence 1 penny 259 pence 32% 0.17% 3 years 0.66% 100.6 pence 58.9 pence Future share price volatility was estimated by using historic share price volatility over the most recent period commensurate with the expected life of the option. At 30 April 2019, none of the options under the 2018 Long Term Incentive Plan Extension had been exercised and none were exercisable. Share Incentive Scheme During the year ended 30 April 2018, the company set up a Share Incentive Scheme. All employees are eligible to join the Company’s Share Incentive Scheme once they have been employed by the Group for six months. Subject to the Group achieving certain profit targets, “Free Shares” are awarded to all eligible employees. During the years ended 30 April 2019 and 30 April 2018, up to £2,000 worth of Free Shares were awarded to eligible employees when the Ideagen share price was 166.5 pence (2018: 91 pence). There are no vesting conditions attached to the Free Shares other than being continuously employed by the Group for 3 years from the date of award. If an employee leaves the Group within the 3-year period, in certain cases the shares will vest and in other cases they will be forfeited. In addition, employees are able to purchase “Partnership Shares” at prevailing market rates out of their pre-tax income, subject to an annual HMRC limit of £1,800. No share-based payment charge arises in respect of the Partnership Shares. All Free Shares and Partnership Shares are held in a trust which is managed by an external trustee. On leaving employment with the Group the employee must take all of their shares out of the trust. 89 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 20 | SHARE-BASED PAYMENTS AND SHARE OPTIONS (CONTINUED) Details of the movements of Free Shares in the Share Incentive Scheme were as follows: Outstanding at 1 May 2018 Granted during the year Vested during the year Forfeited during the year Outstanding at 30 April 2019 Exercisable as at 30 April 2019 Number of Free Shares 500,020 335,162 (67,627) (53,622) 713,933 - Effect of share options and the Share Incentive Scheme on the Group Statement of Comprehensive Income and Equity reserves The total share-based payment charge in the Group Statement of Comprehensive Income was as follows: Enterprise Management Incentive Share Option Scheme 2016 Share Option Scheme 2017 Long Term Incentive Plan Share Option Scheme 2018 Long Term Incentive Plan Share Option Scheme 2018 Long Term Incentive Plan Extension Share Option Scheme Share Incentive Scheme National insurance costs on exercise of share options 2019 £’000 3 159 381 199 60 802 279 410 2018 £’000 40 158 1,231 - - 1,429 116 335 1,491 1,880 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 2019 amounted to £1,440,000 (2018: £1,148,000). The total fair value at the date the share options were granted of the options exercised during the year ended 30 April 2019 was £722,000 (2018: £1,337,000). This was transferred from the share-based payment reserve to retained earnings during the year. In addition, a further £64,000 (2018: £15,000) was transferred from the share-based payment reserve to retained earnings in respect of shares which had vested under the rules of the Share Incentive Scheme. 90 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 21 | 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 14 and 16 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. At 30 April 2019, the Group also had a revolving credit facility of up to £16 million and had short-term borrowings of £7.5 million as set out in note 15. 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. 22 | OPERATING LEASE COMMITMENTS As at 30 April 2019 the Group had the following aggregate commitments under non-cancellable operating leases in respect of land & buildings: Within one year Between two and five years After more than five years 23 | PENSION SCHEMES 2019 £’000 729 1,619 165 2,513 2018 £’000 615 1,008 - 1,623 The Group operated a defined contribution pension scheme for employees during the year. The pension cost charge represents contributions payable by the Group into the scheme and amounted to £627,000 (2018: £522,000). At 30 April 2019, trade and other payables included £87,000 (2018: £77,000) payable to the Group pension scheme. 91 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 24 | NET CASH / (DEBT) RECONCILIATION The movements in net cash / (debt) during the year were as follows: GROUP At 1 May 2018 Cash flow Non-cash movement At 30 April 2019 COMPANY At 1 May 2018 Cash flow At 30 April 2019 Cash & Cash equivalents Borrowings Net cash/ (debt) £’000 £’000 £’000 5,532 638 (4,750) 782 (2,750) (2,112) 29 - 29 6,199 (7,500) (1,301) Cash & Cash equivalents Borrowings Net cash/ (debt) £’000 £’000 £’000 2,301 (863) 1,438 (4,750) (2,750) (7,500) (2,449) (3,613) (6,062) 25 | 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 12 and 13. During the year, the Company recharged £1,529,000 (2018: £1,039,000) of costs to its wholly owned subsidiaries and suffered recharges of £2,251,000 (2018: £1,490,000) from its wholly owned subsidiaries. Details of transactions between the Company and other related parties are disclosed below. At 30 April 2019, trade and other payables in the Company included £6,457 (2018: £5,089) payable to Ultris Limited, a company in which Mr Alan Carroll is a director and major shareholder. This amount is in respect of fees and expenses payable to Mr Alan Carroll as a director of the Company. Amounts charged by Tony Rodriguez for his services as a director of the company are payable to X88 Limited, a company in which Mr Rodriguez is a director and major shareholder. At 30 April 2019 trade and other payables included £2,777 (2018: £nil) payable to X88 Limited for these services. The amounts payable to Ultris Limited and X88 Limited for the services of Mr Carroll and Mr Rodriguez respectively as directors of the Company are as per the remuneration of directors disclosed in note 6. Total dividends paid to the directors of the Company during the year were as follows: David Hornsby £21,885 (2018: £19,027), Ben Dorks £5,061 (2018: £3,298), Graeme Spenceley £2,095 (2018: £1,379), Barnaby Kent £5,764 (2018: £3,909), Alan Carroll £516 (2018: £449), Jonathan Wearing £10,598 (2018: £9,546) and Tony Rodriguez £nil (2018: £nil). 92 Ideagen | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 APRIL 2019 25 | RELATED PARTY TRANSACTIONS (CONTINUED) 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 and related employer national insurance Share based payments 2019 £’000 1,255 991 2,246 2018 £’000 1,066 1,499 2,565 26 | EVENTS AFTER THE END OF THE REPORTING PERIOD Acquisition of businesses On 7 June 2019, the Group completed the acquisition of Redland Business Solutions Limited, a company incorporated and domiciled in England. The initial net cash consideration for the purchase was £15.8 million with a further £0.5 million payable 12 months after completion contingent upon the achievement of certain revenue objectives. The acquisition will strengthen the Group’s position in the financial services market and the combination of Redland’s Insight platform with Ideagen’s existing product set will provide a compelling proposition covering internal audit, risk management, certification and SMCR compliance A full assessment of the fair values of assets and liabilities acquired has not yet been completed. The acquisition was funded from the Group’s cash resources and from the extension of the Group’s existing Revolving Credit Facility with NatWest to £28 million. 93 Ideagen | ANNUAL REPORT 2019 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 © 2019 Ideagen Plc
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