IDOX PLC
ANNUAL REPORT & ACCOUNTS 2018
Company Number: 03984070
Contents
Strategic Report
1 Financial and Operational Highlights
3 Chairman’s Statement
5 Strategy, Market Overview and Business Model
7 Chief Executive’s Review
10 Financial Review
13 Principal Risks and Uncertainties
Governance
15 Board of Directors
16 Directors’ Report
19 Corporate Governance Report
26 Directors’ Responsibilities Statement
27 Report of the Audit Committee
Financial Statements
30 Independent Auditor’s Report to the Members of Idox plc
39 Consolidated Statement of Comprehensive Income
40 Consolidated Balance Sheet
41 Consolidated Statement of Changes in Equity
42 Consolidated Cash Flow Statement
43 Notes to the Accounts
83 Company Balance Sheet
84 Company Statement of Changes in Equity
85 Notes to the Company Financial Statements
Company Information
Company Secretary and Registered Office: R Paterson
Nominated Adviser and Broker:
Auditor:
Corporate Solicitors:
Registrars:
2nd Floor
1310 Waterside
Arlington Business Park
Theale
Reading
RG7 4SA
N+1 Singer
1 Bartholomew Lane
London
EC2N 2AX
Deloitte LLP
Statutory Auditor
110 Queen Street
Glasgow
G1 3BX
Pinsent Masons LLP
303 Crown Place
Earl Street
London
EC2A 4ES
Neville Registrars Ltd
Neville House
Steelpark Road
Halesowen
B62 8HD
Company Registration Number:
03984070
Strategic Report - Financial and Operational Highlights
For the year ended 31 October 2018
__________________________________________________________________________________
Financial highlights:
• Consolidated revenue:
o
o
for the continuing business, excluding our Digital business disposed of on 2 November 2018, of
£67.4m (2017: £73.8m restated - see note 1); and
for all Group operations, including our disposed Digital Business, of £73.7m (2017: £85.9m
restated).
• Adjusted EBITDA*:
o
o
for the continuing business, excluding our Digital business, of £14.4m (2017: £16.5m restated);
and
for all Group operations, including our disposed Digital Business, of £11.6m (2017: £15.7m
restated).
• Net debt position at 31 October 2018 of £31.8m (2017: £32.6m) comprising cash of £5.5m, third party
borrowings of £25.8m and long term 2025 bond of £11.5m (2017: cash of £3.2m, third party borrowings of
£24.6m and long term, 2025 bond of £11.2m).
• Adjusted profit before tax** £7.9m (2017: £10.3m)
• Adjusted EPS** for the continuing business, excluding our Digital Business 2.28p (2017: 2.18p).
• Adjusted EPS** for all Group operating, including our disposed Digital Business 1.72p (2017: 1.97p).
• No proposed dividend (2017: 1.040p) as the business transitions to a more stable platform.
• Post year end, banking arrangements extended to February 2020.
Statutory Equivalents
The above highlights are based on adjusted results. Reconciliations between adjusted and statutory results are
contained within these financial statements. The statutory equivalents of the above results are as follows:
• Loss before tax £29.5m (2017: £2.8m profit) for continuing operations, including an impairment charge of
£33.2m (2017: £2.7m). Loss on discontinued operations of £9.8m, including an impairment charge of £6.2m.
• Basic EPS of (8.72)p (2017: 0.09p).
* Adjusted EBITDA is defined as earnings before amortisation, depreciation, restructuring, acquisition costs, impairment, corporate
finance costs and share option costs. Share option costs are excluded from Adjusted EBITDA as this is a standard measure in
the industry and how management and our shareholders track performance.
** Adjusted profit before tax and adjusted EPS excludes amortisation on acquired intangibles, restructuring, impairment and
acquisition costs.
1
Strategic Report - Financial and Operational Highlights (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Operational highlights:
• Ongoing review and transition to fully integrate prior year acquisitions and refocus operations on our core
profitable and cash generative activities to maximise shareholder value.
• Appointment of new leadership team to drive value in the business with the appointment of Chris Stone as
Non-Executive Chairman, David Meaden as Chief Executive Officer and Rob Grubb as Chief Financial Officer.
• Strategic focus on, and continued investment in Public Sector Software (PSS) which represented 47% of total
Group Revenues and 84% of Adjusted EBITDA* in FY2018, including discontinued operations. Disposal of
Digital business, cementing focus on software and related services for the Group.
• Review of revenue recognition policies (including adoption of IFRS 15) and practices with a focus on sustaining
and improving levels of recurring revenues and visibility of revenues more generally:
o Exit annualised recurring revenue run rate as at 31 October 2018 was £32.4m (as at 31 October 2017:
£33.4m restated).
o Our contracted order book for software and services has more than doubled to £9.4m at 31 October
2018 (2017: approximately £4.0m), an increase of £5.4m reflecting revenue recognition commensurate
with our performance obligations.
•
Improved cash conversion from realisation of prior period debtor and accrued income balances, and better
cash terms for new deals signed.
• A continued focus on reducing costs as the Group adjusts its cost base to align more directly with its re-
focused business model to drive increased profitability. This trend is expected to continue through FY2019
and beyond.
David Meaden, Chief Executive of Idox said:
This has been a challenging year for Idox. The business has faced a number of challenges resulting from previous
leadership decisions and there has been significant work to re-establish the necessary disciplines and rigor required
for future success. I am pleased that we have been able to establish a more cohesive model and clear business
practices to drive the business forward and whilst there is much to be done, I believe we are well placed to grow the
business and improve shareholder value over the coming years.
A number of corrective actions have been undertaken. The Digital operation was disposed of, eliminating future
liabilities and ensuring the business is focused on its software assets and related services which are at the core of our
business model. In addition, we have established a more integrated model for future sales, development, delivery and
support activities, allowing the business to benefit more substantially from a unified approach. During the second half
of the year we have ensured that the treatment of revenue is in line with our ongoing service obligations and that we
have a clear focus on margins and cash across the group. As a result, we exit the year in a much stronger position and
I am especially grateful to our staff who as well as showing resilience during the early part of the year are embracing
new processes and ways of operating.
Our primary focus remains supporting and growing with our clients. We have strong products that are essential for high
performing organisations, including our large portfolio of public bodies, seeking to modernise and transform the way
they improve their services.
We ended FY2018 in a much stronger position than we started it. The markets in which we operate remain resilient
and we now have a strong leadership team with a clear focus on clients and execution of our strategy of product and
operational execution to drive increased profitability and cash generation. I am confident this momentum will continue
strongly into FY2019 as we deliver success.
2
Strategic Report - Chairman’s Statement
For the year ended 31 October 2018
__________________________________________________________________________________
Introduction
2018 has been a very busy year for Idox, with significant changes in operating the businesses we own, accounting
practices we apply, as well as changes to executive and non-executive leadership. Due to legacy issues, from the
complex integration of 6PM and the accounting irregularities disclosed in the 2017 annual report, and decisions made
by the previous leadership, it is difficult for any business to stay totally focused on the day to day demands of winning
and delivering work for its clients when there is so much upheaval all around. I was appointed in November and my
priority as Chairman of our Company is to help put that upheaval behind us and drive a focus on the core activities
necessary to support our customers and rebuild value for shareholders.
The restoration of value needs to start with a “back to basics” approach. Idox has been successful for many years in
following a strategy of building discrete software and software enabled services businesses around specific Intellectual
Property (IP) assets. This niche focused strategy has allowed us to build market leading positions in a number of very
attractive market segments, where we enjoy the benefits of delivering differentiated products and services to customers
that deliver tangible and lasting value for them. This allows us to build long lasting relationships based on mutual value
creation. The power of such a niche strategy is evident in the length of many of our relationships, the depth of
penetration in the segments we target, and the margins that we enjoy as a result of the differentiated value that we
deliver.
Unfortunately, some of our more recent acquisitions did not fit our IP led model. The Digital businesses in particular
were smaller, pure service businesses. Such businesses can be very successful but tend to be very reliant on an
individual or small group of founder/owners and if these individuals leave, there can be challenges to maintaining
revenues which we experienced in the year with our Reading Room and Rippleffect acquisitions. The option of trying
to rebuild these businesses without any clear differentiation in very competitive markets was considered to be unlikely
to deliver satisfactory shareholder value, leading to the decision to dispose of them. This was at negligible value but
did staunch quite serious continuing losses and removed future liabilities.
The acquisitions of 6PM and Halarose, by contrast, have brought some very interesting IP to the Group that we hope
to build into successful, growth businesses. However, in the case of 6PM, we paid a very full price for a company that
had a number of issues of its own to resolve before we could start the process of fully integrating it into the rest of the
Idox Group. We also had to wrestle with some complex accounting issues that absorbed a lot of our resources in getting
to a satisfactory conclusion. All of this has delayed the realisation of some of the value that we expect from this business,
but I am pleased to say that the integration process is now well under way.
With the disposal of the Digital division completed, we can now concentrate on driving value from the businesses in the
Group, all of which have significant IP at their core. This emphasis combined with the creation of a single Head of
Division for the Public Sector and Health division is designed to make it easier to identify and deliver new solutions and
services that will deliver increased customer value, at the same time as leveraging our scale and skills to be more
efficient in everything that we do. We have an excellent slate of products and services, an enviable customer list, and
a talented and committed workforce. The task for the Chief Executive and his leadership team is to drive improved
performance from these assets, but I have every confidence in them. David Meaden has made a very impressive start
in his role and has moved swiftly to strengthen the team in some key positions.
Group Strategy
The Group continued its focus on providing digital solutions and services to the public sector in the United Kingdom,
complemented by our Content business in Europe and Engineering Information Management business servicing
customers across the world. The key to our success is to ensure we deliver better user results and productivity
improvements for customers through focusing on usability, functionality and application of integrated digital
technologies and solutions.
Following the challenges the Group has faced in the year as outlined above, the Board believes it can bounce back
quickly with the steps already taken to rectify the issues identified and reflecting the underlying strengths of the core
business, its product offering and its talented people.
3
Strategic Report - Chairman’s Statement (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Board
I am very pleased to report that the Board was successful in appointing David Meaden as our permanent Chief
Executive in June 2018. David has enjoyed a very successful career of over 22 years in Sales Leadership and Chief
Executive roles in businesses supplying software and services predominantly to the Public Sector. We are already
enjoying the benefits of his insights and experience.
Richard Kellett-Clarke, who had become a Non-Executive Director of Idox in November 2016, stepped in as Interim
Chief Executive in December 2017 through to David Meaden’s appointment. The Board would like to thank Richard for
his commitment during this period.
There were a number of other changes to the Board during the period. In March 2018 Andrew Riley left his role as
Chief Executive, in April 2018 Peter Lilley, Senior Non-Executive Director and Chair of the Nomination and
Remuneration Committee, ceased to be a Board member and in August 2018 Jane Mackie stepped down from her role
as Chief Financial Officer.
On 1 November 2018 Rob Grubb joined us as Chief Financial Officer. Rob brings strong relevant experience of leading
the finance function of a publicly quoted technology business, having been CFO of Gresham Technologies from 2009
to 2018. On the same date, Oliver Scott was appointed as a Non-Executive Director, and Chair of the Nomination
Committee. Oliver is a founding Partner of Kestrel LLP, a fund management business which currently holds
approximately 10.21% of Idox shares.
On the 19th November 2018, Laurence Vaughan resigned from the Board with immediate effect. Following this, I was
appointed to the position of Chairman on 22nd November 2018.
On 7 January 2019 it was announced that Barbara Moorhouse will step down from the Board at the Group's forthcoming
Annual General Meeting (AGM) having completed her three year term of office in January 2019. I would like to thank
Barbara for her contribution to Idox since 2016 and in particular her work as Chair of the Remuneration Committee
from December 2018.
I am very pleased to have the opportunity to take up this position. Idox is a business with some great strengths and
some very exciting opportunities to grow and deliver value. I am looking forward to working with the team to realise that
value.
Corporate Governance
We are cognisant of the important responsibilities we have in respect of Corporate Governance and shaping our culture
to be consistent with our objectives, strategy and business model which we set out in our strategic report and our
description of principal risks and uncertainties. The Idox group is committed to conducting its business fairly, impartially,
in an ethical and proper manner, and in full compliance with all laws and regulations. In conducting our business,
integrity is the foundation of all company relationships, including those with customers, suppliers, communities and
employees.
Dividends
The Board has decided no final dividend will be paid (2017: 0.655p) for FY2018 bringing the total for the year to nil
(2017: 1.04p). In reaching this decision, the Board has taken into account the disappointing results for the year and the
ongoing efforts to transition the business to a more stable footing.
Summary
Following a challenging year for the Group a number of substantive changes and re-tooling of the business have taken
place. Idox enjoys an exceptionally strong market position in the public sector, good products, opportunities for growth
and improving financial performance. The new leadership team will make customers, shareholders and our staff their
priority and I am confident of the Group’s future prospects.
Finally, I would like to extend my thanks to the entire workforce of the Idox Group, who have maintained their focus on
looking after the most important asset of our business – our customers. Our colleague’s expertise and diligence have
continued to deliver the support and value that our customers expect, and we are fortunate to have them choose Idox.
Chris Stone
Chairman
20 February 2019
4
Strategic Report – Strategy, Market Overview and Business Model
For the year ended 31 October 2018
__________________________________________________________________________________
Strategy
The Group continued its focus on providing digital solutions and services to the public sector in the United Kingdom,
complimented by our Content business in Europe and Engineering Information Management business servicing
customers across the world. The key to our success is to ensure we deliver better user results and productivity
improvements for customers through focusing on usability, functionality and application of integrated digital
technologies and solutions.
Market Overview
The Group continues to operate successfully and has grown in challenging markets characterised by continued
pressure on expenditure. Our diversity of offerings and integration of businesses into a single management structure
allows us to take advantage of opportunities and respond to challenges in our markets.
We see no change in outlook for our core markets. Announcements concerning Public Sector savings are in line with
our planning and expectations, and should result in increased demand for our solutions which provide cost savings and
efficiencies to our customers in our chosen markets.
Our Business Model
Idox is the leading applications provider to UK local government for core functions relating to land, people and property,
including market leading planning systems and election management software. Over 90% of UK local authorities are
now customers for one or more of the Group’s products. In addition, the Group’s public sector products are
complimented by our Content business in Europe and Engineering Information Management business servicing
customers across the world.
Idox provides:
•
•
•
public sector organisations with tools to manage information and knowledge, documents, content, business
processes and workflow as well as connecting directly with the citizen via the web and providing elections
management solutions;
decision support content such as grants and planning policy information and corporate compliance services;
and
engineering document control, project collaboration and facility management applications to many leading
companies in industries such as oil and gas, architecture and construction, mining, utilities, pharmaceuticals
and transportation in North America and around the world.
The Group employs 749 colleagues located in the UK, the USA, Canada, Europe, India and Australia.
5
Strategic Report – Strategy, Market Overview and Business Model (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Key Performance Indicators
Key financial performance indicators, including the management of profitability, monitored on an ongoing basis by
management are set out below.
Indicator
Revenue
2018
2017
(restated)
Excluding Digital*
2017
2018
(restated)
Measure
(see note 1 for restatement)
Group Revenue
£73.7m
£85.9m
£67.4m
£73.8m Revenue received from provision of goods and
Annualised Recurring
Revenue (“ARR”) exit
run-rate
Profitability ratios
£36.3m
£40.4m
£32.4m
£33.4m
services
Annualised recurring revenue at 31 October that is
contracted or considered highly likely to recur in
subsequent years
Adjusted EBITDA
£11.6m
£15.7m
£14.4m
£16.5m
Adjusted EBITDA margin
16%
19%
21%
22%
Adjusted EPS
1.72)p
1.97p
2.28p
2.18p
Cash ratios
Free Cashflow
£5.3m
(£11.2m)
n/a
n/a
Net Debt
(£31.8m)
(£32.6m)
n/a
n/a
* The Group disposed of its Digital Business on 2 November 2018
Profit before interest, tax, depreciation,
amortisation, restructuring costs, acquisition costs,
impairment, corporate finance costs and share
option costs
Profit before interest, tax, depreciation,
amortisation, restructuring costs, acquisition costs,
impairment, corporate finance costs and share
option costs as a percentage of revenue
Adjusted EPS excludes amortisation on acquired
intangibles, restructuring, acquisition and
impairment costs
Net cash from operating activities less Net Cash
used in investing activities
Borrowing plus Bonds in issue, less cash and cash
equivalents
Non-financial Indicators
Idox Group practises an integrated management system centred around gaining and retaining ISO accreditations.
These are internally and externally audited annually to ensure compliance.
Composition of the Board
The Board of Directors comprises 14% constitution of female directors.
6
Strategic Report – Chief Executive’s Review
For the year ended 31 October 2018
__________________________________________________________________________________
Overview
I have been impressed with both the quality and comprehensive range of solutions offered by the Group; we have a
fundamentally strong business offering excellent solutions to attractive core markets. More than that, I have seen first-
hand the commitment and determination of the team here at Idox to deliver to its clients, shareholders and wider
stakeholders. I am leading a very capable company that is now focused on delivering tangible customer and
shareholder value.
The markets in which we operate have a continued need for high quality products and an increasing need for expert
support and service. It is well documented that the effects of persistent austerity and the pressure to deal with increasing
frontline demands have driven our clients beyond the simple message of ‘digital by design’.
Statutory and legislative complexity mean that clients operations’ are not satisfied easily by ‘build your own’ digital
solutions. Clients are increasingly searching for cost effective measures that combine the opportunities offered by direct
connection to citizens with ‘ready-now’ products and services that accelerate business change and enable more
effective working.
As such the ‘back to basics’ approach highlighted by the Chairman means that the coming year will see a laser focus
on customers, colleagues and cash. We have an excellent customer list which has been created by delivering
outstanding value. This will continue to be the number one priority for everyone in our business. There have been
distractions that have interfered with this focus over the recent past, but it will be the focus of our entire Group, at all
levels.
We also need to ensure that our colleagues, who have maintained an admirable focus on supporting their customers
during this difficult period, continue to feel motivated and committed to Idox. We are fortunate to have so many talented
people who have chosen Idox as the place for them, and we must make sure that commitment is rewarded and
maintained.
And finally, we need to focus on cash. The new leadership team has already delivered a strong performance in
improving our working capital, but there is more to do in that area.
Over the coming year our approach is to continue to build our market positions, focusing on our clients’ needs and
integrating our teams and structures to offer a comprehensive service to their extended requirements.
We have initiated a programme labelled, ‘The 4 Pillars’ with a focus on improving the quality of Revenue, EBITDA,
Cashflow and a continued simplification of the organisation.
As a result of the actions taken since the half year, the Group now has a much better framework in place for future
success; we have attended to unnecessary costs, restructured businesses, processed impairment charges, focused
our teams, and introduced more appropriate contract pricing and terms. Whilst a number of challenges remain, I now
have a much clearer view of the potential and optimal shape of the business going forward.
In future years we therefore expect that the Group’s financial performance will benefit from an optimised cost base and
a stronger commercial focus on organic growth, recurring revenues and cash conversion.
We are delivering a simplified business and operating model. The effect will be to make the Group more efficient in
combining solutions to clients across its chosen sectors. We will focus on improving the long-term visibility of recurring
and repeating revenues and ensure that all products and business areas are core to delivering shareholder value.
Appropriate contract pricing and contract terms have been implemented across the Group to increase recurring revenue
and reduce the reliance on up front licence fees, which will improve the quality of our earnings. We have also seen a
greater number of larger contract wins and this combined with strong client retention bode well for the future.
Divisional Review
Digital
The Digital business was disposed of shortly after year end, ensuring that the Group is not exposed to future liabilities
and our focus is on software assets and related services. The business had reduced costs substantially during the
second half of the year and we wish our ex colleagues well under their new ownership.
7
Strategic Report – Chief Executive’s Review (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Public Sector
Public Sector Software continues to be the focal point of the business. We have a number of market leading products
and impressive new technology solutions focused on delivering Smart Government, Smart Healthcare and Smart Cities.
Smart Government
During the year we have seen new contracts for software and hosting services including Sheffield City Council, South
Ayrshire, London Borough of Southwark, Wolverhampton City Council, and London Borough of Bexley. Existing clients
at Barnet, Westminster, Hammersmith & Fulham, and Aberdeen City Council also extended their existing software and
hosting arrangements. Additional new notable contract wins include the Land Registry for data, and integration work to
our core Land Charge Solutions which we anticipate will lead to additional work in FY2019 for all of our customer base
in this area.
This adds to the success earlier in the year for a new planning solution for the combined Greater Cambridge Planning
Service which saw Idox provide a comprehensive shared service solution to one of the largest planning authorities
across the South East of England. In Environmental Health there were new wins at Blaby, Litchfield, Clackmannanshire
and Harrogate.
We have also seen the return of clients, highlighting that in this complex process and legislative environment, Idox’s
ability to serve the market is unparalleled. We are delighted to welcome back Copeland Surrey Heath as an Idox
Uniform client.
In Computer Aided Facilities Management, we recorded 25 new customers wins achieved this year.
Elections
Elections welcomed a new customer for Elections Management in North Lanarkshire and continued to improve the
speed and efficiency of electoral results through our advanced E-Count software, with Malta being the latest client.
The Elections sales team were awarded a contract during October to provide managed services, software and support
in future elections over the next 4 years for Aberdeenshire, Aberdeen City, and Highland Councils.
Social Care
The Social Care business has had great success winning new deals for the Information, Advice and Guidance Hub at
South Gloucestershire, alongside wins at Lambeth, Blackpool, Wolverhampton, Westminster and Bromley where the
Councils will offer a more efficient and transparent way for young people and their families to understand and track
their Educational Health and Care (EHC) journeys. Special Educational Needs and Disability (SEND) teams, together
with their health and social care partners, will also be able to collaborate on a fully-integrated assessment process,
while keeping families fully updated in a way that empowers them to contribute.
Smart Healthcare
In Health, the acquisition of 6PM has proven challenging as was reported in the final results announced on 1 st March
2018. However, the solution offerings are strong and particularly relevant to the current market. The iFIT product line
for Asset, Prescribing and Document tracking now has over 30 UK Health Trusts as clients and delivers impressive
returns on investment. We were delighted to add Epsom & St Helier University Hospitals NHS Trust, The George Eliot
Hospital NHS Trust, North Cumbria, Dudley Group NHS Foundation Trust, and Doncaster & Bassetlaw Teaching
Foundation Trust to our growing list of clients.
Smart Cities
Bristol City Council became the latest Idox client for the Smart Cities proposition, which encompasses the real time
control of traffic flows, citizen and passenger assist services and traffic network management. In the second half of the
year we welcomed the Greater Toronto Transportation Authority (Metrolinx) as an Idox client, our largest contract in
this area to date.
8
Strategic Report – Chief Executive’s Review (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Engineering Information Management (EIM)
As previously reported, the Engineering business has taken the first steps of transitioning to a Software as a Service
(SaaS) based model which will result in higher quality, recurring revenue over the longer term.
In the first half of the year we released the new FusionLive SaaS Platform, and subsequently sold the SaaS platform
to Clough, a global engineering and construction company Headquartered in Perth, Australia. After its initial one-year
trial, Torxen Energy in Canada committed for 3 years to the same platform for its management of operational documents
for its Palliser oil sands acquisition in Alberta, the division’s first Oil & Gas operations platform delivered on a multi-
tenanted cloud platform. In partnership with Catenda, a specialist provider of Building Information Modelling (BIM)
solutions, the division delivered a new combined BIM/workflow cloud platform to SNCF to enable it achieve its targets
on the EOLE Project, one of the current largest active railway projects in Europe, the RER-E line extension.
The Division has achieved further success through its partnership with Siveco China with four new deals for the on-
premise Opidis platform sold through Engineering, Procurement and Construction companies (‘EPC’s’) in the Far East
and is working to expand on this in the coming year.
All of these initiatives and partnerships provide exciting opportunities for growth in the years ahead.
Content
Our international research funding database RESEARCHconnect, signed a further nine universities and research
institutes across Europe, including in France, Spain, Sweden and The Netherlands. We now have over 100 clients
using our solution.
The Content business also delivered new compliance programmes for a number of worldwide clients, including a range
of solutions to facilitate new GDPR regulations.
In our grants business we secured our largest grant to date for BuyBay as part of our service delivering grant
applications on a no win no fee basis.
Outlook
Our staff have shown excellent commitment during the year as we have continued to deliver market-leading software
solutions that provide strong value and efficiencies for our customers in our chosen markets.
We have ended FY2018 in a much stronger position than we started it with a strong leadership team and clear focus
on product and operational execution to drive increased profitability and cash generation, and I am confident this
momentum will continue strongly in to FY2019 as we deliver success.
David Meaden
Chief Executive Officer
20 February 2019
9
Strategic Report – Financial Review
For the year ended 31 October 2018
__________________________________________________________________________________
Financial Review
Group revenues from continuing operations fell by 9% to £67.4m (2017: £73.8m), mainly due to a fall in revenue within
our PSS division.
70% of Group revenues were generated in the UK (2017: 73%). Gross profit earned fell 7% to £58.6m (2017: £62.6m)
but the Group saw a slight increase in gross margin from 85% to 87% as a result of cost saving initiatives introduced
throughout the year. Earnings before interest, tax, amortisation, depreciation, restructuring, acquisition, impairment,
corporate finance and share option costs (“Adjusted EBITDA”) decreased by 13% to £14.4m (2017: £16.5m) with
Adjusted EBITDA margins decreased by 5% to 21% (2017: 22%) as a result of the lower gross profit earned.
Performance by Segment
The PSS division, which accounted for 47% of Group revenues (2017: 47%), delivered revenues of £34.3m (2017:
£40.8m). Product and services revenue decreased by 21% to £15.7m (2017: £19.9m). Election revenues accounted
for £4.5m (2017: £4.7m) of PSS revenues. Election revenue was slightly down on the prior year as 2017 included the
May local elections and the General Election. Recurring revenues within the PSS division from maintenance and
hosting were £13.9m (2017: £15.3m). Recurring revenues represented 40.6% (2017: 38%) of total PSS revenue.
Divisional Adjusted EBITDA decreased by 35% to £9.7m (2017: £15.0m), delivering a 28% EBITDA margin (2017:
37%).
The Digital division accounted for 9% of Group revenues (2017: 15%) with revenue of £6.5m (2017: £12.7m), £6.2m
(2017: £12.1m) of revenue classified as discontinued.
The EIM division accounted for 14% of Group revenues (2017: 15%) with revenue of £10.0m (2017: £12.9m). Recurring
revenues within the EIM division from maintenance and SaaS were 73% (2017: 60%). EIM saw a fall in revenue due
to an increased emphasis on SaaS and managed service deals, continued pressure on per-seat licence prices and oil
and gas spending still tight on non-key investment.
The Content division in the UK and Europe had revenue growth of 10% to £13.6m (2017: £12.4m).
The Health division accounted for 13% of Group revenues (2017: 8% in nine months) with revenue of £9.3m (2017:
£7.1m in nine months).
Profit Before Tax
12 months to
31 October 2018
(audited)
£000
Restated
12 months to
31 October 2017
(audited)
£000
(Loss) / profit before tax for the period
Add back:
Amortisation on acquired intangibles
Restructuring costs
Acquisition (credits) / costs
Impairment
Adjusted profit before tax for the period
(29,462)
4,495
435
(856)
33,255
7,867
2,790
4,444
377
8
2,681
10,300
The reported loss before tax was £29.5m (2017: £2.8m profit) mainly as a result of impairment charges related to the
PSS, EIM Digital and Health divisions. The impairments arose from further reassessments of the results following the
issues which came to light towards the end of the 2017 financial year and poor performance in 2018 financial year as
the business refocused in a number of areas including review of revenue performance obligations and cost structures.
This resulted in a total impairment charge of £33.3m in continuing operations and £6.3m in discontinued operations.
10
Strategic Report – Financial Review (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Profit Before Tax (continued)
Amortisation of acquired intangibles increased marginally to £4.4m (2017: £4.4m). The profit before tax for FY2017
has also decreased by £2.7m in relation to prior year adjustments processed in the year as disclosed in note 1.
Amortisation of development costs was £2.8m (2017: £2.3m) and amortisation on software licences was £0.9m (2017:
£0.9m). Development costs are amortised over a 1 to 5 year period on a project by project basis and software licences
are amortised over 3 years. Acquisition credits of £856,000 (2017: £8,000) relates mainly to a part release of the
contingent consideration on Open Objects Limited, reducing the contingent consideration from £1.6m to £0.7m.
Restructuring charges of £0.6m (2017: £0.7m) were incurred in the year.
Adjusted profit before tax and adjusted earnings per share are alternative performance measures, considered by the
Board to be a better reflection of true business performance than looking at the Group's results on a statutory basis
only.
Adjusted EBITDA for continuing operations decreased 14% to £14.4m (2017: £16.5m) impacted by lower margin
election revenue in PSS, lower revenue in EIM, and losses in Health. Cost of sales decreased by 21%, partly as a
result of the decrease in revenue. The accounting issues previously reported in the Health division around 6PM, where
we inherited issues with incomplete accounting records, revenue recognition and inconsistent contractual paperwork
have unfortunately led to an impairment in the 2018 financial year amounting to £25.4m.
Administrative expenses increased by 49% to £86.8m (2017: £58.3m), due to the impairment of £33.3m offset with cost
savings in the year.
Finance costs have reduced slightly to £1.8m (2017: £1.9m). The Maltese Stock Exchange bond was issued in 2015
prior to Idox acquiring 6PM at a nominal value of €13m, is repayable in 2025 and has a coupon rate of 5.1%.
The Group continues to invest in developing innovative technology solutions and has incurred capitalised development
costs of £3.6m (2017: £4.8m).
Taxation
The effective tax rate (‘ETR’) for the period was 8.05% (2017: 53.27%).
The main factor for the lower ETR on the net loss before tax position was the impairment processed during FY2018,
which is not deductible for tax purposes. Furthermore, non-recognition of losses in Malta, owing to uncertainty over
their future utilisation, decreased ETR further.
These downward pressures on ETR were mitigated by adjustments to prior periods and recognition of losses not
previously recognised, the latter primarily on account of permitted recognition against outstanding deferred tax liabilities
of the same entity.
Unrelieved trading losses of £1.1m, across the US and France, remain available to offset against future taxable trading
profits. This number excludes substantial carried-forward losses not recognised for deferred tax purposes to date,
owing to adoption of a prudent loss recognition position. The gross value of these losses not recognised to date totals
£10.4m, split across Malta (£7.4m), the UK (£1.7m) and Germany (£1.3m). The Board is hopeful that the Group will
benefit from these unrecognised tax losses in future and will be recognised at the point where utilisation becomes more
certain.
Earnings Per Share and Dividends
Basic earnings per share fell to (8.72)p (2017: 0.09p) as a result of the impact of the impairment charge. Diluted
earnings per share fell to (8.65)p (2017: 0.09p).
Adjusted earnings per share fell to 1.72p (2017: 1.97p) as a result of the impact of the impairment charge. Adjusted
diluted earnings per share fell to 1.71p (2017: 1.91p).
The Board proposes a final dividend of nil as the business transitions to a more stable platform, a decrease of 100%
on the previous final dividend, giving a total dividend for the year of nil.
11
Strategic Report – Financial Review (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Balance Sheet and Cashflows
The Group’s balance sheet position deteriorated significantly during the period and at 31 October 2018 net assets had
fallen to £49.8m compared to £88.6m at 31 October 2017. The deterioration in net assets is mainly driven by the fall in
value of intangible assets due to the aforementioned impairment charge, principally goodwill, from £73.4m to £45.9m,
customer relationships, from £21.0m to £13.3m, trade names, from £8.3m to £4.7m and software, from £10.8m to £6m.
Cash generated from operating activities after tax as a percentage of Adjusted EBITDA was 68% (2017: 79%). Cash
conversion has historically been impacted by deferred payment deals over 3 to 5 years which have been offered to
local authorities and as a result, payments received from customers have become slightly less aligned with when
services are provided. The Group has a clear objective to reduce this misalignment going into FY2019 and achieve
higher cash conversion from its previous and ongoing activities.
The Group ended the period with net debt of £31.8m (2017: £32.6m), a slight improvement on the previous year.
The Group’s total signed debt facilities at 31 October 2018 stood at £30m, a combination of a £7m term loan and £23m
revolving credit facility, split £7m with the Royal Bank of Scotland and £23m with Silicon Valley Bank respectively (the
“Lenders”). Post year end the group successfully extended its existing banking arrangement with the Lenders to 25
February 2020. The Group anticipates it will still have a net debt position at the point of expiry of the current facilities
and therefore expects to enter negotiations to extend the facility in the coming year. Given the improvements in the
business, the Group expects to be in a strong position to secure financing on a longer-term basis that is commensurate
with its target capital structure, and has no reason to believe it will not be complete.
Under the terms of the extension the revolving credit facility will be increased to £24.5m until 1 June 2019 at which
point it will revert to £23.0m until the expiry of this extension, the term loan will be reduced by £1.25m on 30 April 2019,
with the balance of £5.75m due at the expiry of this extension and the Group is now subject to additional financial
covenants and requires the consent of the Lenders in the event it wishes to propose a dividend. The extension gives
Idox a strong platform to continue refocussing its operations, allows the Group to prepare its annual report on a going
concern basis and allows the Group time to consider longer-term financing alternatives. In addition to the signed debt
facilities there is a 6PM Maltese Stock Exchange bond issued in 2015 pre-acquisition at a nominal value of €13m; it is
repayable in 2025 and has a coupon rate of 5.1%.
Deferred income, representing invoiced maintenance and SaaS contracts yet to be recognised in revenue stood at
£17m (2017: £19.8m). Accrued income, representing future cash flows, decreased to £19.2m (2017: £20.6m).
£7.0m of accrued income relates to licences and services that have been delivered to local authorities and revenue
recognised but the customer is paying for the licence and services over a period of typically 3 to 5 years. This will result
in future cash inflows for the Group. The balance of accrued income is service revenue where work has been completed
but the project has not yet reached an invoicing milestone and will convert to cash in the short term.
Impact of IFRS 15
The Group will adopt IFRS 15 Revenue from Contracts with Customers with effect from 1 November 2018 using the
cumulative effect method. Software license revenue will now be recognised over the duration of the project
implementation period on a percentage completion basis. This has the effect of spreading the recognition of software
license revenue over the period of implementation, rather than taking immediate, upfront recognition. There are no
changes to the timing of the recognition of Support, Maintenance or Hosting revenue.
The new standard more closely aligns our revenue recognition with the commercial substance of our contracts. The
application of IFRS 15 has no impact on the lifetime profitability or cash flows of our contracts, or on the majority of our
transactional businesses. Instead, the resulting changes in the timing of revenue and cost recognition more closely
aligns our financial results with the timing of the delivery of our sales and services to our clients.
Under the cumulative effect method the impact of the change to IFRS 15 will be recorded as an adjustment to the
opening accrued income, deferred income and retained earnings position. The calculated impact on revenue in financial
year 2019 is £3.2m This is explained more fully in the Notes to the Accounts.
Rob Grubb
Chief Financial Officer
20 February 2019
12
Strategic report – Principal Risks and Uncertainties
For the year ended 31 October 2018
__________________________________________________________________________________
Responsibility for Risk
Risk identification and management strategy continues to be a key role for the Board which has overall responsibility
for the Group’s risk management. In addition, risk is specifically considered by the Audit Committee as part of the Audit
Cycle. The Audit Committee has responsibility for assessing and challenging the robustness of the internal control
environment.
Risk management processes and internal control procedures are established across all levels of the Group and are
managed by the Executive Directors in conjunction with dedicated expert professionals in the business.
Risk management and internal controls provide reasonable but not absolute protection against risk. Risk appetite is not
static and is regularly assessed by the Board to ensure it continues to be aligned with the Group’s goals and strategy.
Embedding the Risk Culture
Throughout the Group, risk management is an evolving process. This is recognised by ongoing training and advice by
divisional and business unit risk representatives, best practice sharing, gap analysis and internal benchmarking.
Successful training and communication help build a culture and ability to further embed processes and procedures
throughout the organisation. A more deeply embedded risk management culture supports long-term value creation for
all stakeholders.
Principal Risks and Uncertainties
The principal risks involved in delivering the Group’s strategy are actively managed and monitored against our risk
appetite as follows:
Risk
Principal risks
Management of risks
Political
The Group has a large customer base in local
government and other public sector bodies. A
change in spending priorities by the current or a
future Government could materially impact the
Group.
Our favoured revenue model is for high levels
of recurring revenue to establish a stable base
of contracted or highly visible revenues to react
to any such changes in a more strategic
timeframe.
Our development priorities are to ensure we
remain at
the heart of our customer’s
operations, delivering cost efficiencies and
value for money.
Economic
environment
Our performance is affected by the economic
cycles of the markets of the countries in which
we operate.
A diversified geographic footprint and sector
focus reduces the risk of exposure due to
adverse country or sector specific conditions.
The ‘Brexit’ referendum on the exit of the UK
from the Treaty of the European Union has
increased the uncertainty in the economic,
social and environmental markets in which we
operate.
Acquisitions
Acquisitions and restructuring may not achieve
the anticipated returns for the Group.
We remain cognisant of UK and EU geo-
political events and consider any impact on our
chosen markets, both to reduce risk but also to
capitalise on any opportunities that arise.
Our Brexit
stakeholders via the following link:
statement
is available
to
https://www.idoxgroup.com/media/2313/brexit-
no-deal-idox-statement-to-customers.pdf
The Group is currently in the process of
consolidating prior year acquisitions. Focus is
placed on ensuring management reporting lines
are clear; operational functions of acquired
entities
or
supported,
consolidated in to wider Group functions as
appropriate; and the potential for upsell and
enhanced
are
13
Strategic report – Principal Risks and Uncertainties
For the year ended 31 October 2018
__________________________________________________________________________________
Risk
Principal risks
Management of risks
Technological
development
The Group risks being outclassed by competitor
products that have increased capabilities if the
to deliver continued product
Group
development, including digital innovations.
fails
Ability to sell
effectively
The Group has deep experience of selling our
broad portfolio of products.
to
It is imperative we have effective sales and
and
marketing models, methodologies
techniques
our
realise
investments in software product and to recover
the costs of associated delivery and support
functions, and that this is done on a profitable
and cash generative way.
effectively
Capital
structure
The Group has significant borrowings in the
form of bank debt and a listed Bond following
prior period acquisitions.
It is key our capital structure is appropriately
managed to ensure we can meet all obligations
as they fall due, to ensure we have sufficient
to execute our strategy, and
headroom
for our
to deliver cash returns
ultimately
investors.
cross-sell across
products is maximised.
the Group’s portfolio of
We strive to invest in quality assurance and
research and development to deliver quality
products in to our chosen market.
In recent years we have invested significantly in
increasing our capability in the delivery of
digital.
The Group has developed strong controls to
support its sales teams in selling effectively.
These
include upfront business approval
controls to ensure we are only bidding for work
that has a suitable opportunity for a profitable,
cash reward, and review controls to ensure
once we are committed with a customer, the
agreed terms are achieved.
We perform regular review of short, medium
and long-term cash forecasting to ensure our
anticipated levels of cash are sufficient to meet
both near-term requirements and longer-term
strategic objectives.
We carefully manage cash
receipts and
payments with customers and suppliers to
ensure cash is delivered in line with agreed
obligations.
We have good relations with our Lenders, and
provide regular updates on the activities of our
business and adjust funding requirements as
the needs of the Group may evolve from time to
time.
Cyber risk
We operate systems
that maintain our
confidential data and in some cases that of our
customers.
We have cyber, data protection and security
policies in place and regularly review the
effectiveness of these policies.
An information security breach or cyber-attack
could result in loss or theft of data, content or
intellectual property.
There
is an enterprise-wide data security
programme and defined incident management
processes, including those for employees to
report security breaches.
The Group is accredited to the UK government
based Cyber Essentials standard and continues
to focus on achieving ISO 22301: ‘Business
Continuity Management System’.
Signed on behalf of the Board by:
David Meaden
Chief Executive Officer
20 February 2019
14
Board of Directors
For the year ended 31 October 2018
__________________________________________________________________________________
Christopher Stone Non-Executive Chairman
Christopher was appointed Non-Executive Chairman on 22 November 2018. Chris is the Chairman of NCC Group plc
and was Chairman of CityFibre plc until its recent sale. He has held various non-executive director and chief executive
roles of listed and private equity backed technology companies, including being CEO of Northgate Information Solutions
plc, from 1999 to 2011 where he led the transformation of the business from a small domestic player to a global leader.
From 2013 to 2016, Chris was CEO of Radius Worldwide, a provider of software and services to support high growth
companies establish and manage international operations.
David Meaden Chief Executive Officer
David Meaden was appointed Chief Executive on 1 June 2018. Prior to joining Idox, David held the position of Chief
Executive at Northgate Public Services, a FTSE 250 company, and led the business through its successful sale to
Cinven in 2014. David has a degree in Business Studies from the University of Huddersfield.
Rob Grubb Chief Financial Officer
Rob Grubb was appointed Chief Financial Officer on 1 November 2018. Prior to joining Idox, Rob held the position of
CFO at Gresham Technologies plc from 2009 to March 2018 where he also served as Company Secretary until 2013.
Prior to this he held roles at Lucite International and Ernst & Young in the UK and New Zealand specialising in financial
services and technology. Rob is a member of the Institute of Chartered Accountants of Scotland.
Richard Kellett-Clarke Non-Executive Director:
Richard Kellett-Clarke has 31 years of directorial experience. He joined Idox first as CFO in 2006, becoming COO and
then CEO in 2007 until becoming a non-executive director in November 2016. Prior to Idox, Richard held a number of
CFO appointments with Brady plc, Pickwick Group Limited, and in subsidiaries of Pearson plc and Invensys plc. In
addition, he was a founder and Managing Director of AFX NEWS Ltd, now part of Thomson Reuters Group, IT Director
of Financial Times Information, and Founding Director of Sealed Media Ltd, an Internet start-up. In 2011 he joined the
Board of dotDigital Group plc as a Non–Executive Director.
Jeremy Millard Non-Executive Director
Jeremy Millard provides corporate finance advice to companies primarily in the Technology sector. He previously spent
five years at Rothschild, based in their London office, advising clients on all aspects of corporate finance, including on
a number of major cross-border transactions encompassing Europe, North America and the Middle East. Between
2001 and 2007, Jeremy worked at Hawkpoint Partners, where he had a strong focus on advising mid-market UK listed
companies. Jeremy was appointed as a non-executive director of Ilika plc on 1 October 2018. He has also worked for
the UK Ministry of Defence and Mars Snack Foods, qualified as a chartered accountant in 1999, and holds an M. Eng
from Cambridge University. He is the Chairman of the Audit Committee.
Barbara Moorhouse Non-Executive Director
Barbara Moorhouse is Chair of Rail Safety Standards Board (RSSB), Non-Executive Director at Balfour Beatty plc,
Microgen plc and Agility Trains. She is a Trustee of Guy’s and St Thomas’ Charity. Barbara was formerly CFO in two
international listed IT companies – Kewill Systems plc and Scala Business Solution NV. She has held the positions of
Director General at the Ministry of Justice / Department for Transport and Chief Operating Officer at Westminster City
Council. Barbara will step down from the Board at the Group's forthcoming Annual General Meeting (AGM) having
completed her three year term of office in January 2019.
Oliver Scott Non-Executive Director
Oliver is a partner of Kestrel Partners LLP, which he co-founded in 2009. Prior to this, Oliver spent 20 years advising
smaller quoted and unquoted companies, latterly as a director of KBC Peel Hunt Corporate Finance. He is currently a
non-executive director of IQGeo Group plc and was previously a non-executive director of KBC Advanced Technologies
plc prior to its takeover by Yokogawa in 2016.
15
Directors’ Report
For the year ended 31 October 2018
__________________________________________________________________________________
The Directors submit their report and audited financial statements for the year ended 31 October 2018.
Results and Dividends
The Group’s audited financial statements for the year ended 31 October 2018 are set out on pages 39 to 82. The
Group’s loss for the year after tax amounted to £36.2m (2017: £0.6m profit). The Directors paid a dividend of 0.655
pence per share in the first half of the 2018 financial year, in respect of the year ended 31 October 2017. The Directors
do not propose any dividend to be paid in respect of the year ended 31 October 2018.
Post Balance Sheet Events
On 2 November 2018, the Group sold its digital division to Fat Media Limited, a digital marketing solution provider, for
a nominal cash consideration of £1.00.
Directors and Their Interests
The Directors who served during the year and their beneficial interests (including those of their immediate families) in
the Company’s 1p ordinary share capital were as follows:
L Vaughan* (resigned 19 November 2018)
D Meaden
R Kellett-Clarke**
J Millard
B Moorhouse
J Mackie (resigned 30 August 2018)
A Riley (resigned 1 March 2018)
Rt. Hon. P B Lilley MP*** (resigned 19 April 2018)
Number of shares
31 October 2018
1 November 2017
232,250
-
15,098,668
-
-
506,287
-
533,000
232,250
-
14,161,668
-
-
494,781
1,416,272
533,000
* 232,250 (2017: 232,250) of these shares are held through a Self-Invested Pension Plan.
** 2,761,667 (2017: 2,761,667) of these shares are held through Self-Invested Pension Plans, 11,400,001 (2017:
11,400,001) shares are held through certain members of his family and a family trust and 937,000 are held directly and
subject to a two-year lock-in period following LTIP exercise in Mar 2018.
*** 111,300 (2017: 111,300) of these shares are held through a Self-Invested Pension Plan and 59,250 (2017: 59,250)
shares are held through certain members of his family.
In addition to the shareholdings listed above, certain Directors have been granted options over ordinary shares. Full
details of these options are given in the Report on Remuneration on pages 19 to 21.
Details of the Directors’ service contracts can be found in the Report on Remuneration on pages 19 to 21.
Insurance for Directors and Officers
The Company has purchased and maintains appropriate insurance cover against legal action brought against Directors
and Officers.
16
Directors’ Report (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Substantial Shareholdings
As at 31 October 2018, the Company was aware of the following interests in 2% or more of its issued share capital:
Shareholder
Number of shares % Holding
Canaccord Genuity Wealth Management
Kestrel Partners
Soros Fund Management
Herald investment Management
1798 Volantis
Livingbridge
Richard Griffiths
Rorema Beheer BV
Richard Kellett-Clarke
Octopus Investments
67,000,007
42,398,503
37,995,747
30,909,483
24,298,111
17,543,409
16,765,765
16,617,721
15,098,668
8,521,544
16.13%
10.21%
9.15%
7.44%
5.85%
4.22%
4.04%
4.00%
3.63%
2.05%
Transaction in own shares
During the year, the Group did not purchase any of its own ordinary shares.
During the year no share option exercises were satisfied using treasury shares.
The maximum number of shares held in treasury at any time during the year was 1,491,219, which had a cost value of
£620,182. The current number of shares held in treasury is 1,491,219.
Health, Safety and Environmental Policies
The Group recognises and accepts its responsibilities for health, safety and the environment (H,S&E) and has a
dedicated team, which provides advice and support in this area. The team members regularly attend external H,S&E
courses and internal reviews are performed on a regular basis to ensure compliance with best practice and all relevant
legislation.
Anti-slavery and Human Trafficking
Pursuant to Section 54 of the Modern Slavery Act 2015, the Group has published a Slavery and Human Trafficking
Statement for the year ended 31 October 2018. The Statement sets out the steps that the Group has taken to address
the risk of slavery and human trafficking occurring within its own operations and its supply chains. This statement can
be found on the Group’s corporate website: https://www.idoxgroup.com/investors/articles-policies/.
Disabled Employees
Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes and abilities
of the applicant concerned.
In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the
Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career
development and promotion of disabled employees should, as far as possible, be identical with that of other employees.
Employee Consultation
The Group consults employees on appropriate matters via The Group’s Staff Consultation Forum comprising staff
representatives elected to reflect The Group’s business activities. An employee consultation policy is also in place.
Employees are encouraged to present their views and suggestions in respect of the Group’s performance and policies.
In addition, the Group has an intranet, which facilitates faster and more effective communication.
An Employee Share Investment Trust is in place to provide employees with a tax efficient way of investing in the
Company. The Company purchases matching shares, which become the property of the employee after a three year
vesting period.
Financial Risk Management Objectives and Policies
The Group uses various financial instruments which include cash, equity investments, bank loans and items such as
trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments
is to provide finance for the Group’s operations.
17
Directors’ Report (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Financial Risk Management Objectives and Policies (continued)
The main risks arising from the Group’s financial instruments are credit risk, liquidity risk, exchange rate risk, price risk
and interest rate risk. The Directors review these risks on an ongoing basis. This policy has remained unchanged from
previous years. Further information on financial risk management is disclosed in note 23 of the Group accounts.
Credit Risk
The Group’s principal financial assets are cash and trade receivables. The credit risk associated with cash is limited as
the counterparties have high credit ratings assigned by international credit-rating agencies. The principal credit risk
arises therefore from its trade receivables.
In order to manage credit risk, the management review the debt ageing on an ongoing basis, together with the collection
history and third-party credit references where appropriate.
Liquidity Risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs through
cash management and availability of borrowing facilities and by investing cash assets safely and profitably.
Exchange Rate Risk
The Group monitors its exposure to exchange rate risk on an ongoing basis. The Group has limited exposure to foreign
exchange risk as a result of natural hedges arising between sales and cost transactions.
Cash Flow and Interest Rate Risk
The Group’s bank borrowings bear interest at rates linked to LIBOR. On a quarterly basis, the Board reviews the LIBOR
rate and discuss whether it is considered necessary to set up hedges to protect against interest rate movements.
Going Concern
The Directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate
resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered
the Group’s budget, cash flow forecasts, available banking facility with appropriate headroom in facilities and financial
covenants and levels of recurring revenue.
It was announced on 29 January 2019 that the Group had extended its existing banking arrangements with the Royal
Bank of Scotland plc and Silicon Valley Bank until 25 February 2020. The Group anticipates it will still have a net debt
position at the point of expiry of the current facilities and therefore expects to enter negotiations to extend the facility in
the coming year. Given the improvements in the business, the Group expects to be in a strong position to secure
financing on a longer-term basis that is commensurate with its target capital structure, and has no reason to believe
this will not be completed.
Auditor
A resolution to reappoint an Auditor and to authorise the Directors to agree their remuneration will be placed before the
forthcoming Annual General Meeting of the Company.
By order of the Board
Rob Grubb
Chief Financial Officer
20 February 2019
18
Corporate Governance Report (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Nomination and Remuneration Committee
For FY2018 the Nomination and Remuneration Committee comprised the Chair and three Non-Executive Directors. It
was chaired by Peter Lilley until his departure from the Board in April 2018. The Committee did not meet between April
and October 2018.
The Company’s remuneration policies and the application of these policies to the Board and Senior Management Team
during the year are set out in the sections below.
In November 2018 the Board decided to separate the activities of the Nomination and Remuneration Committee. This
followed changes in Board membership and a review of the Company’s governance arrangements. The Nomination
Committee was formed with Oliver Scott as Chair, and all other Non-Executive Directors as members. The
Remuneration Committee was formed with Barbara Moorhouse as Chair and all other Non-Executive Directors as
members. New Terms of Reference were agreed for both committees. The changes to both committees were approved
at the Board meeting in December 2018.
At the 12 December meeting, the Remuneration Committee reviewed existing documentation relating to remuneration
arrangements across the Company. From that review it became apparent that there were outstanding issues on a
number of remuneration matters. The most significant of these was the finalisation of the remuneration arrangements
for the CEO, David Meaden, who was appointed in June 2018. Having taken legal and other professional advice, the
Remuneration Committee accepted that correspondence in mid 2018 on the structure of the CEO incentive plan limited
the Remuneration Committee’s discretion over future remuneration arrangements. This is reflected in the approved
bonus and share arrangements for the CEO, which will be finalised in February 2019 and reported in the 2018/19
accounts.
The financial impact of the CEO remuneration arrangements are as follows:
1. 2018 Bonus: the CEO is entitled to a discretionary £250,000 annual bonus. For 5 months, the pro rate
maximum award is £104,166. Payment was agreed at 80%, a sum of £83,333. This bonus earned in respect
of the year ending 31 October 2018 is shown in the Directors’ Remuneration table below in line with best
practice.
2. Short term (STIP) and long term incentive plan (LTIP) for the CEO: The STIP and LTIP agreed with the CEO
on his appointment will be finalised in 2019 and will be accounted for under IFRS 2 (Share based payments)
from the FY2019 accounting period onwards. Under the proposed LTIP, subject to the CEO acquiring
£100,000 of Company shares, a nominal cost option over Company shares with a value of up to 12 times this
investment (i.e. up to £1.2m) will be granted. Under the proposed STIP, the CEO will be entitled to a bonus
payment on the sale of the entire issued share capital of the Company. The bonus payment is based on
specified threshold share price targets being achieved on a sale of the Company (which are considered to be
commercially sensitive) and has a minimum guaranteed payment of £1.2m. The fair value of the STIP and
LTIP award will be recognised over the vesting period.
The STIP and LTIP awards for the CEO and other participants in the Company LTIP will be reported in the FY2019
Accounts.
Remuneration Policy
The policy of the Group is to set levels of remuneration to attract, retain and motivate Executive Directors and other
key senior staff. The packages are designed to be competitive in value to those offered to the Directors of similar sized
public companies in related sectors. It is the Board's policy to align the long-term interests of managers with those of
our shareholders in the granting of options and other equity awards.
The components of the Executive Directors’ remuneration packages are currently a basic salary, bonus, money
purchase pension contributions and benefits in kind. The benefits include car allowance, private medical cover, life
cover and critical illness cover. The bonus elements are dependent on the Executive Directors achieving performance
criteria set out by the Nomination and Remuneration Committee. In addition, the Group operates a Performance Share
Plan for the Executive Directors.
19
Corporate Governance Report (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Directors’ Remuneration
2018
Executive Directors
Andrew Riley (resigned 1 March 2018)
Richard Kellett-Clarke
(13 December 2017 - 1 June 2018)
Jane Mackie (resigned 30 August 2018)
David Meaden (appointed 1 June 2018)
Non-Executive Directors
Laurence Vaughan** (resigned 19 November 2018)
Richard Kellett-Clarke (1 November - 13 December
2018 and 1 June 2018 onwards)
Peter Lilley (resigned 19 April 2018)
Jeremy Millard
Barbara Moorhouse
2017
Executive Directors
Andrew Riley
Jane Mackie
Non-Executive Directors
Laurence Vaughan**
Richard Kellett-Clarke
Peter Lilley
Jeremy Millard
Barbara Moorhouse
Basic
salary
and fees
2018
£000
Bonus*
2018
£000
Benefits
in kind
2018
£000
Total
2018
£000
Pension
2018
£000
199
165
146
140
105
19
16
35
35
860
-
-
-
83
-
-
-
-
-
83
3
1
8
8
-
-
-
-
-
20
202
166
154
231
105
19
16
35
35
963
2
-
10
-
-
-
-
1
-
13
Basic
salary
and fees
2017
£000
Bonus*
2017
£000
Benefits
in kind
2017
£000
Total
2017
£000
Pension
2017
£000
260
175
105
42
35
35
35
687
105
70
-
179
-
-
-
354
12
10
-
1
-
-
-
23
377
255
105
222
35
35
35
1,064
6
14
-
-
-
1
-
21
*
**
Bonus payments disclosed related to prior year performance due to the timing of award.
Chairman
The amounts in respect of pension represent money purchase pension contributions.
Non-Executive Directors
The Board reviews the remuneration of the Chairman and Non-Executive Directors on a regular basis.
Service Contracts
The Executive Directors have entered into service contracts with the Group that are terminable by either party on no
less than six months prior notice.
Share Options
The Directors believe it is important to incentivise key management and employees.
The following options have been granted to the Directors over ordinary 1p shares in the Company:
20
Corporate Governance Report (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Director
Richard
Kellett-Clarke
Richard
Kellett-Clarke
Peter Lilley
Peter Lilley
Andrew Riley
Totals
At start
of year
Exercised
Lapsed
At end of
year
Exercise
price
Exercise
date from
Exercise
date to
800,000
-
1,900,000
243,902
250,000
1,700,000
(1,900,000)
(243,902)
(250,000)
-
-
-
-
(1,700,000)
800,000
38.38p
Feb 2015
Feb 2025
-
-
-
-
1p
10.25p
20p
1p
Mar 2015
Mar 2010
Mar 2011
Mar 2015
Mar 2018
Mar 2020
Mar 2021
Mar 2018
4,893,902
(2,393,902)
(1,700,000)
800,000
The mid-market price of the Company’s shares at close of business on 31 October 2018 was 33.00p and the low and
high share prices during the year were 26.50p and 66.00p, respectively.
The Company recognised total expenses of £50,000 (2017: £324,000) related to equity-settled, share-based payment
transactions during the year. Of the total recognised, expenses of £50,000 (2017: £324,000) related to equity-settled,
share-based payment transactions during the year, of which £44,000 (2017: £178,000) related to the LTIP share option
scheme.
The pre-tax aggregate gain on exercise of share options during the year was £628,623 (2017: £3,200,747).
Note 25 of the Group accounts contains full disclosure of the Company’s share options.
Directors’ Share Interests
The Directors’ shareholdings in the Company are listed in the Directors’ Report on page 16.
Corporate Governance
Idox plc has adopted the QCA Corporate Governance Code (the “Code”) on a comply or explain basis. Further
Information on that can be found within the Compliance Statement published on our website:
https://www.idoxgroup.com/media/2232/idox-plc-statement-of-compliance-with-the-corporate-governance-code.pdf.
Where Idox chooses not to comply with the Code it will explain such choices in the context of the business.
Board of Directors
Subject to the Articles of Association, UK legislation and any directions given by special resolution, the business of the
Group is managed by the Board. The Code requires the Group to have an effective Board whose role is to develop
strategy and provide leadership to the Group as a whole. It sets out a framework of controls that allows for the
identification, assessment and management of risk. Additionally, it ensures the Board takes collective responsibility for
the success of the Group.
The Board’s main roles are to provide leadership to the management of the Group, determine the Group’s strategy and
ensure that the agreed strategy is implemented. The Board takes responsibility for approving potential acquisitions and
disposals, major capital expenditure items, disposals, annual budgets, annual reports, interim statements and Group
financing matters.
The Board appoints its members and those of its principal Committees following the recommendations of the
Nomination Committee. The Board reviews the financial performance and operation of the Group’s businesses. The
Board regularly reviews the identification, evaluation and management of the principal risks faced by the Group, and
the effectiveness of the Group’s system of internal control.
The Board considers the appropriateness of its accounting policies on an annual basis. The Board believes that its
accounting policies, in particular in relation to income recognition and research and development, are appropriate and
are advised on its Auditors on future changes to such accounting policies. In the coming financial year, the business
will be adopting IFRS15.
21
Corporate Governance Report (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Financial results with comparisons to budget and forecast results are reported to the Board on a regular basis, together
with a commercial report on operational issues. Significant variances from budget or strategy are discussed at Board
meetings and actions set in place to address them.
Board and committee meetings are scheduled in line with the financial calendar of the Group. The timing of meetings
ensures the latest operating data is available for review and that appropriate time and focus can be given to matters
under consideration. The Board met nine times throughout the year for principal Board meetings to discuss a formal
schedule of business. The Board is supported by an Executive team, and is supported by qualified executive and senior
management teams.
Role of Chairman and Chief Executive Officer
The Code requires that there should be a clear division of responsibilities between the running of the Board and the
executive responsible for the Group’s business, so as to ensure that no one person has unrestricted powers of decision.
The Chairman is responsible for the leadership of the Board, ensuring its effectiveness and setting its agenda. Once
strategic and financial objectives have been agreed by the Board, it is the CEO’s responsibility to ensure they are
delivered upon.
To facilitate this, the CEO regularly meets the executive management team (‘EMT’) which additionally comprises
business division directors and senior members of the management team. The day to day operations of the Group are
managed by the EMT.
Composition of and Appointments to the Board
The Code requires that there should be a balance of Executive and Non-Executive Directors and when appointing new
Directors to the Board, there should be a formal, rigorous and transparent procedure.
The Board comprises the Non-Executive Chairman, the CEO, the CFO and four Non-Executive Directors. Richard
Kellett-Clarke had been acting as Interim Chief Executive Officer since December 2017 and reverted to Non-Executive
Director on 1 June 2018. Short biographies of the Directors are given on page 15.
The Board considers Chris Stone, Jeremy Millard and Barbara Moorhouse as independent. Richard Kellett-Clarke is
not considered independent as he served on the on the Board for over 10 years, including in a previous Executive
capacity, and has a significant personal shareholding. Oliver Scott is not considered independent as he represents
Kestrel LLP, a major shareholder.
The Board is satisfied with the balance between Executive and Non-Executive Directors and will continue to review this
position in the coming years. The Board considers that its composition is appropriate in view of the size and
requirements of the Group’s business and the need to maintain a practical balance between Executive and Non-
Executive Directors.
Each member of the Board brings different skills and experience to the Board and the Board Committees. The Board
is satisfied that there is sufficient diversity in the Board structure to bring a balance of skills, experience, independence
and knowledge to the Group.
The Code requires that the Board undertakes a formal and rigorous annual evaluation of its own performance and
that of its Committees and Directors. Following the changes to the Board in November 2018, the Non-Executive
Chairman has been working with each Non-Executive Director to assess their individual contribution to assess that
their contribution is relevant and effective, they have sufficient time to commit to the role, and where relevant, they
have maintained their independence. Over the next 12 months the Chairman intends formally review the performance
of the individual Directors, and their functioning as a team to ensure that the members of the board collectively
function in an efficient and productive manner.
The Board continues to annually review its composition, to ensure there is adequate diversity to allow for its proper
functioning and that the Board works effectively together as a unit.
When a new appointment to the Board is made, consideration is given to the particular skills, knowledge and experience
that a potential new member could add to the existing Board composition. The Nomination Committee may elect to
22
Corporate Governance Report (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
engage external recruitment agencies, with appropriate consideration being given, in regard to Executive appointments,
to internal and external candidates. Before undertaking the appointment of a Non-Executive Director, the Chairman
establishes that the prospective Director can give the time and commitment necessary to fulfil their duties, in terms of
availability both to prepare for and attend meetings and to discuss matters at other times.
Board Committees
The Audit Committee has been established to look after specific areas of the Board’s responsibilities. The Audit
Committee is chaired by Jeremy Millard and at present includes Chris Stone, Oliver Scott, Barbara Moorhouse and
Richard Kellett-Clarke. Richard Kellett-Clarke was a member of the Audit Committee until December 2017 when he
was appointed as Interim Chief Executive Officer and resumed his role on 1 June 2018. The Report of the Audit
Committee can be found on pages 27 to 29.
In December 2018 the Board established two seperate Committees to replace the previous Nomination and
Remuneration Committee, chaired by Peter Lilley until April 2018.
The Remuneration Committee is chaired by Barbara Moorhouse and includes Chris Stone, Oliver Scott, Jeremy Millard
and Richard Kellett-Clarke. Richard Kellett-Clarke was a member of the Nomination and Remuneration Committee until
December 2017 when he was appointed as Interim Chief Executive Officer and resumed his role on 1 June 2018.
The Committee has overall responsibility for making recommendations to the Board of the remuneration packages of
the Executive Directors. The Committee’s key responsibilities include:
• making recommendations to the Board on any changes to service contracts;
•
•
•
approving and overseeing any share related incentive schemes within the Group;
ensuring that remuneration is in line with current industry practice; and
ensuring remuneration is both appropriate to the level of responsibility and adequate to attract and/or retain
Directors and staff of the calibre required by the Group;
The Nomination Committee is chaired by Oliver Scott and includes Chris Stone, Barbara Moorhouse, Jeremy Millard
and Richard Kellett-Clarke. Richard Kellett-Clarke was a member of the Nomination and Remuneration Committee until
December 2017 when he was appointed as Interim Chief Executive Officer and resumed his role on 1 June 2018.
The Committee has overall responsibility for making recommendations to the Board of the composition of the Board.
The Committee’s key responsibilities include:
•
•
•
•
reviewing the size, composition and structure required of the Board and making recommendations to the Board
with regard to any changes;
identifying and nominating, for approval by the Board, candidates to fill Board vacancies as they arise;
giving full consideration to succession planning for Directors; and
vetting and approving recommendations from the executive directors for the appointment of senior executives.
The Audit Committee met four times in the year and the Nominations and Remuneration Committee met three times.
Re-election
Under the Code, Directors should offer themselves for re-election at regular intervals. Additionally, under the Group’s
Articles of Association, at least one third of the Directors who are subject to retirement by rotation are required to retire
and may be proposed for re-election at each Annual General Meeting. New Directors, who were not appointed at the
previous Annual General Meeting, automatically retire at their first Annual General Meeting and if eligible, can seek re-
appointment.
Barbara Moorhouse will retire from office at the Group’s forthcoming Annual General Meeting and not seek re-
appointment. Jeremy Millard will retire by rotation and seek re-election.
23
Corporate Governance Report (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
The new directors appointed since the last AGM, David Meaden, Rob Grubb, Oliver Scott and Chris Stone will all
automatically retire at the Annual General Meeting and will seek re-appointment.
Internal Control
The Board takes responsibility for establishing and maintaining reliable systems of control in all areas of operation.
These systems of control, especially of financial control, can only provide reasonable but not absolute assurance
against material misstatement or loss.
The key matters relating to the system of internal control are set out below:
•
•
•
•
•
Idox has established an operational management structure with clearly defined responsibilities and regular
performance reviews;
the Group operates a comprehensive system for reporting financial and non-financial information to the Board,
including review of strategy plans and annual budgets;
financial results are monitored against budgets, forecasts and other performance indicators with action
dictated accordingly at each meeting;
a structured approval process based on assessment of risk and value delivered; and
sufficient resource is focused to maintain and develop internal control procedures and information systems,
especially in financial management.
The Board considers that there have been improvements in internal financial controls that have reduced the risk of
material losses, contingencies or uncertainties that need to be disclosed in the accounts particularly in respect to sales
governance.
The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced
by the Group, and that this process has been in place for the year under review and up to the date of approval of the
Annual Report and Accounts. This process is regularly reviewed by the Board.
Information and Development
The Code requires that the Board should be supplied in a timely manner with information in a form and of a quality
appropriate to enable it to discharge its duties.
The Chairman is responsible for ensuring that all the Directors continually update their skills, knowledge and familiarity
with the Group in order to fulfil their role on the Board and the Board’s Committees. Updates dealing with changes in
legislation and regulation relevant to the Group’s business are provided to the Board by external advisors, the CFO
and in-house legal advisors.
All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for
ensuring its procedures, are properly complied with and that the discussions and decisions are appropriately minuted.
Directors may seek independent professional advice at the Group’s expense in furtherance of their duties as Directors.
Training on matters relevant to their role is available to all Board Directors. New Directors are provided with an induction
in order to introduce them to the operations and management of the business.
Investor Relations
Idox is committed to open communication with all its shareholders. The Directors hold regular meetings with institutional
shareholders to discuss and review the Group’s activities and objectives. Communication with private shareholders is
principally through the Annual General Meeting, where participation is encouraged and where the Board is available to
answer questions. Idox maintains up-to-date information on the Investor Relations section of its website
www.idoxplc.com.
24
Corporate Governance Report (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
The CEO and CFO meet institutional investors after publication of the annual and interim results, on an ongoing basis
as required.
The Directors also undertake consultation on certain matters with major shareholders from time to time. Through these
consultations, the Group maintains a regular dialogue with institutional shareholders. Feedback is reported to the Board
so that all Directors develop an understanding of the views of major shareholders.
Trading updates and press releases are issued as appropriate and the Group’s NOMAD provide briefings on
shareholder opinion and compile independent feedback from investor meetings. The Annual General Meeting is used
by the Directors to communicate with both institutional and private investors.
Every shareholder has access to a full annual report each year end and an interim report at the half year end. Care is
taken to ensure that any price sensitive information is released to all shareholders, institutional and private, at the same
time in accordance with London Stock Exchange requirements.
Idox strives to give a full, timely and realistic assessment of its business in all price-sensitive reports.
AIM Rule Compliance Report
Idox is quoted on AIM, London Stock Exchange’s international market for smaller growing companies. Idox complies
with the AIM Rules, in particular AIM Rule 31 which requires the following:
•
•
•
•
•
sufficient procedures, resources and controls to enable its compliance with the AIM Rules;
seek advice from Nominated Adviser (“Nomad”) regarding its compliance with the Rules whenever appropriate
and take that advice into account;
provide the Nomad with any information it reasonably requests in order for the Nomad to carry out its
responsibilities under the AIM Rules for Nominated Advisers, including any proposed changes to the Board
and provision of draft notifications in advance;
ensure that each of the Directors accepts full responsibility, collectively and individually, for compliance with
the AIM rules; and
ensure that each Director discloses without delay all information which the Group needs in order to comply
with AIM Rule 17 (Disclosure of Miscellaneous Information) insofar as that information is known to the Director
or could with reasonable diligence be ascertained by the Director.
25
Directors’ Responsibilities Statement
For the year ended 31 October 2018
__________________________________________________________________________________
Directors’ Responsibilities Statement
The Directors are responsible for preparing the Annual Report and Accounts and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors
have to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent Company
financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law), including FRS 101 “Reduced Disclosure Framework.
Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs and profit or loss of the Group and Company for that period.
In preparing the parent 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 applicable UK Accounting Standards have been followed, subject to any material departures
disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Company will continue in business.
•
In preparing the group financial statements, International Accounting Standard 1 requires that directors:
•
•
•
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable
and understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to
enable users to understand the impact of particular transactions, other events and conditions on the entity's
financial position and financial performance; and
• make an assessment of the company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of 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 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 Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors confirm that:
•
•
•
the financial statements, prepared in accordance with the relevant financial reporting framework, give a true
and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings
included in the consolidation taken as a whole;
the strategic report includes a fair review of the development and performance of the business and the position
of the company and the undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face; and
the annual report and financial statements, taken as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to assess the company’s position and performance,
business model and strategy.
This responsibility statement was approved by the board of directors on 20 February 2019 and is signed on its behalf
by:
David Meaden
Chief Executive Officer
Rob Grubb
Chief Financial Officer
26
Report of the Audit Committee
For the year ended 31 October 2018
__________________________________________________________________________________
Overview
This report details the activities of the Committee during the financial year ended 31 October 2018. The report sets out
how the Committee has discharged its responsibilities in relation to internal control and risk management.
Membership and Meetings
The Audit Committee is a committee of the Board and is comprised of five Non-Executive Directors: Jeremy Millard,
Chris Stone, Oliver Scott, Barbara Moorhouse and Richard Kellett-Clarke. Richard Kellett-Clarke was a member of the
Audit Committee until December 2017 when he was appointed as Interim Chief Executive Officer and resumed his role
on 1 June 2018.
The Audit Committee is chaired by Jeremy Millard. By virtue of his executive and current non-executive responsibilities,
the Board considers that Jeremy Millard has relevant and recent financial experience to discharge this role.
The Audit Committee invites the Executive Directors, the Auditor and other senior managers to attend its meetings as
appropriate. The Company Secretary is also the Secretary of the Audit Committee.
The Audit Committee is considered to have sufficient, recent and relevant financial experience to discharge its
functions. The Committee carries out its duties for Idox plc, its major subsidiary undertakings and the Group as a whole
as appropriate.
During the period under review, the Audit Committee held four scheduled meetings. The Group’s Auditor has a standing
invitation to attend meeting and representatives were in attendance at all of the four scheduled meetings. The Executive
Directors were welcome to attend the meetings and were in attendance at all meetings of the Audit Committee in the
year.
Roles and Responsibilities
The Audit Committee has a wide remit and its key functions include reviewing and advising the Board on:
•
•
•
•
•
•
•
•
•
the integrity of the financial statements of the Group, including its annual and interim reports, preliminary results
announcements and any other formal announcement relating to its financial performance, reviewing significant
financial reporting issues and judgements which they contain;
the appointment and remuneration of the Auditor and their effectiveness in line with the requirements of the
Code;
the nature and extent of non-audit services provided by the Auditor to ensure that their independence and
objectivity are maintained;
changes to accounting policies and procedures;
decisions of judgement affecting financial reporting, compliance with accounting standards and with the
Companies Act 2006;
internal control and risk management processes, including principal risks and internal control findings
highlighted by management or internal and external audit;
the content of the Auditor’s transparency report, concerning Auditor independence in providing both audit and
non-audit services;
the scope, performance and effectiveness other internal control functions and the Auditor’s assessment thereon;
and
the Group’s procedures for responding to any allegations made by whistleblowers.
The Audit Committee considers and reviews non-audit services provided by the Auditor, and this is tabled bi-annually
at Board for discussion.
The Audit Committee reports to the Board on the effectiveness of the Auditor and receives information from the
Executive team in this regard. The Audit Committee and Board also consider the appointment of the Auditor annually
prior to recommending the appointment of the Auditor at the Idox Annual General Meeting.
27
Report of the Audit Committee (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Audit Committee Activities in the Financial Year Ended 2018
The Committee met four times during the financial year ended 31 October 2018. In addition to standing items on the
agenda, the Committee:
• Received and considered, as part of the review of interim and annual financial statements, reports from the
Auditor in respect of the Auditor’s review of the interim results, the audit plan for the year and the results of
the annual audit. These reports included the scope of the interim review and annual audit, the approach to be
adopted by the Auditor to address and conclude upon key estimates and other key audit areas, the basis on
which the Auditor assesses materiality, the terms of engagement for the Auditor and an on-going assessment
of the impact of future accounting developments for the Group.
• Considered the Annual Report and Accounts in the context of being fair, balanced and understandable.
• Considered the effectiveness and independence of the external audit.
• Considered the review of business reporting segments in line with the guidance from our Auditors in respect
of identifiable cash generating units.
• Considered the likely impact of IFRS 15 on the results of the Group.
• Ran the audit tender process.
• Considered the key audit matters from the Extended Audit Report.
Independence and Objectivity of the Auditor
The Committee continues to monitor the work of the Auditor to ensure that the Auditor’s objectivity and independence
is not compromised by it undertaking inappropriate non-audit work. The current auditor, Deloitte LLP, was appointed
on 19 June 2018.
Auditor objectivity was safeguarded by the Committee considering several factors:
•
•
•
the change in the audit team including a new audit partner in the year ended 31 October 2018;
an appraisal of the standing and experience of the audit partner; and
the nature and level of services provided by the Auditor and confirmation from the Auditor that they have
complied with relevant UK independence standards and fully considered any threats and safeguards in the
performance of non-audit work.
Non-audit Fees
The Committee approves all non-audit work commissioned from the external auditors. During the year the fees paid to
the Auditor were £190,000 (2017: £399,000) for Group and subsidiary audit services, £67,000 (2017: £33,000) for
interim audit services, and £224,000 (2017: £65,000) for non-audit services.
The majority of the other non-audit services provided by the Auditor were in respect of advising on tax and corporate
finance arrangements. The Committee concluded that it was in the interests of the Group to use the Auditor for this
work as they were considered to be best placed to provide these services.
Impact of IFRS 15: Revenue from Contracts and Customers
During the year the Audit Committee has focused on the impact of the new accounting standard IFRS 15: Revenue
from Contracts with Customers.
The Group will adopt IFRS 15 on 1 November 2018 and will apply the standard on a cumulative effect basis. During
the year ended 31 October 2018, the Group has undertaken a review of all the services and products the Group
provides and the main types of commercial arrangements used with each service and product. Both the UK and the
overseas businesses will be impacted by IFRS 15 and the most significant impact of implementing the standard is that
Software license revenue will now be recognised over the duration of the project implementation period on a percentage
completion basis. Further details on the changes to the accounting policy and the impact of the adoption of IFRS 15
are included in the Notes to the Accounts.
28
Report of the Audit Committee (continued)
For the year ended 31 October 2018
__________________________________________________________________________________
Other Matters
The Committee is authorised to seek any information it requires from any Group employee in order to perform its duties.
The Committee can obtain, at the Group’s expense, outside legal or other professional advice on any matters within its
terms of reference.
The Committee may call any member of staff to be questioned at a meeting of the Committee as and when required.
Reporting Responsibilities
The Committee makes whatever recommendations to the Board it deems appropriate on any area within its remit where
action or improvement is required.
The Committee ensures that it gives due consideration to laws and regulations, the provisions of the Combined Code,
the requirements of the UK Listing Authority's Listing Rules, Prospectus and Disclosure and Transparency Rules and
any other applicable rules as appropriate. The Committee also oversees any investigation of activities which are within
its terms of reference.
The Audit Committee operates within agreed terms of reference; these can be found on the Group’s website.
Jeremy Millard
Chairman of the Audit Committee
20 February 2019
29
Independent Auditor's Report to the Members of Idox plc
For the year ended 31 October 2018
__________________________________________________________________________________
Report on the audit of the financial statements
Qualified Opinion
In our opinion, except for the effects of the matter described in the basis for qualified
opinion section of our report, the financial statements of Idox plc (the ‘parent
company’) and its subsidiaries (the ‘group’):
•
give a true and fair view of the state of the group’s and of the parent company’s
affairs as at 31 October 2018 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European
Union;
the parent company financial statements have been properly prepared in
accordance with United Kingdom Generally Accepted Accounting Practice,
including Financial Reporting Standard 101 “Reduced Disclosure Framework”;
and
the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
•
•
•
We have audited the financial statements which comprise:
•
•
•
•
•
the consolidated statement of comprehensive income;
the consolidated and parent company balance sheets;
the consolidated and parent company statements of changes in equity;
the consolidated cash flow statement; and
the related notes 1 to 31 to the Group accounts, and the related notes 1 to 15 to the
parent company accounts.
The financial reporting framework that has been applied in the preparation of the group financial
statements is applicable law and IFRSs as adopted by the European Union. The financial
reporting framework that has been applied in the preparation of the parent company financial
statements is applicable law and United Kingdom Accounting Standards, including FRS 101
“Reduced Disclosure Framework”.
Basis for qualified opinion
The audit opinion for the year ended 31 October 2017 was qualified as the previous auditor was
unable to obtain sufficient appropriate evidence in respect of: revenue of £7.6m for the year
then ended, deferred income of £4.3m as at 31 October 2017 and consolidated net liabilities of
£0.2m as at 31 October 2017. These balances were all within the acquired sub-group headed by
6pm Holdings plc.
This qualification arose because the acquired group had a history of poor record keeping until it
was fully integrated into the Idox plc Group from July 2017.
Had a review of these records been possible, matters might have come to the previous auditor’s
attention indicating that adjustments might be necessary to the financial information at 31
October 2017. Any such adjustments would have a consequential impact on the financial
information for the period ended 31 October 2018 and therefore our opinion for the period ended
31 October 2018 is also qualified in respect of these matters.
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.
30
Independent Auditor's Report to the Members of Idox plc
For the year ended 31 October 2018
__________________________________________________________________________________
We are independent of the group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the
Financial Reporting Council’s (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
qualified opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
•
•
the valuation of goodwill and intangibles;
the cut-off of both product and service revenue and the
occurrence and accuracy of service revenue.
Materiality
The materiality that we used for the group financial statements was
£415,000, which was determined using a blended benchmark being an
average of 3% of EBITDA, 0.8% of Revenue and 5% of income before
tax.
Scoping
Our audit covered 100% of the Group’s total revenue, EBITDA, loss
before tax and total assets.
Conclusions relating to going concern
•
We are required by ISAs (UK) to report in respect of the following
matters where:
•
the directors’ use of the going concern basis of accounting
in 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.
We have nothing to
report in respect of these
matters.
31
Independent Auditor's Report to the Members of Idox plc
For the year ended 31 October 2018
__________________________________________________________________________________
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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) that we
identified. These matters included 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.
Goodwill and intangible asset valuation
Key audit matter
description
The company has goodwill of £45.9m and intangibles of £32.9m as at 31
October 2018. The intangibles comprise customer relationships (£13.3m),
trade names (£4.7m), software (£6m), development costs (£8.8m) and
order backlog (£0.1m).
Judgement is required by the directors as to whether the goodwill and
intangibles balance should be impaired based on the financial position and
future prospects of the company. This takes into consideration a wide
range of factors such as the trading performance, the expected future cash
flows and discount rates.
Our key audit matter is focused around the most sensitive and
judgemental assumptions, being the forecast cash flows in management’s
assessment and the discount rate applied.
During the year, the following divisions have been impaired as a result of
management’s impairment review: Public Sector Software (Transport)
£6.1m, Digital £6.3m, Engineering Information Management £1.8m and
Health £25.4m.
Further details are included within the strategic report on pages 1 to 14,
the audit committee report on pages 27 to 29, and critical accounting
estimates and judgements in note 1 to the financial statements.
How the scope of
our audit
responded to the
key audit matter
The audit procedures we performed in respect of this matter included:
• Assessed the design and implementation of key controls to
monitor the budgeting process and the discount rate;
• Challenged management’s assessment of the cash flow
assumptions in determining value in use (including sensitivity
analysis and third party evidence where available and comparison
to historical forecasts and actual result);
• Agreed cash flow forecasts to board approved budgets including
net working capital and capex;
• Assessed historical forecasting and budgeting accuracy;
•
Performed sensitivity analysis on key assumptions based on
comparison to readily available economic and industry data; and
32
Independent Auditor's Report to the Members of Idox plc
For the year ended 31 October 2018
__________________________________________________________________________________
• Worked with our valuations specialist to perform a review of the
discount rate applied.
Key observations
We considered that management’s assumptions were reasonable and that
the valuation was appropriate.
We did not identify any additional impairment.
Revenue recognition
Key audit matter
description
The company generated £73.6m of revenues from total operations during
the period across the following segments: Public Sector Software
(£34.3m), Engineering Information Management (£10m), Content
(£13.6m), Digital (£6.4m) and Health (£9.3m). Of this revenue £6.2m was
from discontinued operations. Within each of these segments revenue is
generated from the sale of goods (£17.4m), being software, hardware and
consumables, and also the rendering of services (£56.2m).
Each stream has its own revenue recognition policies based on the nature
of the revenue and underlying contractual arrangements. Management
judgement is required around the degree to which revenue has been
earned as at the year-end date.
Our key audit matter has been pinpointed to the cut-off of product and
service revenue and the occurrence and accuracy of service revenue.
Given the material nature of product revenue, and the difficulties in
ascertaining date of delivery, there is a risk that this revenue could be
recorded in the incorrect period leading to a material misstatement.
Recognition of service revenue relies upon management judgement of the
stage of completion of a project at the period end. There is therefore a risk
that revenue does not relate to the current financial period and the
valuation of associated amounts on the balance sheet is incorrect.
Existence and valuation, and allocation of the deferred and accrued
income balances are therefore an associated key audit matter.
Following the issues identified through the course of the prior year audit,
management performed a detailed review of revenue booked across the
business. The review focused on accrued income and debtor balances held
post 31 October 2017.
As a result of this review management have identified £3m of revenue that
was incorrectly recognised in FY17. This comprises revenue that either:
should not have been recognised at all,
•
• was recognised in the incorrect period, or
•
related to a contract that was subsequently cancelled by the
customer.
This has been presented as a prior year adjustment within the annual
report.
Further details are included within the strategic report on pages 1 to 14,
the audit committee report on pages 27 to 29, and critical accounting
33
Independent Auditor's Report to the Members of Idox plc
For the year ended 31 October 2018
__________________________________________________________________________________
How the scope of
our audit
responded to the
key audit matter
estimates and judgements in note 1 to the financial statements.
The audit procedures we performed in respect of this matter included:
• Assessed the design & implementation and operating effectiveness
of key controls to monitor the recognition of service and product
revenue;
• Reviewed the company’s revenue recognition policies with
•
reference to the underlying contract terms and the requirements
of IAS 18;
Tested a sample of service revenue by tracing to invoice, customer
purchase order and payment. This included a sample of the
corresponding accrued income, deferred income and debtor
balances;
• Tested a cut-off sample for service and product revenue by tracing
to invoice and evidence of product or service delivery; and
• Reviewed the prior year restatement to assess whether it was
complete and accurate.
Key observations
We considered that the recognition policies were appropriate. No material
errors were noted from this work.
34
Independent Auditor's Report to the Members of Idox plc
For the year ended 31 October 2018
__________________________________________________________________________________
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment
through discussions with finance, IT and commercial teams and performing walkthroughs of
processes across these areas, including Group wide controls, and assessing the risks of material
misstatement at a Group level.
The group operates globally with material revenues being generated in the United Kingdom, the
United States of America, Europe and Australia. Revenues are split across the following
segments: Public Sector Software, Engineering Information Management, Content, Digital and
Health.
On a legal entity basis, the significant components to the Group are Idox Plc, Idox Software Ltd,
McLaren Software Ltd, McLaren Software Inc and 6pm Holdings Ltd.
All significant components were subject to a full scope audit by the group audit team. These
components represent 82% of the Group’s revenue, 86% of the Group’s EBITDA and 86% of the
Group’s total assets.
All non-significant components were subject to analytical review by the group audit team, with
the exception of Idox Germany GmbH, over which specified audit procedures were performed.
Our audit work on components was executed at levels of materiality applicable to each individual
entity, which were lower than Group materiality.
At the parent entity level, we also tested the consolidation process.
6%
12%
3%
11%
13%
1%
Revenue
EBITDA
Total assets
82%
86%
86%
Full audit scope
Full audit scope
Full audit scope
Specified audit procedures
Specified audit procedures
Specified audit procedures
Review at group level
Review at group level
Review at group level
35
Independent Auditor's Report to the Members of Idox plc
For the year ended 31 October 2018
__________________________________________________________________________________
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it
probable that the economic decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our audit work and in evaluating the
results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a
whole as follows:
Group financial statements
Parent company financial
statements
Materiality
£415,000
£166,000
Basis for
determining
materiality
We have determined using a blended
benchmark being an average of 3% of
EBITDA, 0.8% of Revenue and 5% of
income before tax.
Rationale
for the
benchmark
applied
We have used this blended benchmark
for our determination of materiality as
we consider these three metrics to be
critical performance measures for the
Group based on their relevance to
analysts and investors and has
substantial prominence in the Annual
Report.
3% of net assets, capped at 40% of
group materiality.
As this is the ultimate holding
company for the group, the key
balances are investments held,
external borrowings and intercompany
balances.
We agreed with the Audit Committee that we would report to the Committee all audit differences
in excess of £12,500, as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that
we identified when assessing the overall presentation of the financial statements.
We have nothing to
report in respect of these
matters.
Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual report
(including the strategic report, corporate governance report, directors’
report, audit committee report and directors’ remuneration report,
directors’ responsibilities statement), 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.
36
Independent Auditor's Report to the Members of Idox plc
For the year ended 31 October 2018
__________________________________________________________________________________
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.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, 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 FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, except for the effects of the matter described in the basis for qualified opinion
section of our report, 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.
•
Except for the effects of the matter described in the basis for qualified opinion section of our
report, in the light of the knowledge and understanding of the group and of the parent company
37
Independent Auditor's Report to the Members of Idox plc
For the year ended 31 October 2018
__________________________________________________________________________________
and their environment obtained in the course of the audit, we have not identified any material
misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
In respect solely of the limitation on our work relating to balances acquired in sub-group headed
by 6pm Holdings plc, described above:
• we have not obtained all the information and explanations that we considered necessary
for the purpose of our audit; and
• we were unable to determine whether adequate accounting records had been kept.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
•
•
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.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors’ remuneration
have not been made.
We have nothing to report
in respect of this matter.
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.
David Mitchell, CA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Glasgow, United Kingdom
20 February 2019
38
Consolidated Statement of Comprehensive Income
For the year ended 31 October 2018
__________________________________________________________________________________
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating (loss) / profit
Analysed as:
Earnings before depreciation, amortisation, restructuring,
acquisition costs, impairment, corporate finance costs and
share option costs
Depreciation
Amortisation
Restructuring costs
Acquisition credit / (costs)
Impairment
Corporate finance costs
Share option costs
Finance income
Finance costs
(Loss) / profit before taxation
Income tax credit / (charge)
(Loss) / profit for the year from continuing operations
Discontinued operations
Loss for the year from discontinued operations
(Loss) / profit for the year
Non-controlling interest
(Loss) / profit for the period attributable to the owners of
the parent
Other comprehensive (loss) / income for the year
Items that will be reclassified subsequently to profit or loss:
Exchange (losses) / gains on translation of foreign operations
Other comprehensive (loss) / income for the year, net of tax
Total comprehensive (loss) / income for the year
attributable to owners of the parent
Earnings per share attributable to owners of the parent
during the year
From continuing operations
Basic
Diluted
From continuing and discontinued operations
Basic
Diluted
Note
2
2
3
3
4
5
25
6
6
8
9
10
10
10
10
2018
£000
67,443
(8,794)
58,649
(86,772)
(28,123)
14,417
(1,106)
(8,213)
(436)
856
(33,255)
(336)
(50)
449
(1,788)
(29,462)
2,481
(26,981)
(9,067)
(36,048)
6
(36,042)
(133)
(133)
(36,175)
(6.53)p
(6.47)p
(8.72)p
(8.65)p
*See note 1 for restatement reconciliation
The accompanying accounting policies and notes form an integral part of these financial statements.
Restated*
2017
£000
73,751
(11,169)
62,582
(58,268)
4,314
16,479
(1,077)
(7,665)
(377)
(8)
(2,681)
(33)
(324)
363
(1,887)
2,790
(670)
2,120
(1,752)
368
(9)
359
192
192
551
0.53p
0.52p
0.09p
0.09p
39
Consolidated Balance Sheet
At 31 October 2018
__________________________________________________________________________________
Note
11
12
13
14
16
16
17
9
18
19
19
20
22
14
19
21
22
24
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investment
Deferred tax assets
Other receivables
Total non-current assets
Current assets
Stock
Trade and other receivables
Current tax
Cash and cash equivalents
Total current assets
Assets classified as held for sale
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Deferred consideration
Other liabilities
Provisions
Current tax
Borrowings
Total current liabilities
Liabilities directly associated with assets
classified as held for sale
Non-current liabilities
Deferred tax liabilities
Other liabilities
Bonds in issue
Borrowings
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Called up share capital
Capital redemption reserve
Share premium account
Treasury reserve
Share option reserve
Other reserves
ESOP trust
Foreign currency translation reserve
Retained earnings
Non-controlling interest
Total equity
2018
£000
1,211
78,787
18
1,107
7,036
88,159
115
26,187
1,084
5,534
32,920
1,114
122,193
7,941
750
20,366
90
-
3,289
32,436
Restated
2017
£000
1,743
122,754
18
1,086
8,738
134,339
163
34,005
-
3,248
37,416
-
171,755
10,893
1,600
25,746
161
289
3,102
41,791
963
-
3,724
1,288
11,491
22,505
39,008
72,407
49,786
4,169
1,112
34,188
(621)
1,232
7,528
(399)
116
2,458
3
49,786
7,010
1,616
11,238
21,519
41,383
83,174
88,581
4,145
1,112
34,109
(621)
1,730
7,528
(349)
249
40,669
9
88,581
The financial statements were approved by the Board of Directors and authorised for issue on 20 February 2019 and are signed
on its behalf by:
David Meaden
Chief Executive Officer
The accompanying accounting policies and notes form an integral part of these financial statements.
Company name: Idox plc
Company number: 03984070
40
Consolidated Statement of Changes in Equity
At 31 October 2018
_______________________________________________________________________________________________________________________
Called up
share
capital
£000
Capital
redemption
reserve
£000
Share
premium
account
£000
Treasury
reserve
£000
Share
option
reserve
£000
Other
reserves
£000
ESOP
trust
£000
Foreign
currency
translation
reserve
£000
Restated
retained
earnings
£000
Non-
controlling
interest*
£000
Restated balance at 1 November 2016
Issue of share capital
Share option costs
Exercise of share options
Deferred tax movement on share options
ESOP trust
Equity dividends paid
Transactions with owners
Profit for the period
Prior year adjustment to profit
Non-controlling interest
Other comprehensive income
Exchange gains on translation of foreign
operations
Total comprehensive income for the period
3,640
505
-
-
-
-
-
505
-
-
-
-
-
1,112
-
-
-
-
-
-
-
-
-
-
-
-
13,480
20,629
-
-
-
-
-
20,629
(1,244)
-
-
623
-
-
-
623
-
-
-
-
-
-
-
-
-
-
Restated balance at 31 October 2017
4,145
1,112
34,109
(621)
Issue of share capital
Share option costs
Exercise of share options
ESOP trust
Equity dividends paid
Transactions with owners
Loss for the period
Non-controlling interest
Other comprehensive income
Exchange gains on translation of foreign
operations
Total comprehensive income for the period
24
-
-
-
-
24
-
-
-
-
-
-
-
-
-
-
-
-
-
-
79
-
-
-
-
79
-
-
-
-
-
-
-
-
-
-
-
-
-
2,222
-
324
(816)
-
-
-
(492)
-
-
-
-
-
1,730
-
50
(548)
-
-
(498)
-
-
-
-
1,294
6,234
-
-
-
-
-
6,234
-
-
-
-
-
(274)
-
-
-
-
(75)
-
(75)
-
-
-
-
-
7,528
(349)
-
-
-
(50)
-
(50)
-
-
-
-
-
-
-
-
-
-
-
-
-
At 31 October 2018
4,169
1,112
34,188
(621)
1,232
7,528
(399)
The accompanying accounting policies and notes form an integral part of these financial statements.
*relates to a 30% non-controlling interest Six-PM Health Solutions (Ireland) Ltd, a subsidiary of 6PM Holdings plc.
57
-
-
-
-
-
-
-
-
-
-
192
192
249
-
-
-
-
-
-
-
-
44,487
-
-
492
(452)
-
(4,217)
(4,177)
2,325
(1,966)
-
-
359
40,669
-
-
548
-
(2,717)
(2,169)
(36,042)
-
(133)
(133)
116
-
(36,042)
2,458
-
-
-
-
-
-
-
-
-
-
9
-
9
9
-
-
-
-
-
-
-
(6)
-
(6)
3
41
Total
£000
64,774
27,368
324
299
(452)
(75)
(4,217)
23,247
2,325
(1,966)
9
192
560
88,581
103
50
-
(50)
(2,717)
(2,614)
(36,042)
(6)
(133)
(36,181)
49,786
Consolidated Cash Flow Statement
For the year ended 31 October 2018
___________________________________________________________________
Cash flows from operating activities
(Loss) / profit for the period before taxation
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Acquisition credits - release of deferred consideration
Impairment
Finance income
Finance costs
Debt issue costs amortisation
Research and development tax credit
Share option costs
Profit on disposal of property plant and equipment
Movement in stock
Movement in receivables
Movement in payables
Cash generated by operations
Tax on profit paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiaries
Acquisition credit
Purchase of property, plant and equipment
Proceeds on sale of investment property
Purchase of intangible assets
Finance income
Net cash used in investing activities
Cash flows from financing activities
Interest paid
New loans
Loan related costs
Loan repayments
Equity dividends paid
Sale of own shares
Net cash flows (used in) / from financing activities
Net movement on cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Exchange gains / (losses) on cash and cash equivalents
Cash and cash equivalents at the end of the period
2018
£000
(39,205)
1,144
8,615
(684)
39,530
(211)
1,531
90
(832)
50
-
48
8,476
(8,041)
10,511
(760)
9,751
(209)
-
(606)
-
(3,868)
211
(4,472)
(1,456)
6,500
42
(5,500)
(2,717)
53
(3,078)
2,201
3,248
85
5,534
Restated
2017
£000
788
1,157
8,468
(478)
2,681
(141)
1,513
119
(360)
324
(13)
109
(671)
1,343
14,839
(1,785)
13,054
(18,064)
550
(1,596)
397
(5,688)
141
(24,260)
(1,211)
3,500
619
(9,063)
(4,217)
21,259
10,887
(319)
3,787
(220)
3,248
The accompanying accounting policies and notes form an integral part of these financial statements.
42
Notes to the Accounts
For the year ended 31 October 2018
___________________________________________________________________
1 ACCOUNTING POLICIES
General information
Idox plc is a leading supplier of software and services for the management of local government and other
organisations. The Company is a public limited company which is listed on the AIM Market of the London Stock
Exchange and is incorporated and domiciled in the UK. The address of its registered office is 2nd Floor, 1310
Waterside, Arlington Business Park, Theale, Reading, RG7 4SA. The registered number of the Company is 03984070.
The financial statements are prepared in pounds sterling.
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union (EU) and the Companies Act 2006 applicable to companies reporting
under IFRS.
The financial statements have been prepared under the historical cost convention.
As set out on page 18 in the Directors’ Report, the financial statements have been prepared on a going concern
basis.
Going concern
The Directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate
resources to continue in business for the foreseeable future. In making this assessment, the Directors have
considered the Group’s budget, cash flow forecasts, available banking facility with appropriate headroom in facilities
and financial covenants and levels of recurring revenue.
It was announced on 29 January 2019 that the Group had extended its existing banking arrangements with the Royal
Bank of Scotland plc and Silicon Valley Bank until 25 February 2020. The Group anticipates it will still have a net debt
position at the point of expiry of the current facilities and therefore expects to enter negotiations to extend the facility
in the coming year. Given the improvements in the business, the Group expects to be in a strong position to secure
financing on a longer-term basis that is commensurate with its target capital structure, and has no reason to believe
this will not be completed.
International Financial Reporting Standards and Interpretations issued but not yet effective
At the date of authorisation of these financial statements, the following new standards, amendments and
interpretations to existing standards have been published. These are mandatory for forthcoming financial periods, but
which the Group has not adopted early. These are not expected to have a material impact on the Group’s consolidated
financial statements:
• IFRS 9 ‘Financial instruments’ – effective for periods commencing on or after 1 January 2018
• IFRS 2 (amendments) Classification and Measurement of Share-based Payment Transactions – effective for
periods commencing on or after 1 January 2018
• Annual Improvements to IFRSs 2014-2016 Cycle – effective for periods commencing on or after 1 January 2018
• IFRIC Interpretation 22 Foreign currency transactions and advance considerations – effective for periods
commencing on or after 1 January 2018
• IFRIC 23 Uncertainty over Income Tax Treatments – effective for periods commencing on or after 1 January 2019
The following standards have the potential to have a material impact on the Group’s consolidated financial
statements:
• IFRS 9 ‘Financial instruments’ – the standard will be adopted for the first time in the year ending 31 October 2019.
The full impact of adoption will depend on a number of factors including the financial instruments within the group,
macroeconomic conditions and judgements over credit risk and expected credit losses. Overall, adoption of IFRS
9 is not expected to have a material impact on the Group.
• IFRS 15 ‘Revenue from Contracts with Customers - the standard will be adopted for the first time in the year
ending 31 October 2019. The Group will apply IFRS 15 on a cumulative effect basis from the date of initial
application (1 November 2018), without restatement of comparative amounts. The adoption of IFRS 15 will not
alter the total contract value, the timing of cash flows or the Group’s ability to pay dividends.
43
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
IFRS 15 provides a single, principles-based five-step model to be applied to all sales contracts, based on the
transfer of control of goods and services to customers. The Group has undertaken a review of all the services and
products the businesses provide and the main types of commercial arrangements used with each service and
product. Both the UK and the overseas businesses will be impacted by IFRS 15 and the most significant impact
of implementing the standard is as follows:
o Software licence revenue: Under current accounting policies revenue from software licences is mainly
recognised as the licences are issued to the customers. For bundled contracts this results in the revenue for
software licences being recognised earlier than it would be under IFRS 15 as software licences do not meet
the criteria of being a distinct performance obligation. IFRS 15 will result in the software licence fees in
bundled contracts being combined with other promises in the contract, specifically implementation services,
and recognised over the implementation term. This will result in a delay in revenue previously recognised
and an increase in deferred income going forward. There will be no change to the net contract values.
o Hardware revenue: Under current accounting policies revenue from hardware is mainly recognised as the
hardware is issued to the customers. For bundled contracts this results in the revenue for hardware being
recognised earlier than it would be under IFRS 15 as hardware does not meet the criteria of being a distinct
performance obligation. IFRS 15 will result in the hardware fees in bundled contracts being combined with
other promises in the contract, specifically implementation services, and recognised over the implementation
term. This will result in a delay in revenue previously recognised and an increase in deferred income going
forward. There will be no change to the net contract values.
o Contract obtaining assets: Under current accounting policies sales commissions associated with individual
contracts are recognised when contracts are signed or invoiced. Under IFRS 15, because they are
instrumental to obtaining the contract and are expected to be recovered, these costs will be capitalised and
amortised over the life of the contract, but only where the duration of the contract on which the commissions
is based lasts for more than one year.
o Quantitative impact: The Company estimates that the quantitative impact of adoption of IFRS 15 on our
financial statements for the year ended 31 October 2018 would be to defer £3.2m of revenue to future
periods. The net impact is to reduce retained earnings by £2.6m, increase deferred liabilities by £3.2m and
increase deferred taxation asset by £0.6m. The development of these estimates has been performed outside
of the Group’s underlying financial systems. There will be no impact on recurring revenue streams. The
Directors will continue to monitor industry practice and experience of implementation and update its
assessment of the impact for the Group as appropriate.
• IFRS 16 ‘Leases’ – effective for periods commencing on or after 1 January 2019. IFRS 16 presents new
requirements for the recognition, measurement, presentation and disclosure of leases. The standard provides that
lessees will be required to recognise assets and liabilities for all leases unless the lease term is 12 months or less
or the underlying asset has a low value. The standard was issued in January 2016 and applies to annual reporting
periods beginning on or after 1 January 2019 but is yet to be endorsed by the EU. The Directors have not yet
assessed the impact that this standard will have on the Group’s net asset position and are therefore not in a
position to make a reliable estimate of the impact this revised standard will have on the Group’s accounting policies.
The standard is expected to be applicable to the Group for the period beginning 1 November 2019. Please refer
to note 27 for the Group’s current operating lease commitments, which will be disclosed as a balance sheet liability
under IFRS 16 when this becomes effective.
Adoption of new and revised standards
There were no additional standards, amendments and interpretations that had a material impact on the Group’s
financial statements during the year. The following standards, amendments and interpretations were effective in the
year but had no material impact on the Group’s financial statements:
• Amendments to IAS 7: Disclosure Initiative
• Amendments to IAS 12: Recognition of Deferred Tax Assets for Unreleased Losses
• Annual Improvements to IFRSs 2012-2014 Cycle
Restatement of comparative figures
Following on from the revenue issues mentioned in the annual accounts for the year ended October 2017, the finance
team have conducted a comprehensive review of revenue, accrued income and debtors, and identified a number of
prior period errors.
44
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Restatement of comparative figures (continued)
The following tables summarise the impact of the prior period errors in the financial statements of the Group.
Consolidated Statement of Comprehensive Income
Profit before tax as originally presented
Restatement of:
Revenue
Cost of sales
Administrative expenses
Finance costs
Profit before tax as restated (includes discontinued operations)
Consolidated Balance Sheet
Net assets as originally presented
Restatement of:
Property, plant and equipment
Stock
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Other liabilities
Current tax
Deferred tax liabilities
Bonds in issue
Net assets as restated
Earnings per share
Basic EPS as originally presented
Impact on profit for the period (£000)
Basic EPS as restated
Diluted EPS as originally presented
Impact on profit for the period (£000)
Diluted EPS as restated
31 October 2017
£000
3,481
(2,975)
173
(35)
145
789
31 October 2017
£000
91,309
(64)
(3)
(3,429)
(12)
125
75
423
1
156
88,581
31 October 2017
0.66p
(2,269)
0.09p
0.64p
(2,269)
0.09p
Judgements and estimates
Management assess critical judgements and estimates in line with the Financial Reporting Council’s (“FRC”) guidance.
Judgements are based on historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
Estimates and assumptions are periodically evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. Due to the inherent
uncertainty in making estimates, actual results reported in future periods may be based on amounts which differ from
those estimates. Revisions to accounting estimates are recognised in the period in which the estimate is revised and
in any future periods affected.
Judgements (not involving estimation)
Management considers the following items to be critical judgements (apart from those involving estimations) that were
made in the process of applying the Group’s accounting policies in the reporting period that are deemed to be a
significant risk but are not expected to cause a material adjustment to the carrying amounts of assets and liabilities
within the next financial year:
45
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Development costs
Judgement is exercised in the expenditure that is capitalised or alternatively expensed as research. This is governed
by the Group’s capitalisation policy, which describes the nature and type of costs that should be capitalised to ensure
consistency across the Group. Creation and application of this Group capitalisation policy requires judgement in how
IFRS is applied to Idox in describing which expenditure qualifies for capitalisation as well as the thresholds that are
applied.
The recognition requirements of development costs are reviewed half yearly. This is necessary as the economic
success of any product development is uncertain and may be subject to future technical problems at the time of
recognition. Judgements are based on the information available at each bi-annual review. In addition, all internal
activities related to the research and development of new software products are continuously monitored by the
Directors.
Capitalised development is reviewed on an individual project basis and management will select the most appropriate
rate of amortisation for each asset. Amortisation is within the range of 1 to 5 years depending on the future revenue
projected for each individual asset.
See note 12 for further information.
Revenue recognition
Management assesses both legal paperwork and commercial substance of transactions to determine the appropriate
revenue recognition treatment. This review could involve internal chartered accountants, internal legal staff,
operational staff and external professional advice where appropriate.
Management exercise judgement over various elements of a contract, for example:
• whether there are ongoing obligations relating to software licences which would require the revenue to be
recognised over time rather than at a point in time;
• whether performance obligations are separable or bundled; and
• whether it is appropriate to recognise revenue on certain contracts, such as service agreements, prior to an
invoice being raised, where work has been completed and there is a high degree of certainty of the contract
being completed, the invoice raised and cash received.
See paragraph headed ‘Revenue’ below for more detail on how the Group accounts for revenue.
Contingent deferred consideration
The contingent deferred consideration is the maximum undiscounted amount, which will be paid and represents fair
value. Management consider this to be a critical judgement because it involves a view as to whether obligations arise
from uncertain matters. This can be judgemental because any sum due to be paid must meet specific criteria, is
complex, relates to past events and has a variety of potential outcomes. To estimate the fair value, a judgement is
made on the amount of contingent deferred consideration that is likely to be paid having regard to the criteria on which
any sum due will be calculated.
Impairment of goodwill
Management is required to test, at least annually, whether goodwill has suffered any impairment. The recoverable
amount is determined based upon value-in-use and net realisable value calculations. The value-in-use method
requires the calculation of future cash flows and the choice of a suitable discount rate in order to calculate the present
value of these cash flows. Pre-tax discount rates have been applied and are based on WACC calculations. See note
12 for further commentary.
Estimates
Management considers the following items to involve key assumptions concerning the future, or other key sources of
estimation uncertainty, in the reporting period that are deemed to be a significant risk but are not expected to cause a
material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Intangible assets
The Group recognises intangible assets acquired as part of business combinations, goodwill, customer relationships,
Trade names, Software, Development costs, Database and Order backlog, at fair value at the date of acquisition. The
determination of these fair values is based upon management's judgement, and includes assumptions on the timing
and amount of future incremental cash flows generated by the assets and selection of an appropriate cost of capital.
Management estimates the expected useful lives of intangible assets and charges amortisation on those assets
accordingly.
46
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
In determining the useful economic life of the intangible software assets, management has given consideration to the
length of time that its own software is typically used within its market. Competitor products are also reviewed in
conjunction with the length of time they have also been in use. These reviews are conducted with assistance from an
independent intellectual property consulting firm, which has a wealth of experience in valuing intangible assets
generated from acquisitions.
Consideration was also given to the likelihood of a new competitor entering the market with a new product. This was
considered unlikely due to the up-front capital investment, the requirement for reference sites to demonstrate the
product and long-life cycles that products have in the market. For details on the estimates made in relation to intangible
assets, see note 12.
In addition, management reviews the carrying values of intangible assets at interim and year end. During the year
ended 31 October 2018, (£12,000) and £61,000 of fair value adjustments were charged relating to Software and
Goodwill respectively. In the prior year there was (£275,000) of fair value adjustments to both Trade names and
Software. Management has considered historical and forecast profitability relating to each intangible asset as at 31
October 2018 and deem that no further fair value adjustments are required.
Deferred tax
The Group has tax losses available to offset further taxable profits. Management estimates the amount of deferred tax
to be recognised based on the future profitability of each business unit and projected corporation tax rates published
by HMRC.
Basis of consolidation
The Group accounts consolidate the accounts of the Company and its subsidiary undertakings drawn up to 31 October
each year. Under IFRS 10, control exists when an investor is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its powers over the investee. As each
of the subsidiaries are 100% wholly owned, with the exception of 6PM Ireland which is adjusted for non-controlling
interest, the Group has full control over each of its investees.
All inter-company transactions are eliminated on consolidation.
For business combinations occurring since 1 November 2009, the requirements of IFRS 3R have been applied. The
consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the fair values at
acquisition date of assets, liabilities incurred and the equity interests issued by the Group, which includes the fair value
of any asset or liability arising from a contingent consideration arrangement.
Acquisition costs are expensed as incurred. For all acquisitions, the Group will perform a fair value review of all
property, plant and equipment and intangible assets to align accounting policies with the Group.
Revenue
Revenue represents the amounts receivable in respect of goods and services provided during the year, stated net of
value added tax. Where work has been done, but a billing milestone has not been reached, the income has been
accrued and included in amounts recoverable within trade and other receivables.
Revenue is measured at the fair value of the right to consideration. The Group derives its revenue streams from
software solutions and information solutions.
Software licence revenue is recognised when the licence is dispatched to the customer and there are no ongoing
obligations associated with the licence once dispatched. Where the licence is bespoke, revenue is recognised when
the licence is delivered and the customer has accepted the licence as fully functional.
Software consultancy revenue is recognised on a stage of completion basis. Stage of completion is determined by
time spent by service delivery consultants or by reference to the project milestones either included in the contract itself
or included within a separate detailed project delivery plan.
Revenue relating to digital services, including search engine optimisation, ecommerce and digital advertising, is
recognised at the time of service delivery.
Revenue relating to goods delivered as part of software solutions provided is only recognised once the goods have
been received by the customer.
47
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Revenue relating to goods delivered for elections is recognised when the goods have been received by the customer.
Consultancy revenue for elections is recognised on a stage of completion basis.
The revenues for maintenance and hosted managed service contracts are spread evenly over the life of the
agreement, which is typically one year.
Revenue from software-as-a-service (“SaaS”) contracts, or revenue where there are ongoing obligations associated
with a software licence, is recognised evenly over the life of the agreement.
Revenue derived from information solutions content is recognised over the life of the subscription, which is typically
one year. Revenue from projects is recognised over the life of the project in accordance with the stage of completion
which is determined by reference to the project delivery plan.
Revenue relating to grant applications is recognised on a ‘no win-no fee’ basis. Revenue is only recognised when
confirmation that the grant application has been successful is received.
Revenue relating to hardware is recognised when the hardware is dispatched to the customer.
Contract revenue
The amount of profit attributable to the stage of completion of a long-term contract is recognised only when the
outcome of the contract can be foreseen with reasonable certainty. Management make a judgement on the fair value
of the work completed to enable revenue on long term contracts to be recognised in the correct periods. Stage of
completion is determined based on management’s best estimate of effort expended and progress against project plans
at the year end. Provision is made for any losses as they are foreseen.
The contracts for software solutions often contain multiple elements such as software, consultancy and maintenance.
Management make appropriate judgements and estimates in relation to the fair value of each of these elements in
accordance with IAS 18.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker has been identified as the steering committee, which for the year
ended 31 October 2018 comprised the Chief Executive Officer and the Chief Financial Officer.
Discontinued operations and held for sale
Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations are measured in accordance with that Standard.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through
a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly
probable and the asset (or disposal group) is available for immediate sale in its present condition.
Goodwill
Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum
of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree
and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of
identifiable net assets. If the fair values of the identifiable net assets exceed the sum calculated above, the excess
amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.
Cash-generating units to which goodwill has been allocated are tested for impairment biannually. All other individual
assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.
Goodwill is carried at cost less accumulated impairment losses. Unallocated goodwill on acquisitions relates mainly to
workforce valuation, synergies and economies of scale obtained on combining acquisitions with existing operations.
Goodwill written off to reserves prior to the date of transition to IFRS remains in reserves. There is no re-instatement
of goodwill that was amortised prior to transition to IFRS. Goodwill previously written off to reserves is not written back
to profit or loss on subsequent disposal.
48
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Other intangible assets
Intangible assets with a finite useful life are amortised to the consolidated statement of comprehensive income on a
straight-line basis over their estimated useful lives, which are reviewed on an annual basis. Amortisation commences
when the asset is available for use. The residual values of intangible assets are assumed to be zero.
(i) Research and development
Expenditure on research (or the research phase of an internal project) is recognised in profit or loss in the period in
which it is incurred. Development costs incurred are capitalised when all the following conditions are satisfied:
•
•
•
•
•
•
completion of the intangible asset is technically feasible so that it will be available for use or sale;
the Group intends to complete the intangible asset and use or sell it;
the Group has the ability to use or sell the intangible asset;
the intangible asset will generate probable future economic benefits. Among other things, this requires that
there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used
internally, the asset will be used in generating such benefits;
there are adequate technical, financial and other resources to complete the development and to use or sell
the intangible asset, and
the expenditure attributable to the intangible asset during its development can be measured reliably.
Development costs not meeting the criteria for capitalisation are expensed in profit or loss as incurred. The cost of an
internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and
prepare the asset to be capable of operating in the manner intended by management. Amortisation commences upon
completion of the asset, and is shown separately on the statement of comprehensive income.
Careful judgement by the Directors is applied when deciding whether the recognition requirements for development
costs have been met. This is necessary as the economic success of any product development is uncertain and may
be subject to future technical problems at the time of recognition. Judgements are based on the information available
at each balance sheet date. In addition, all internal activities related to the research and development of new software
products are continuously monitored by the Directors.
Amortisation is calculated using the straight-line method over a period of up to 5 years.
(ii) Customer relationships
Customer relationships represent the purchase price of customer lists and contractual relationships purchased on the
acquisition of subsidiaries. These relationships are carried at cost less accumulated amortisation and accumulated
impairment losses. Amortisation is calculated using the straight-line method over a period of 20, 10 and 5 years.
(iii) Trade names
Trade names represent the named intangible asset recognised on the acquisition of these trade names are carried at
cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-
line method over a period of between 5 and 20 years.
(iv) Software
Software represents the UNI-form, ACOLAID, Enterprise Engineer, CAFM Explorer, electoral and licensing software
purchased on the acquisition of CAPS Solutions Limited, Plantech Limited, McLaren Software Limited, Strand
Electoral Management Services Limited, Lalpac Limited, Interactive Dialogues NV, Opt 2 Vote Limited, Currency
Connect Holding BV, FMx Limited, Artesys International SA, CTSpace Group, Digital Spirit GmbH, Cloud Amber
Limited, Open Objects Software Limited, Rippleffect Studios Limited, 6PM Holdings plc and Halarose Holdings
Limited. The software is carried at cost less accumulated amortisation and accumulated impairment losses.
Amortisation is calculated using the straight-line method over a period of between 3 and 10 years. Software also
includes software licences purchased which are amortised using the straight-line method over a period of between 3
to 5 years.
(v) Database
Database represents the grant information database purchased on the acquisition of J4B Software & Publishing
Limited and Grantfinder Limited. Database is carried at cost less accumulated amortisation and accumulated
impairment losses. Amortisation is calculated using the straight-line method over a period of 5 years.
(vi) Order backlog
Order backlog includes the managed service contracts and subscription deferred revenue purchased on the
acquisition of 11 land and property information solution contracts and Grantfinder Limited. Amortisation on the
managed service deferred revenue is calculated based on the weighting and length of each contract purchased.
Subscription deferred revenue is calculated using the straight-line method over a period of 5 years.
49
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Order backlog includes two managed services contracts acquired from Miria Systems Inc. Amortisation on the
managed service deferred revenue is calculated using the straight-line method over a period of 5 years.
Upon the acquisition of Halarose Holding Limited, the Group acquired deferred revenue which is being amortised
using the straight-line method over a period of 3 years.
Impairment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and
some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are
expected to benefit from synergies of the related business combination and represent the lowest level within the Group
at which management monitors the related cash flows.
Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an
indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually.
All other individual assets or cash-generating units are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less
costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised
for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill.
Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception
of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may
no longer exist.
Property, plant and equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to the income statement using the following rates and bases so as to write off the cost or
valuation of items of property, plant and equipment over their expected useful lives. The rates that are generally
applicable are:
Computer hardware
Fixtures, fittings and equipment
Library books and journals
25%, 50% and 100% straight line
25% straight line
33 1/3% and 100% straight line
Useful economic lives and residual values are reviewed annually.
Investment property
The investment property was acquired upon the purchase of 6PM Holdings plc and was recorded initially at cost and
then using the fair value method. The investment property was revalued annually with resulting gains and losses
recognised in the income statement, and the property was included in the balance sheet at its fair value.
Employee benefits
Defined contribution pension plans
Contributions paid to private pension plans of certain employees are charged to the income statement in the period in
which they become payable. Contributions paid to the Group personal pension plans of employees are charged to the
income statement in the period in which they become payable.
Share-based payment transactions
All goods and services received in exchange for the grant of any share-based payment are measured at their fair
values. Where employees are rewarded using share-based payments, the fair values of employees' services are
determined indirectly by reference to the fair value of the instrument granted to the employee.
This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example,
profitability and sales growth targets).
All equity-settled share-based payments are ultimately recognised as an expense in the profit and loss account with
a corresponding credit to the share option reserve.
50
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based
on the best available estimate of the number of share options expected to vest. Estimates are revised subsequently if
there is any indication that the number of share options expected to vest differs from previous estimates. Any
cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense
recognised in prior periods if share options that have vested are not exercised.
Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to reserves.
In some circumstances upon exercise of share options, the right to shares are waived and the proceeds are settled in
cash.
Reserves
Equity comprises the following:
•
•
•
•
•
•
•
•
•
"Share premium" represents the excess over nominal value of the fair value of consideration received for
equity shares, net of expenses of the share issue.
“Capital redemption reserve” represents when the entire deferred ordinary share capital was bought in
exchange for one ordinary 1p share.
“Other reserves” arose as a result of:
o
a Group reconstruction that occurred on 17 November 2000. This represents the issued share
capital and share premium account in the Company’s subsidiary undertaking, Idox Software Limited;
and
o Share premium arising on consideration shares issued on the acquisition of 6PM Holdings plc and
Halarose Holdings Limited.
“Share options reserve” represents shares to be issued on potential exercise of those share options that have
been accounted for under “IFRS 2 Share Based Payments”.
“ESOP trust” represents share capital purchased to satisfy the obligation of the employee share scheme.
Purchased shares are classified within the ESOP trust reserve and the cost of shares purchased are
presented as a deduction from total equity.
“Retained earnings” represents retained profits.
“Treasury reserve” represents shares repurchased by the Company to be held for redistribution as share
options. The cost of treasury shares is debited to the Treasury reserve.
“Foreign currency translation reserve” represents exchange gains and losses on translation of foreign
operations.
“Non-controlling interest” represents retained profits attributable to Non-controlling interests.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Current tax is charged to profit or loss except
where it relates to tax on items recognised in other comprehensive income or directly in equity, in which case it is
charged to equity or other comprehensive income.
Current tax is the tax currently payable based on taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally
provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability
unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary
differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be
controlled by the Group and it is probable that reversal will not occur in the foreseeable future.
In addition, tax losses available to be carried forward as well as other income credits to the Group are assessed for
recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it
is probable that the underlying deductible temporary differences will be able to be offset against future taxable income.
Current and 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 balance sheet date.
51
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except
where they relate to items that are charged or credited directly to other comprehensive income or equity in which case
the related deferred tax is also charged or credited directly to other comprehensive income or equity.
Research and development tax credits
The UK tax regime permits additional tax relief for qualifying expenditure incurred on research and development. The
Research and Development Expenditure Credit (RDEC) Scheme has been adopted, which permits a tax credit of 11%
of qualifying expenditure for companies classified as large. The Idox Group is considered large for research and
development tax credit purposes owing to a headcount of over 500.
The tax credit is treated as a reconciling item within the taxation line of the income statement.
Operating leases
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases.
All leases held by the Group are operating in nature. Amounts paid under operating leases are charged to the
statement of comprehensive income on a straight-line basis over the lease term.
Dividend distributions
Interim dividends in respect of equity shares are recognised in the financial statements in the period in which they are
paid.
Final dividends in respect of equity shares are recognised in the financial statements in the period that the dividends
are formally approved.
Foreign currency translation
The functional and presentation currency of Idox plc and its United Kingdom subsidiaries is the pound sterling (£).
Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency
rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss.
In the consolidated financial statements, the assets and liabilities of non-sterling functional currency subsidiaries, are
translated into pound sterling at the rate of exchange ruling at the balance sheet date. The results of non-sterling
functional currency subsidiaries are translated into pound sterling using average rates of exchange.
Exchange adjustments arising are taken to the foreign currency translation reserve and reported in other
comprehensive income.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group has become a
party to the contractual provisions of the instrument.
Financial assets
Financial assets are classified according to the substance of the contractual arrangements entered into.
Trade and other receivables
Trade receivables do not carry any interest and are initially stated at their fair value, as reduced by appropriate
allowances for estimated irrecoverable amounts. All receivables are considered for impairment. Provision against
trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due
in accordance with the original terms of those receivables. The amount of the write-down is determined as the
difference between the assets carrying value and the present value of estimated future cash flows.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and on deposit with a maturity of 3 months or less from inception
and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after
deducting all of its financial liabilities.
52
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded initially at fair value, net of direct transaction costs. Such
instruments are subsequently carried at their amortised cost and finance charges, including premiums payable on
settlement or redemption, are recognised in profit or loss over the term of the instrument using an effective rate of
interest.
Bond
Bonds in issue are recorded initially at fair value, net of direct transaction costs. The bonds are subsequently carried
at their amortised cost and finance charges are recognised in profit or loss over the term of the instrument using an
effective rate of interest.
Trade and other payables
Trade and other payables are not interest-bearing, these are initially stated at their fair value and subsequently at
amortised cost.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
2 SEGMENTAL ANALYSIS
As at 31 October 2018, the Group was organised into five operating segments, which are detailed below.
Financial information is reported to the chief operating decision maker, which comprises the Chief Executive Officer
and the Chief Financial Officer, monthly on a business unit basis with revenue and operating profits split by business
unit. Each business unit is deemed an operating segment as each offers different products and services.
• Public Sector Software (PSS) – delivering specialist information management solutions and services to the
public sector.
• Engineering Information Management (EIM) – delivering engineering document management and control
solutions to asset intensive industry sectors.
• Content (CONT) – delivering funding and compliance solutions to corporate, public and commercial
customers.
• Digital (DIG) – delivering digital consultancy services to public, private and third sector customers.
• Health (HLT) – delivering a broad range of innovative solutions to the healthcare market.
Atlas Adviesgroep Twente B.V., acquired in January 2018, is included in the Content segment. On the 1st May 2018
following an internal reorganisation the Knowledge Exchange sub division was transferred to the Content segment.
On 2nd November 2018 the Digital segment was sold. As Digital was a separately identifiable division the results for
the period ended 31 October 2018 and comparative period have been classified as a discontinued operation. The
allocation of corporate overheads to the Digital segment have remained as continuing as these cost are not clearly
identifiable costs of the segment. These cost relate to central overheads which are allocated to segments on a revenue
percentage basis.
Segment revenue comprises sales to external customers and excludes gains arising on the disposal of assets and
finance income. Segment profit reported to the Board represents the profit earned by each segment before the
allocation of taxation, Group interest payments and Group acquisition costs. The assets and liabilities of the Group
are not reviewed by the chief operating decision maker on a segment basis. The Group does not place reliance on
any specific customer and has no individual customer that generates 10% or more of its total Group revenue.
53
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
2 SEGMENTAL ANALYSIS (CONTINUED)
The segment revenues by geographic location are as follows:
2018
Revenues from external customers
United Kingdom
USA
Europe
Australia
Rest of World
2017
Revenues from external customers
United Kingdom
USA
Europe
Australia
Rest of World
Continued
2018
£000
Discontinued
2018
£000
Total Group
2018
£000
45,778
5,194
15,632
475
364
67,443
5,995
-
205
-
21
6,221
51,773
5,194
15,837
475
385
73,664
Continued
2017
£000
Discontinued
2017
£000
Total Group
2017
£000
51,479
6,989
14,419
312
552
73,751
11,442
5
658
-
28
12,133
62,921
6,994
15,077
312
580
85,884
Revenues are attributed to individual countries on the basis of the location of the customer.
2018
Revenues by type
Recurring revenues
Non-recurring revenues
Revenue from sale of goods
Revenue from rendering of services
2017
Revenues by type
Recurring revenues
Non-recurring revenues
Revenue from sale of goods
Revenue from rendering of services
Continued
2018
£000
Discontinued
2018
£000
Total Group
2018
£000
31,489
35,954
67,443
17,335
50,108
67,443
3,276
2,945
6,221
61
6,160
6,221
34,765
38,899
73,664
17,396
56,268
73,664
Continued
2017
£000
Discontinued
2017
£000
Group Restated
2017
£000
30,520
43,231
73,751
19,665
54,086
73,751
5,502
6,631
12,133
31
12,102
12,133
36,022
49,862
85,884
19,696
66,188
85,884
Recurring revenue is income generated from customers on a contractual basis. Repeat and recurring revenue amount
to approximately 47% of continuing revenue, which is revenue generated from sales to existing customers.
54
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
2 SEGMENTAL ANALYSIS (CONTINUED)
The segment results by business unit for the year ended 31 October 2018:
Revenue
Earnings before depreciation, amortisation,
restructuring, acquisition costs, impairment, corporate
finance costs and share option costs
Depreciation
Amortisation – software licences and R&D
Amortisation – acquired intangibles and order backlog
Restructuring costs
Acquisition costs
Impairment
Share option costs
Corporate finance costs
Finance income
Finance costs
Loss before Taxation
PSS
£000
34,287
EIM
£000
10,003
CONTENT
£000
13,604
DIGITAL*
£000
268
HEALTH
£000
9,281
Continuing
Operations
Total
£000
67,443
Discontinued
Operations
Digital
£000
6,221
Total
£000
73,664
9,717
(779)
(2,355)
(2,052)
(104)
850
(6,079)
(46)
1,361
(196)
(651)
(468)
(239)
-
(1,800)
-
2,295
(486)
1,530
(14)
(176)
(493)
(38)
6
-
(4)
-
-
-
(8)
-
-
-
(117)
(536)
(1,482)
(47)
-
(25,376)
-
14,417
(1,106)
(3,718)
(4,495)
(436)
856
(33,255)
(50)
(2,834)
(38)
(28)
(374)
(194)
-
(6,275)
-
(9,743)
-
-
-
11,583
(1,144)
(3,746)
(4,869)
(630)
856
(39,530)
(50)
(37,530)
(336)
449
(1,788)
(336)
449
(1,788)
(29,462)
(9,743)
(39,205)
Adjusted segment operating (loss) / profit
(848)
(1,993)
1,576
(494)
(26,028)
(27,787)
*Results for the Knowledge Exchange for the period to 30th April 2018. On the 1st May 2018 following an internal reorganisation the Knowledge Exchange sub division was
transferred to the Content segment. Results also include the corporate recharge for the Digital segment which remain as continuing as the cost are not clearly identifiable as
costs of the segment.
55
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
2 SEGMENTAL ANALYSIS (CONTINUED)
The restated segment results by business unit for the year ended 31 October 2017:
Revenue
Earnings before depreciation, amortisation,
restructuring, acquisition costs, impairment, corporate
finance costs and share option costs
Depreciation
Amortisation – software licences and R&D
Amortisation – acquired intangibles and order backlog
Restructuring costs
Acquisition costs
Impairment
Share option costs
Adjusted segment operating profit / (loss)
Corporate finance costs
Finance income
Finance costs
Profit / (loss) before Taxation
PSS
£000
40,782
EIM
£000
12,901
CONTENT
£000
12,421
DIGITAL*
£000
564
HEALTH
£000
7,083
Continuing
Operations
Total
£000
73,751
Discontinued
Operations
Digital
£000
12,133
14,963
(672)
(2,198)
(2,302)
(169)
144
-
(281)
9,485
2,146
(190)
(492)
(468)
(69)
-
-
-
927
1,648
(18)
(159)
(493)
(87)
-
-
(43)
(1,265)
-
-
-
-
-
-
-
(1,013)
(197)
(372)
(1,181)
(52)
(152)
(2,681)
-
848
(1,265)
(5,648)
16,479
(1,077)
(3,221)
(4,444)
(377)
(8)
(2,681)
(324)
4,347
(33)
363
(1,887)
(791)
(80)
-
(803)
(327)
-
-
-
(2,001)
-
-
-
Total
£000
85,884
15,688
(1,157)
(3,221)
(5,247)
(704)
(8)
(2,681)
(324)
2,346
(33)
363
(1,887)
2,790
(2,001)
789
*Results for the Knowledge Exchange for the period to 30th April 2018. On the 1st May 2018 following an internal reorganisation the Knowledge Exchange sub division was
transferred to the Content segment. Results also include the corporate recharge for the Digital segment which remain as continuing as the cost are not clearly identifiable as
costs of the segment.
56
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
3 OPERATING PROFIT FOR THE YEAR
Operating profit for the year has been arrived at after charging:
Auditor’s remuneration:
Fees payable to the Company Auditor for the audit of the parent company and
consolidated annual accounts
The audit of the Company’s subsidiaries, pursuant to legislation
Audit related services
Non-audit services
Tax services – compliance
Tax services – advisory
Operating lease rentals – buildings & equipment
Depreciation – owned *
Amortisation:
Software licences
Research & development
Backlog Orders
Acquired intangibles **
Equity-settled share-based payments
Research & development costs
2018
£000
10
180
67
119
376
42
63
2,664
1,106
934
2,784
84
4,411
50
4,164
Restated
2017
£000
57
342
33
31
463
25
9
2,659
1,077
916
2,305
46
4,398
324
3,933
*Depreciation excludes £38,000 (2017: £80,000) in relation to the discontinued Digital division. The total depreciation
charge of the year including discontinued operations is £1,144,000 (2017: £1,157,000) as disclosed in note 11.
**Amortisation on acquired intangibles excludes £402,000 (2017: £803,000) in relation to the discontinued Digital
division. The total amortisation charge for the year including discontinued operations of £4,800,000 (2017:
£5,200,000), as disclosed in note 12.
4 DIRECTORS AND EMPLOYEES
Staff costs during the year were as follows:
Wages and salaries
Social security costs
Pension costs
Staff costs during the year were as follows:
Wages and salaries
Social security costs
Pension costs
Continuing
Operations
2018
£000
Discontinued
Operations
2018
£000
30,156
3,269
1,282
34,707
4,317
398
138
4,853
Continuing
Operations
2017
£000
Discontinued
Operations
2017
£000
29,837
3,807
1,160
34,804
6,722
609
168
7,499
Total
2018
£000
34,473
3,667
1,420
39,560
Total
2017
£000
36,559
4,416
1,328
42,303
In addition, during the year share based payment charges of £50,000 (2017: £324,000) were incurred.
During the year, the Group incurred restructuring costs in respect of continuing operations of £436,000 (2017:
£377,000) and £194,000 (2017: £327,000) in respect of discontinued operations. Restructuring costs represent
redundancy payments to former staff.
57
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
4 DIRECTORS AND EMPLOYEES (CONTINUED)
The average number of employees of the Group during the year was 804 (2017: 842) and was made up as follows:
Office and administration (including Directors of the
Company and its subsidiary undertakings)
Sales
Development
Operations
Office and administration (including Directors of the
Company and its subsidiary undertakings)
Sales
Development
Operations
Continuing
Operations
2018
No.
Discontinued
Operations
2018
No.
55
56
133
477
721
2
3
12
66
83
Continuing
Operations
2017
No.
Discontinued
Operations
2017
No.
47
56
115
492
710
3
5
19
105
132
Total
2018
No.
57
59
145
543
804
Total
2017
No.
50
61
134
597
842
Remuneration in respect of Directors was as follows:
2018
£000
2017
£000
Emoluments
Pension contributions
Share option exercise gain
880
13
629
1,522
In addition to the remuneration stated above, the Group incurred social security costs in respect of Directors of
£181,000 (2017: £562,000).
The amounts set out above include remuneration in respect of the highest paid Director as follows:
Aggregate emoluments
Pension contributions
2018
£000
202
1
203
1,064
21
3,201
4,286
2017
£000
377
6
383
During the year the highest paid director did not exercise share options. In the prior year the highest paid director
exercised share options resulting in a taxable gain of £1,128,000.
During the year, the Group incurred social security costs in respect of the highest paid director of £23,000 (2017:
£184,000).
Details of the remuneration for each Director are included in the Report on Remuneration, which can be found on
pages 19 to 21 but does not form part of the audited accounts.
58
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
5 ACQUISITION COSTS
Following the implementation of IFRS 3, all acquisition related costs are expensed in the period incurred rather than
added to the cost of investment. Acquisition costs relating to individual acquisitions are disclosed in note 26.
Acquisition costs
Acquisition costs
Release of contingent consideration
2018
£000
(3)
859
856
2017
£000
(236)
228
(8)
During the year, the contingent consideration on Open Objects Limited was reduced from £1,600,000 to £741,010.
The reduction was a result of missing the revenue target as set out in the Share Purchase Agreement.
The adjusted contingent consideration was paid on 14 December 2018.
The contingent consideration on Atlas Adviesgroep was reduced by £9,000 as a result of not meeting a performance
target as set out in the Share Purchase Agreement. All contingent consideration has now been paid.
6 FINANCE INCOME AND COSTS
Interest receivable
Dividends receivable
Foreign exchange differences
Other income
Finance income
Bank loans interest payable
Bond interest payable
Bank charges and loan facility fees
Loss on discounting of amounts recoverable from customers
Finance costs
7 DIVIDENDS
Final dividend paid in respect of the year ended 31 October 2017
and 31 October 2016
Pence per ordinary share
Interim dividend paid in respect of the year ended 31 October 2018
and 31 October 2017
Pence per ordinary share
2018
£000
2
18
22
407
449
(790)
(708)
(290)
-
(1,788)
2017
£000
6
24
222
111
363
(757)
(692)
(335)
(103)
(1,887)
2018
£000
2017
£000
2,717
2,627
0.655p
0.650p
-
-
1,590
0.385p
The Directors have proposed the payment of a final dividend of £Nil per share, which would amount to £Nil (2017:
0.655p).
59
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
8 INCOME TAX
The tax charge is made up as follows:
Current tax
UK corporation tax on profits for the period
Foreign tax on overseas companies
Over provision in respect of prior periods
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustment for rate change
Adjustments in respect of prior periods
Total deferred tax
Total tax (credit) / charge
Continuing
Operations
2018
£000
Continuing
Operations
2017
£000
424
274
(567)
131
(3,020)
407
1
(2,612)
(2,481)
1,144
302
(362)
1,084
(426)
(8)
20
(414)
670
The below current tax movements on discontinued activities arise in respect of prior year R&D tax claims belonging
to the Digital division.
The below deferred tax current year movement on discontinued activities relates to impairment of acquired intangibles,
with rate differentials arising on account of the difference between the deferred tax rate of recognition and the
reconciling tax rate.
The tax charge is made up as follows:
Current tax
UK corporation tax on profits for the period
Foreign tax on overseas companies
Under / (over) provision in respect of prior periods
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustment for rate change
Adjustments in respect of prior periods
Total deferred tax
Total tax credit
Discontinued
Operations
2018
£000
Discontinued
Operations
2017
£000
-
-
11
11
(731)
44
-
(687)
(676)
-
-
(261)
(261)
-
11
-
11
(250)
60
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
8 INCOME TAX (CONTINUED)
The differences between the total tax charge above and the amount calculated by applying the standard rate of UK
corporation tax to the profit before tax, together with the impact on the effective tax rate, are as follows:
Restated
2017
% ETR
% ETR
2018
£000
movement
£000 movement
Profit before taxation on continuing operations
(39,205)
788
Profit on ordinary activities multiplied by the standard
rate of corporation tax in the UK of 19% (2017: 19%)
(7,449)
19.00
150
19.00
Effects of:
Share option deduction
Tax losses utilised in year
International losses not recognised
Accelerated capital allowances
Other timing differences
Expenses not deductible for tax purposes
Prior year over-provision
Non-taxable income
Adjustment for tax rate differences
R&D enhanced relief
Foreign tax suffered
(52)
-
(1,163)
(29)
-
5,941
(555)
(246)
471
(77)
2
(3,157)
0.13
-
2.97
0.07
-
(15.15)
1.40
0.63
(1.18)
0.19
(0.01)
8.05
(100)
25
425
(152)
(98)
714
(656)
(52)
193
(30)
1
420
(12.69)
3.17
53.93
(19.29)
(12.44)
90.61
(83.24)
(6.59)
24.49
(3.81)
0.13
53.27
The effective tax rate (ETR) for the period was 8.05% (2017: 53.27%). The main factor for the lower ETR on the net
loss before tax position was the impairment processed during FY18, which is not deductible for tax purposes.
Furthermore, non-recognition of losses in Malta, owing to uncertainty over their future utilisation, decreased ETR
further.
These downward pressures on ETR were mitigated by adjustments to prior periods and recognition of losses not
previously recognised, the latter being primarily on account of permitted recognition against outstanding deferred tax
liabilities of the same entity.
Movement on trading losses during 2018 are as follows:
Recognised trading losses
As at 1 November 2017 Restated
Impact of deferred tax recognition at local rate
Recognised during the year
Utilised during the year
Unrecognised trading losses
UK
unrelieved
trading
losses
£000
Foreign
unrelieved
trading
losses
£000
Total
unrelieved
trading
losses
£000
Tax effect
£000
327
-
-
(327)
-
819
-
1,858
(1,491)
1,186
1,146
-
1,858
(1,818)
1,186
338
(107)
467
(351)
347
Losses not recognised
(1,698)
(8,693)
(10,391)
(2,978)
(1,698)
(8,693)
(10,391)
(2,978)
61
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
8 INCOME TAX (CONTINUED)
For comparative purposes, movement on trading losses during 2017 were as follows:
Recognised trading losses
As at 1 November 2016
Impact of deferred tax recognition at local rate
Recognised during the year
Utilised during the year
Unrecognised trading losses
UK
unrelieved
trading
losses
£000
Foreign
unrelieved
trading
losses
£000
Total
unrelieved
trading
losses
£000
Tax effect
£000
-
-
327
-
327
2,398
-
-
(1,579)
819
2,398
-
327
(1,579)
1,146
432
384
59
(537)
338
Losses not recognised
(2,137)
(9,983)
(12,120)
(3,268)
(2,137)
(9,983)
(12,120)
(3,268)
The UK trading losses remaining unrecognised at the end of the year relate to brought-forward losses in respect
of loss-making trades. The foreign losses recognised during the year were in France and are expected to be utilised
in future. The foreign losses utilised during the year were in the US and Germany. The closing unrecognised losses
of £10,391,000 relate to Malta, the UK and Germany. The decision was made to maintain derecognition of these
assets until there is more certainty over their future utilisation. Across the year the total deferred tax asset in respect
of unrelieved trading losses increased from £338,000 to £347,000.
9 DISCONTINUED OPERATIONS
On 12 September 2018 the Group resolved to seek to dispose of the Digital division which carried out the Groups
digital consultancy operations. The disposal was effected in order to limit the Group’s exposure to future losses
and liabilities and improve the working capital position. The disposal was completed on 2nd November 2018, on
which date control of the Digital division was passed to the acquirer.
The results of the discontinued operations, which have been excluded in the consolidated income statement, were
as follows:
Revenue
Expenses
Loss before tax
Attributable tax expense
Net loss attributable to discontinued operations
2018
£000
Restated
2017
£000
6,221
(15,964)
12,133
(14,135)
(9,743)
(2,002)
676
250
(9,067)
(1,752)
During the year, Digital contributed (£1,856k) (2017: (£522k)) to the Group’s net operating cash flows, paid £Nil
(2017: £Nil) in respect of investing and financing activities.
On 12th September 2018 the board resolved to dispose of the digital consultancy business and negotiations with
several interested parties subsequently took place. The sale was completed on 2nd November 2018. These
operations have been classified as a disposal group held for sale and presented separately on the balance sheet.
Non-current assets were fully impaired at April 2018 with an impairment loss of £6.3m recognised. No further
impairment loss has been recognised on the classification of these operations held for sale.
62
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
9 DISCONTINUED OPERATIONS (CONTINUED)
The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:
Trade and other receivables
Total assets classified as held for sale
Trade and other payables
Other liabilities
Total liabilities associated with assets classified as held for sale
Net assets of disposal group
10 EARNINGS PER SHARE
2018
£000
1,114
1,114
384
579
963
151
The earnings per ordinary share is calculated by reference to the earnings attributable to ordinary shareholders
divided by the weighted average number of shares in issue during each period, as follows:
Continuing Operations
(Loss) / profit for the year
Basic earnings per share
Weighted average number of shares in issue
Basic earnings per share
Weighted average number of shares in issue
Add back:
Treasury shares
ESOP shares
Weighted average allotted, called up and fully paid share capital
Diluted earnings per share
Weighted average number of shares in issue used in basic earnings per
share calculation
Dilutive share options
Weighted average number of shares in issue used in dilutive earnings per
share calculation
2018
£’000
Restated
2017
£’000
(26,975)
2,111
413,116,107
397,125,960
(6.53)p
0.53p
413,116,107
397,125,960
1,491,219
1,214,256
415,821,582
2,366,219
985,589
400,477,768
413,116,107
397,125,960
3,613,752
416,729,859
11,664,111
408,790,071
Diluted earnings per share
(6.47)p
0.52p
63
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
10 EARNINGS PER SHARE (CONTINUED)
Adjusted earnings per share
(Loss) / profit for the year
Add back:
Amortisation on acquired intangibles
Impairment
Acquisition costs
Restructuring costs
Tax effect
Adjusted profit for year
2018
£000
2017
£000
(26,975)
2,111
4,495
33,255
(856)
435
(937)
9,417
4,444
2,681
8
377
(964)
8,657
Weighted average number of shares in issue - basic
Weighted average number of shares in issue - diluted
413,116,107
416,729,859
397,125,960
408,790,071
Adjusted earnings per share
Adjusted diluted earnings per share
Discontinued Operations
Loss for the year
Basic earnings per share
Weighted average number of shares in issue
Basic earnings per share
Weighted average number of shares in issue
Add back:
Treasury shares
ESOP shares
Weighted average allotted, called up and fully paid share capital
Diluted earnings per share
Weighted average number of shares in issue used in basic earnings per
share calculation
Dilutive share options
Weighted average number of shares in issue used in dilutive earnings per
share calculation
2.28p
2.26p
2.18p
2.12p
2018
£’000
Restated
2017
£’000
(9,067)
(1,752)
413,116,107
397,125,960
(2.19)p
(0.44)p
413,116,107
397,125,960
1,491,219
1,214,256
415,821,582
2,366,219
985,589
400,477,768
413,116,107
397,125,960
3,613,752
416,729,859
11,664,111
408,790,071
Diluted earnings per share
(2.18)p
(0.43)p
64
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
10 EARNINGS PER SHARE (CONTINUED)
Total Operations
(Loss) / profit for the year
Basic earnings per share
Weighted average number of shares in issue
Basic earnings per share
Weighted average number of shares in issue
Add back:
Treasury shares
ESOP shares
Weighted average allotted, called up and fully paid share capital
Diluted earnings per share
Weighted average number of shares in issue used in basic earnings per
share calculation
Dilutive share options
Weighted average number of shares in issue used in dilutive earnings per
share calculation
2018
£’000
Restated
2017
£’000
(36,042)
359
413,116,107
397,125,960
(8.72)p
0.09p
413,116,107
397,125,960
1,491,219
1,214,256
415,821,582
2,366,219
985,589
400,477,768
413,116,107
397,125,960
3,613,752
416,729,859
11,664,111
408,790,071
Diluted earnings per share
(8.65)p
0.09p
Adjusted earnings per share
(Loss) / profit for the year
Add back:
Amortisation on acquired intangibles
Impairment
Acquisition costs
Restructuring costs
Tax effect
Adjusted profit for year
2018
£000
(36,042)
4,897
39,530
(856)
630
(1,050)
7,109
2017
£000
359
5,247
2,681
8
704
(1,190)
7,809
Weighted average number of shares in issue - basic
Weighted average number of shares in issue - diluted
413,116,107
416,729,859
397,125,960
408,790,071
Adjusted earnings per share
Adjusted diluted earnings per share
1.72p
1.71p
1.97p
1.91p
65
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
11 PROPERTY, PLANT AND EQUIPMENT
Computer
hardware
£000
Fixtures,
fittings and
equipment
£000
Library
books and
journals
£000
Investment
property
£000
Cost
At 1 November 2016
FX on opening balances
Additions
Additions on acquisition
Internal reallocation to asset category
Disposals
At 31 October 2017 restated
FX on opening balances
Additions
Additions on acquisition
Assets fully written down but still in use
Disposals
Internal reallocation of asset category
At 31 October 2018
Depreciation
At 1 November 2016
Provided in the year
Eliminated on disposal
Internal reallocation of asset category
At 31 October 2017 restated
FX on opening balances
Provided in the year
Assets fully written down but still in use
Eliminated on disposal
Internal reallocation of asset category
At 31 October 2018
Net book amount at 31 October 2018
Net book amount at 31 October 2017
1,257
-
1,449
99
135
(806)
2,134
21
595
1
1,375
(1,094)
6
3,038
452
887
(731)
69
677
51
994
1,276
(1,012)
5
1,991
1,047
1,457
483
9
38
212
(137)
(102)
503
21
10
-
1,611
(858)
(6)
1,281
195
251
(138)
(85)
223
78
146
1,535
(858)
(5)
1,119
162
280
245
-
3
-
-
(233)
15
-
1
-
1
(6)
-
11
223
19
(233)
-
9
-
4
2
(6)
-
9
2
6
-
-
-
384
-
(384)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Group has pledged the above assets to secure banking facilities granted to the Group.
Total
£000
1,985
9
1,490
695
(2)
(1,525)
2,652
42
606
1
2,987
(1,958)
-
4,330
870
1,157
(1,102)
(16)
909
129
1,144
2,813
(1,876)
-
3,119
1,211
1,743
66
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
12 INTANGIBLE ASSETS
Develop
-ment
costs
£000
Software
£000
Database
£000
Order
backlog
£000
Total
£000
Cost
At 1 November 2016
Revaluation of opening balance
Additions
Additions on acquisition
Disposals
Fair value adjustment
At 31 October 2017
Revaluation of opening balance
Additions
Additions on acquisition
Additions on hive-in
Impairment
Disposals
Disposals on hive-in
Fair value adjustment
At 31 October 2018
Amortisation
At 1 November 2016
Revaluation of opening balance
Amortisation for the year
Impairment
Disposals
At 31 October 2017
Revaluation of opening balance
Amortisation for the year
Additions on acquisition
Impairment
Disposals
At 31 October 2018
Carrying amount at 31 October
2018
Carrying amount at 31 October
2017
Customer
relation-
ships
£000
Goodwill
£000
52,646
-
-
24,516
-
101
77,263
-
-
240
-
-
-
-
61
77,564
647
-
-
3,231
-
3,878
-
-
-
27,831
-
31,709
22,005
-
-
12,312
(3,510)
-
30,807
-
-
-
-
-
-
-
-
30,807
11,239
-
2,085
-
(3,510)
9,814
-
1,909
-
5,754
-
17,477
Trade
names
£000
11,537
-
-
2,714
(1,383)
(275)
12,593
-
-
-
-
-
-
-
-
12,593
4,747
-
928
-
(1,383)
4,292
-
859
-
2,717
-
7,868
17,074
921
5,362
(7,080)
(275)
16,002
1
222
14
14
-
(189)
(14)
(12)
16,038
9,188
-
3,104
-
(7,075)
5,217
-
2,979
5
2,041
(189)
10,053
10,236
95
4,767
1,545
(3,972)
-
12,671
17
3,646
-
-
(1,694)
(524)
-
-
14,116
5,263
13
2,305
-
(3,972)
3,609
7
2,784
-
(507)
(524)
5,369
45,855
13,330
4,725
5,985
8,747
73,385
20,993
8,301
10,785
9,062
569
-
-
-
(569)
-
-
-
-
-
-
-
-
-
-
-
569
-
-
-
(569)
-
-
-
-
-
-
-
-
-
(4)
-
170
(4,200)
-
4,341 118,408
91
5,688
46,619
(20,714)
(449)
307 149,643
22
3,868
254
14
(1,694)
(713)
(14)
49
311 151,429
4
-
-
-
-
-
-
4,236
(3)
46
-
(4,200)
79
3
84
-
-
-
166
35,889
10
8,468
3,231
(20,709)
26,889
10
8,615
5
37,836
(713)
72,642
145
78,787
228 122,754
During the year, goodwill and intangibles were reviewed for impairment in accordance with IAS 36, ‘Impairment of Assets’.
An impairment charge of £25,375,931 (2017: £2,681,000) was processed in the period in relation to the Health division,
£6,079,471 (2017: Nil) in relation to the PSS division, £6,274,696 (2017: Nil) in relation to the Digital division and £1,800,000
(2017: Nil) in relation to the EIM division. An impairment charge of £550,000 was processed in the prior year period in
relation to a cash refund relating to the historical acquisition price of Rippleffect Limited.
Fair value adjustments are in relation to the 6PM Group, Halarose Limited and Atlas Adviesgroep Twente B.V. Further
information on these fair value adjustments is provided in note 26.
67
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
12 INTANGIBLE ASSETS (CONTINUED)
Impairment test for goodwill
For this review, goodwill was allocated to individual Cash Generating Units (CGU) on the basis of the Group’s
operations as disclosed in the segmental analysis. As the Board reviews results on a segmental level, the Group
monitors goodwill on the same basis.
The carrying value of goodwill by each CGU is as follows:
Cash Generating Units (CGU)
Public Sector Software: Local Authority
Public Sector Software: Transport
Public Sector Software: Social Care
Public Sector Software: Computer Aided Facilities Management
Engineering Information Management
Content
Digital
Health
2018
£000
21,803
-
2,443
4,222
9,974
7,413
-
-
45,855
2017
£000
21,792
3,559
2,443
4,222
11,773
7,154
2,431
20,011
73,385
The recoverable amount of all CGUs has been determined using value-in-use calculations. These calculations use pre-
tax cash flow projections based on financial budgets approved by management covering the next five financial years.
The key assumptions used in the financial budgets relate to revenue and EBITDA growth targets. Cash flows beyond
this period are extrapolated using the estimated growth rates stated below. Growth rates are reviewed in line with
historic actuals to ensure reasonableness and are based on an increase in market share.
For value-in-use calculations, the growth rates and margins used to estimate future performance are based on financial
year 2019 budgets (as approved by the Board) which is management’s best estimate of short term performance based
on an assessment of market opportunities and macro-economic conditions. In the year to 31 October 2018, the
Weighted Average Cost of Capital for each CGU has been used as an appropriate discount rate to apply to cash flows.
The same basis was used in the year to 31 October 2017.
The assumptions used for the value-in-use calculations are as follows and are considered appropriate for each of the
risk profiles of the respective CGUs:
Cash Generating Unit (CGU)
Public Sector Software
Engineering Information Management
Content
Digital
Health
Discount rate
Current year
11.7%
13.9%
12.2%
N/A
11.7%
Growth rate
Current year
1.5%
1.5%
1.5%
1.5%
1.5%
Discount rate
Prior year
11.19%
10.55%
12.04%
11.05%
10.55%
Growth rate
Prior year
2%
2%
2%
2%
2%
At April 2018, management conducted a detailed review of the weighted average cost of capital inputs which were used
as the basis of the discount rate calculation. This lead to an increase in the discount rates which have been applied, as
shown above.
Individual Weighted Average Costs of Capital were calculated for each CGU and adjusted for the market’s assessment
of the risks attaching to each CGU’s cash flows. The Weighted Average Cost of Capital is recalculated at each period
end.
Management considered the level of intangible assets within the Group in comparison to the future budgets and have
processed an impairment charge of £39,530,000 within the year (2017: £2,681,000). This is broken down on a divisional
level as; PSS Transport £6,079,000, Health £25,376,000 (2017: £2,681,000), EIM £1,800,000, Digital £6,275,000.
The Group has conducted sensitivity analysis on the impairment test of each CGU and the group of units carrying
value. Sensitivities have been run on the discount rate applied and management are satisfied that a reasonable
increase in the discount rate of 1% would not lead to the carrying amount of each CGU exceeding the recoverable
amount.
68
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
12 INTANGIBLE ASSETS (CONTINUED)
Sensitivities have also been run on cash flow forecasts for all CGUs reducing the growth rate from 0% to -2%.
Management are satisfied that this change would not lead to the carrying amount of each CGU exceeding the
recoverable amount.
13 INVESTMENTS
The investment relates to a 22.5% (2017: 22.5%) shareholding Javaili LLC a company incorporated in USA. This
investment was acquired as part of the acquisition of the 6PM Group in February 2017.
14 DEFERRED INCOME TAX
Deferred tax assets and liabilities are summarised as follows:
Deferred tax assets
Deferred tax liabilities (non-current)
The movement in the year in the net deferred tax provision was as follows:
At 1 November
Credit to income for the year
Adjustment for changes in rate
Prior year adjustment
Other movements
Charged to goodwill for the year
Transferred to equity
At 31 October
2018
£000
Restated
2017
£000
1,107
1,086
(3,724)
(2,617)
(7,010)
(5,924)
2018
£000
(5,924)
1,035
(452)
(1)
8
2,717
-
(2,617)
2017
£000
(2,237)
429
(3)
(20)
56
(3,697)
(452)
(5,924)
The movement in deferred income tax assets and liabilities during the year is as follows:
Share-
based
payments
£000
Other
temporary
differences
£000
Tax losses
carried
forward
£000
Accelerated
tax
depreciation
£000
Total
deferred
tax asset
£000
Total
deferred
tax liability
£000
At 1 November 2016
Charge to income
Charge to equity
Changes in rate
Deferred tax recognised
on acquisition
At 31 October 2017
At 1 November 2017
Charge to income
Charge to equity
Changes in rate
Deferred tax recognised
on acquisition
At 31 October 2018
1,162
(515)
(452)
-
-
195
195
(78)
-
(11)
-
106
84
(51)
-
-
8
41
41
9
-
(8)
-
42
431
(152)
-
(5)
62
336
336
(9)
-
20
-
347
437
77
-
-
-
514
514
126
-
(28)
-
612
2,114
(641)
(452)
(5)
70
1,086
1,086
48
-
(27)
-
1,107
(4,351)
1,038
-
-
(3,697)
(7,010)
(7,010)
971
-
(402)
2,717
(3,724)
The deferred tax liability relates to deferred tax on intangible assets acquired on acquisition of subsidiaries.
69
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
15 FINANCIAL ASSETS AND LIABILITIES
Categories of financial assets and liabilities
The disclosures detailed below are as required by IFRS 7 ’Financial Instruments: Disclosures’. The carrying amounts
presented on the Consolidated Balance Sheet relate to the following categories of assets and liabilities:
Financial assets
Financial assets measured at amortised cost:
Current:
Trade and other receivables
Cash and cash equivalents
Loans and receivables:
Non-current:
Amounts recoverable on contracts
Current:
Amounts recoverable on contracts
Financial liabilities
Financial liabilities measured at amortised cost:
Non-current:
Bonds in issue
Bank borrowings
Current:
Bank borrowings
Trade and other payables
Other liabilities
Financial liabilities measured at fair value through profit or
loss:
Current:
Other liabilities*
Note
16
17
16
16
Note
21
22
22
18
19
2018
£000
10,704
5,534
16,238
7,036
7,036
12,117
12,117
2018
£000
11,491
22,505
33,996
3,289
7,941
1,898
13,128
Restated
2017
£000
18,567
3,248
21,815
8,738
8,738
11,864
11,864
Restated
2017
£000
11,238
21,519
32,757
3,102
10,893
2,714
16,709
750
750
1,600
1,600
*Hierarchy 3 being inputs for the asset or liability which are not based on observable market data. The current year
and prior year liabilities relates to deferred consideration on the acquisition of Open Objects Limited.
70
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
15 FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
The Group’s financial liabilities per the fair value hierarchy classifications under IFRS 13 ‘Financial Instruments:
Disclosures’ are described below:
Fair value at
31 October
2018
£000
750
Category of
financial
liability
Contingent
consideration
due on
acquisitions
Level in
hierarchy
Description of
valuation technique
Inputs used for financial
model
3 Based on future
revenue and
probability that vendor
will meet obligations
under sale and
purchase agreement
Management estimate on
probability and timescale
of vendors meeting
revenue targets specified
in sale and purchase
agreement
Total gains
recognised
in profit or
loss
£000
£684
There have been no changes to valuation techniques or any amounts recognised through ‘Other Comprehensive
Income’. The adjustment of £684k is included in ‘Acquisition credits’ in the Consolidated Statement of Comprehensive
Income.
16 TRADE AND OTHER RECEIVABLES
Trade receivables, gross
Allowance for credit losses
Trade receivables, net
Other receivables
Amounts recoverable on contracts
Financial assets
Prepayments
Non-financial assets
Trade and other receivables due within one year
Amounts recoverable on contracts
Trade and other receivables due after one year
2018
£000
10,908
(204)
10,704
952
12,117
23,773
2,414
2,414
26,187
2018
£000
7,036
7,036
Restated
2017
£000
19,131
(564)
18,567
984
11,864
31,415
2,590
2,590
34,005
2017
£000
8,738
8,738
Total trade receivables (net of allowances) held by the Group at 31 October 2018 amounted to £11,648k (2017:
£18,567k), comprising the amount presented above of £10,704k (2017: £18,567k) and trade receivables classified as
held for sale of £944k (2017: £Nil).
The carrying amount of trade and other receivables approximates to their fair value, which has been calculated based
on expectations of debt recovery from historic performances feeding into impairment provision calculations.
Trade receivables are reviewed regularly for impairment and judgement made as to any likely impairment based on
historic trends and the latest communication with customers.
Amounts recoverable on contracts represent work completed and delivered to the customer but due to the contractual
payment terms have not yet been invoiced. £15.3m (2017: £16.6m) of the balance is in relation to deferred payment
deals on local authority contracts, which typically have three to five year payment terms. Amounts recoverable due
after one year have been discounted to amortised cost.
71
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
16 TRADE AND OTHER RECEIVABLES (CONTINUED)
All of the closing Group trade receivables are in UK sterling with the exception of:
Euros
Australian Dollars
US Dollars
Canadian Dollars
Swiss Franc
Norwegian Krone
New Zealand Dollars
Polish Zloty
2017
2018
€4,768,000
€4,509,840
AUD35,000
AUD79,000
$3,091,000
$1,646,950
-
CAD322,000
-
SWF12,000
- NOK386,000
NZD16,000
-
PLZ1,000
PLZ1,000
Credit quality of financial assets
The maximum exposure for the Group to credit risk for trade receivables at the reporting date by type of customer
was:
Local authorities and other public bodies
Private companies
2018
£000
5,231
5,677
10,908
Restated
2017
£000
10,357
8,774
19,131
The Idox Group is required to adopt IFRS 9 for the year ending 31 October 2019. The Group is currently designing
a new report within the ERP system which will collate the relevant information for the purposes of complying with
the standards. The full impact of adoption will depend on a number of factors including the financial instruments
within the group, macroeconomic conditions and judgements over credit risk and expected credit losses. Overall,
adoption of IFRS 9 is not expected to have a material impact on the Group.
The ageing of trade receivables at the reporting date for the Group was:
Not past due
Past due 0 to 30 days
Past due 31 to 60 days
More than 60 days
Gross
2018
£000
Impairment
2018
£000
Restated
Gross
2017
£000
Restated
Impairment
2017
£000
7,954
780
343
1,831
10,908
-
-
-
204
204
11,509
2,425
1,155
4,042
19,131
-
-
-
564
564
Movements in the provision for impairment of receivables for the Group were as follows:
At 1 November
Charge for the year
Utilised
At 31 October
2018
£000
564
403
(763)
204
Restated
2017
£000
437
760
(633)
564
The provision allowance in respect of trade receivables is used to record impairment losses unless the Group is
satisfied that no recovery of the amount owing is possible. At that point, the amounts are considered irrecoverable
and are written off against the trade receivable directly. Where trade receivables are past due, an assessment is
made of individual customers and the outstanding balance.
72
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
17 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Cash and cash equivalents per cash flow statements
The credit quality of the holders of the cash at bank is A and AA rated.
18 TRADE AND OTHER PAYABLES
Trade payables
Accruals
2018
£000
5,534
5,534
2017
£000
3,248
3,248
2018
£000
3,721
4,220
7,941
Restated
2017
£000
6,194
4,699
10,893
Total trade payables (net of allowances) held by the Group at 31 October 2018 amounted to £3,874k (2017: £6,194k),
comprising the amount presented above of £3,721k (2017: £6,194k) and trade payables classified as held for sale of
£153k (2017: £Nil).
The carrying values of trade and other payables are considered to be reasonable approximations of fair value. Accruals
represent liabilities which have been recognised at the balance sheet date. The majority of these will be paid during
the next six months.
19 OTHER LIABILITIES
Current:
Social security and other taxes
Other payables – deferred consideration
Other payables
Deferred income
Other Liabilities payable within one year
Deferred income
Other Liabilities payable after one year
2018
£000
2,732
750
1,898
15,736
21,116
Restated
2017
£000
4,884
1,600
2,714
18,148
27,346
1,288
1,288
1,616
1,616
Deferred income represents software revenue, where billing milestones have been reached but the appropriate
proportion of work has not been completed, and maintenance, managed service and subscription revenues that are
spread over the period, typically one year, for which the service is supplied.
20 PROVISIONS
At 1 November
Provision made during the year
Provision utilised during the year
At 31 October
2018
£000
161
8
(79)
90
2017
£000
39
161
(39)
161
The opening and closing provisions relate to estimated dilapidation costs expected to arise on exit of leased
properties. The full provision of £90k is expected to be payable during the year ending 31 October 2019.
73
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
21 BONDS IN ISSUE
Bonds in issue are measured at amortised cost.
130,000 bonds at €100 each
2018
£000
11,491
11,491
Restated
2017
£000
11,238
11,238
The bonds were acquired following the acquisition of 6PM Holdings plc. The bonds were issued in 2015 at a nominal
value of €100 each bearing interest at 5.1% per annum. They are redeemable at par value in 2025. Interest on the
bonds is paid annually in arrears in July.
The bonds are listed on the Official Companies List of the Malta Stock Exchange.
22 BORROWINGS
All borrowings are held at amortised cost and after set-off for unamortised loan facility fees:
Current:
Bank borrowings
Non-current:
Bank borrowings
Total borrowings
2018
£000
Restated
2017
£000
3,289
3,102
22,505
21,519
25,794
24,621
Reconciliation of liabilities arising from financing activities:
Year ended 31 October 2018
Year ended 31 October 2017
As at 1 November 2017
Cash movements:
Repayment of borrowings
New loans
Loans on acquisition
Non-cash movements:
Movement in amortisation
Movement in EIR
Adjustment
As at 31 October 2018
Long-term
borrowings
£000
21,519
Short-term
borrowings
£000
3,102
Long-term
borrowings
£000
26,410
Short-term
borrowings
£000
2,425
(5,500)
6,500
-
-
(14)
22,505
-
97
-
90
(9,063)
3,500
538
90
100
-
3,289
(14)
25,794
34
21,519
-
692
-
-
(15)
3,102
Total
£000
24,621
(5,500)
6,597
-
Total
£000
28,835
(9,063)
4,192
538
100
19
24,621
The Group has two loan facilities in place through a two-bank facility with Royal Bank of Scotland and Silicon Valley
Bank. The facilities consist of a term loan of £7m (2017: £9.5m) and a revolving credit facility of £23m (2017: £23m).
The facility is available until February 2020.
At the Balance Sheet date, the term loan had an outstanding balance of £7m (2017: £9.5m) and during the period the
loan was held, the average interest rate was 2.98% (2017: 2.81%).
At the Balance Sheet date, the revolving credit facility had an outstanding balance of £18m (2017: £14.5m) and during
the period the loan was held, the average interest rate was 3.05% (2017: 2.58%).
There are unamortised loan fees of £Nil (2017: £90,000) at the balance sheet date.
74
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
22 BORROWINGS (CONTINUED)
An accounting adjustment of £5,000 (2017: £19,000) has been processed during the period to take into account the
effective rate of interest on the bank facilities.
As security for the above loans, Royal Bank of Scotland and Silicon Valley Bank hold a fixed and floating charge over
the assets of Idox plc and certain subsidiaries, a guarantee supported by Idox plc and certain subsidiaries and a share
pledge in respect of the entire issued share capital of each subsidiary company.
The Directors estimate that the fair value of the Group’s borrowing is not significantly different to the carrying value.
23 RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s principal financial instruments comprise cash and cash equivalents, short term deposits, bonds and bank
borrowings. The main purpose of these financial instruments is to finance the Group’s operations. The Group has other
financial instruments, which mainly comprise trade receivables and trade payables that arise directly from its
operations.
Risk management is carried out by the finance department under policies approved by the Board. The Group’s finance
department identifies, evaluates and manages financial risks.
The Board provides guidance on overall risk management including foreign exchange risk, interest rate risk, credit risk
and investment of excess liquidity. The Board has evaluated the risks and is satisfied that the risk management
objectives are met.
The impact of the risks required to be discussed under IFRS 7 are detailed below:
Market risk
(i) Foreign exchange risk
Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated
in a currency that is not the functional currency of the operations. The Group has minimal exposure to foreign exchange
risk as a result of natural hedges arising between sales and cost transactions.
Cash flow and fair value interest rate risk
(ii)
The Group is exposed to interest rate risk in respect of cash balances held with banks and other highly rated
counterparties.
The Group’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the
Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
During 2018 and 2017, all the Group’s borrowings at variable rates were denominated in UK Sterling. The average
interest rate during the year ended 31 October 2018 was 2.98% (2017: 2.81%) for the term loan and 3.05% (2017:
2.58%) for the revolving credit facility. Interest payable in the year was £775,000 (2017: £709,000). If the average
interest rate during the year had been 1% different, this would have had an impact of £256,000 (2017: £266,000) on
the interest payable during the period.
Credit risk
The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at the
reporting date, as summarised below:
Classes of financial assets – carrying amounts
Cash and cash equivalents
Trade receivables
Amounts recoverable on contracts
Other receivables
Financial assets
2018
£000
5,534
10,704
19,153
952
36,343
Restated
2017
£000
3,248
18,567
20,602
984
43,401
Credit risk is managed on a Group basis. Credit risks arise from cash and cash equivalents and deposits with banks
and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed
transactions.
75
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
23 RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
The Group’s credit risk is primarily attributable to its trade receivables. It is the policy of the Group to present the
amounts in the balance sheet net of allowances for doubtful receivables, estimated by the Group’s management based
on prior experience and the current economic environment. The Group reviews the reliability of its customers on a
regular basis and these reviews take into account the nature of the Group’s trading history with the customer.
The credit risk on liquid funds is limited because the majority of funds are held with two banks with high credit-ratings
assigned by international credit-rating agencies. Management does not expect any losses from non-performance of
these counterparties.
None of the Group’s financial assets are secured by collateral or other credit enhancements.
Liquidity risk
The Group closely monitors its access to bank and other credit facilities in comparison to its outstanding commitments
on a regular basis, to ensure that it has sufficient funds to meet obligations of the Group as they fall due.
The Board receives regular debt management forecasts, which estimate the cash inflows and outflows over the next
twelve months, so that management can ensure that sufficient financing is in place as it is required.
Detailed analysis of the debt facilities taken out and available to the Group are disclosed in note 22.
As at 31 October 2018, the Group’s financial liabilities have contractual maturities (including interest payments where
applicable) as summarised below:
Bonds in issue
Bank borrowings
Trade and other payables
Within 1
month
£000
-
838
7,697
Current
1 - 3
months
£000
3 - 12
months
£000
Non-current
1 - 5
years
£000
Later than 5
years
£000
-
1,436
158
440
1,744
66
2,356
22,795
180
12,670
-
223
This compares to the maturity of the Group’s financial liabilities in the previous restated reporting period as follows:
Bonds in issue
Bank borrowings
Trade and other payables
Within 1
month
£000
-
724
10,208
Current
1 - 3
months
£000
3 - 12
months
£000
Non-current
1 - 5
years
£000
Later than 5
years
£000
-
1,389
216
437
1,622
66
2,341
21,773
180
13,222
-
223
The above amounts reflect the contractual undiscounted cash flows, which may differ from the carrying values of the
liabilities at the reporting date.
76
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
23 RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, in
order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital
structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce
debts.
Capital for the reporting periods under review is summarised as follows:
Total equity
Less unrestricted cash and cash equivalents (note 17)
Total equity
Bonds in issue (note 21)
Borrowings (note 22)
2018
£000
49,740
(5,534)
44,206
49,740
11,491
25,794
87,025
Restated
2017
£000
88,983
(3,248)
85,735
88,983
11,238
24,621
124,842
Capital-to-overall-financing ratio
0.51
0.69
24 SHARE CAPITAL
Authorised:
650,000,000 ordinary shares of 1p each
Allotted, called up and fully paid:
As at 1 November
Issued and allotted during the year
416,908,167 ordinary shares of 1p each (2017: 414,464,265)
2018
£000
2017
£000
6,500
6,500
4,145
24
4,169
3,640
505
4,145
Movement in issued share capital in the year
During the year to 31 October 2018, three employees exercised share options across four separate exercises. To
satisfy the exercise of these transactions, the Company issued and allotted 2,443,902 new ordinary shares of 1p
each.
The Company has one class of ordinary share which carries no right to fixed income.
At 31 October 2018, there were 3,190,648 (2017: 2,479,532) shares in issue under ESOP. During the year, the
average issue share price was 35p (2017: 67p).
At 31 October 2018, there were 1,491,219 (2017: 1,491,219) shares held in treasury.
77
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
25 SHARE OPTIONS
The Company has an unapproved share option scheme for all employees (including Directors). All share options are
exercisable at a price equal to the average market price of the Company's shares on the date of grant. The vesting
period is typically quarterly from the date of grant, and at the discretion of the Board. Per the contractual agreements,
the options are settled in equity once exercised.
An Employee Share Investment Trust is in place to allow employees a tax efficient way of investing in the Company.
The Company purchases matching shares which become the property of the employee after a three year vesting
period.
Details of all share options over 1p Ordinary shares, falling within the measurement and recognition criteria of IFRS 2
“Share-based Payment” and forming part of the unapproved share scheme, including their contractual life and exercise
prices, are as follows:
At start of year
Granted
Exercised
Lapsed At end of year
Exercise
price
Exercise
date from
Exercise
date to
1,609,756
2,250,000
390,000
180,000
200,000
446,668
800,000
2,395,000
700,000
8,971,424
-
-
-
-
-
-
-
-
-
-
243,902
250,000
50,000
-
-
-
-
-
-
543,902
-
-
-
-
-
-
-
-
-
-
1,365,854
10.25p
Mar 2010
Mar 2020
2,000,000
20.00p
Mar 2011
Mar 2021
340,000
18.00p
Mar 2011
Mar 2021
180,000
35.00p
Apr 2012
Apr 2022
200,000
35.75p
Jul 2013
Jul 2023
446,668
39.00p
Jul 2014
Jun 2024
800,000
38.38p
Feb 2015
Feb 2025
2,395,000
50.00p
Apr 2016
Apr 2026
700,000
8,427,522
50.00p
Apr 2016
Apr 2026
The following table sets out the number of share options and associated weighted average exercise price (WAEP)
outstanding during the year:
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
2018
2017
No.
8,971,424
-
(543,902)
-
8,427,522
8,427,522
WAEP
Pence
31.75
15.44
32.80
32.80
No.
17,135,395
-
(8,163,971)
-
8,971,424
8,796,424
WAEP
Pence
25.95
-
19.57
-
31.75
31.39
The share options outstanding at the end of the year have a weighted average remaining contractual life of 5 years.
The share options exercised during the year had a weighted average exercise price of 15.44p and a weighted average
market price of 34.73p.
No share options were granted during the year ended 31 October 2018.
The Group recognised a total charge of £6,000 (2017: £146,000) for equity-settled share-based payment transactions
related to the unapproved share option scheme during the year. The charge of £6,000 (2017: £146,000) related to
share options granted and £Nil (2017: £Nil) related to share options exercised.
78
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
25 SHARE OPTIONS (CONTINUED)
Long-Term Incentive Plan (LTIP)
During the year, no further options were granted under the Long-Term Incentive Plan.
The Group recognised a total charge of £44,000 (2017: £178,000) for equity-settled share-based payment transactions
related to the LTIP during the year. The total cost was in relation to share options granted.
The number of options in the LTIP scheme is as follows:
2018
No.
2017
No.
Outstanding at the beginning of the year
3,600,000
3,600,000
Granted
Forfeited
Vested
Outstanding at the end of the year
Exercisable at the end of the year
-
(1,700,000)
(1,900,000)
-
-
-
-
-
3,600,000
-
Richard Kellett-Clarke stepped down as CEO on 9 November 2016. The Nomination & Remuneration Committee of
the Idox Board agreed that Richard’s outstanding LTIP award of 1,900,000 shares would become unconditional. The
vesting date was 14 March 2018.
As part of the conditions of the LTIP under a Lock In deed, Richard is restricted from selling any or all of them, unless
required to settle the tax liability, for a further two years from that date. Sufficient shares were sold on 27 March 2018
at a price of 29p to cover the resulting tax liability.
Andrew Riley’s LTIP entitlement, consisting of 1,700,000 shares at an exercise price of 1p, was forfeited during the
year on account of the failure to meet all specified criteria for vestment.
79
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
26 ACQUISITIONS
Atlas Adviesgroep Twente B.V.
On 1 January 2018, the Group acquired the entire share capital of Atlas Adviesgroep Twente B.V. ("Atlas") for a total
consideration of €270,000 (£240,000) in cash. Atlas is a small grants consultancy business based in the Netherlands,
working predominantly with local and regional government bodies, and will complement the Group’s existing grants
business in the Netherlands.
Goodwill arising on the acquisition of Atlas has been capitalised and consists largely of the value of the workforce,
synergies and economies of scale expected from combining the operations of Atlas with Idox. None of the goodwill
recognised is expected to be deductible for income tax purposes. The purchase of Atlas has been accounted for using
the acquisition method of accounting.
Property, plant and equipment
Trade receivables
Other receivables
Deferred tax asset
Cash at bank
Total Assets
Trade payables
Other liabilities
Deferred income
Social security and other taxes
Total Liabilities
Net Assets
Purchased goodwill capitalised
Total consideration
Satisfied by:
Cash to vendor
Earn out consideration
Total consideration
Book and
fair value
£000
10
60
1
27
30
128
(51)
(23)
(1)
(53)
(128)
-
240
240
222
18
240
The revenue included in the consolidated statement of comprehensive income since 1 January 2018 contributed by
Atlas was £396,000. Atlas also made a profit after tax of £85,000 for the same period. If Atlas had been included from
1 November 2017, it would have contributed £475,000 to Group revenue and a profit after tax of £102,000.
Acquisition costs of £3,000 have been written off in the consolidated statement of comprehensive income.
During the period there have been fair value adjustments in respect of the acquisition of Atlas Adviesgroep Twente
B.V. The adjustments totalled £19,000. These adjustments were processed to ensure pre-acquisition related costs
were recognised in the correct period.
6PM Holdings plc
During the period there have been further fair value adjustments in respect of the acquisition of 6PM Holdings plc. The
adjustments totalled £31,000.
A number of adjustments were processed to ensure pre-acquisition related costs were recognised in the correct period.
This resulted in an adjustment of £31,000 in respect of accrued expenses.
80
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
26 ACQUISITIONS (CONTINUED)
Halarose Holdings Limited
During the period there have been further fair value adjustments in respect of the acquisition of Halarose Holdings
Limited. The adjustments totalled £12,000. These adjustments were processed to align company policies with Idox
Group policies, specifically in relation to Fixtures, Fittings and Intangible Assets.
Acquisition cash flows
Acquisition cash flows in the year are as follows:
Subsidiaries acquired during the year:
Atlas Adviesgrope Twente B.V.
27 OPERATING LEASE COMMITMENTS
Net cash
outflow
£000
209
209
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Amounts due:
Within one year
Between one and five years
After five years
2018
£000
2,162
5,422
2,756
10,340
2017
£000
2,640
6,138
3,643
12,421
Operating lease payments represent rentals payable by the Group for office premises, motor vehicle leasing charges
and equipment.
28 CAPITAL COMMITMENTS
The Group had no capital commitments at 31 October 2018 or 31 October 2017.
29 CONTINGENT LIABILITIES
There were no material Group contingent liabilities at 31 October 2018 or 31 October 2017.
81
Notes to the Accounts (continued)
For the year ended 31 October 2018
___________________________________________________________________
30 RELATED PARTY TRANSACTIONS
Compensation paid to key management (which comprises the Executive Management Team and the Board) of
the Group:
Salaries and other short-term employee benefits including NIC
Post-employment benefits
Share-based payments
2018
£000
2,160
68
44
2,272
2017
£000
2,705
55
178
2,938
During the year ended 31 October 2018, two directors and no members of the executive management team exercised
share options resulting in a taxable gain of £628,623. Three directors and one member of the Executive Management
Team exercised share options resulting in a taxable gain of £3,318,000 in the year ended 31 October 2017.
Barbara Moorhouse, non-executive director of Idox plc, also acts as a non-executive director of Balfour Beatty plc.
During the year ended 31 October 2018, Idox Software Limited generated revenue of £11,533 (2017: £19,000) to
subsidiaries of Balfour Beatty plc and at the year end there was an outstanding trade receivables balance of £26,325
(2017: £25,000). McLaren Software Limited generated revenue of £Nil (2017: £18,000) to a subsidiary of Balfour
Beatty plc and at the year end there was an outstanding trade receivables balance of £Nil (2017: £21,000).
31 POST BALANCE SHEET EVENTS
On 5 November 2018, the Group sold its Digital division to Fat Media Limited, a digital marketing solution provider, for
a nominal cash consideration of £1.00. This disposal allows for additional focus on the Group's core operations and
further improvements in its operating model.
It was announced on 19 November 2018 that Laurence Vaughan had stepped down from his role as Chairman.
Christopher Stone was appointed as the new Chairman on 22 November 2018.
It was announced on 7 January 2019 that Barbara Moorhouse will step down from the Board at the Group’s next
Annual General Meeting.
It was announced on 29 January 2019 that the Group had extended its existing banking arrangements with the Royal
Bank of Scotland plc and Silicon Valley Bank until 25 February 2020.
82
Company Balance Sheet
At 31 October 2018
__________________________________________________________________________________
Note
6
7
7
8
9
10
Non-current assets
Investments
Debtors: falling due after one year
Current assets
Debtors: falling due within one year
Creditors: amounts falling due within
one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after
more than one year
Net assets
Capital and reserves
Called up share capital
Capital redemption reserve
Share premium account
Other reserve
Treasury reserve
Share option reserve
Retained earnings
Shareholders’ funds
2018
£000
91,924
-
91,924
2017
£000
121,096
56
121,152
58
128
(16,766)
(16,708)
75,216
(22,505)
52,711
4,169
1,112
34,188
6,234
(621)
1,228
6,401
52,711
(14,086)
(13,958)
107,194
(21,519)
85,675
4,145
1,112
34,109
6,234
(621)
1,726
38,970
85,675
The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own
profit and loss account in these financial statements. The parent company’s loss for the year was £30,400,000 (2017:
£1,209,000).
The financial statements were approved by the Board of Directors and authorised for issue on 20 February 2019 and
are signed on its behalf by:
David Meaden
Chief Executive Officer
20 February 2019
The accompanying accounting policies and notes form an integral part of these accounts.
Company name: Idox plc
Company number: 03984070
83
Company Statement of Changes in Equity
For the year ended 31 October 2018
___________________________________________________________________
At 31 October 2016
Issue of share capital
Share options reserve movement
Exercise of options catch-up
Exercise of options from treasury
reserve
Dividends paid
Transactions with owners
Loss for the year
Total comprehensive income for
the year
At 31 October 2017
Issue of share capital
Share options reserve movement
Exercise of options
Lapse of options
Dividends paid
Transactions with owners
Loss for the year
Total comprehensive income for
the year
Called-up
share capital
£000
3,640
505
-
-
Capital
redemption
reserve
£000
1,112
-
-
-
Share
premium
account
£000
13,480
20,629
-
-
-
-
Other
reserve
£000
-
6,234
-
-
-
-
20,629
6,234
-
-
505
-
-
4,145
24
-
-
-
-
24
-
-
-
-
-
-
-
-
-
1,112
-
34,109
79
-
-
-
-
-
-
-
-
-
-
79
-
-
-
-
6,234
-
-
-
-
-
-
-
-
Treasury
reserve
£000
(1,244)
-
-
-
623
-
623
-
-
(621)
-
-
-
-
-
-
-
-
Share
option
reserve
£000
2,218
-
(492)
-
-
-
(492)
-
-
1,726
-
(498)
-
-
-
(498)
-
-
At 31 October 2018
4,169
1,112
34,188
6,234
(621)
1,228
Retained
earnings
£000
42,442
-
-
2,278
(324)
(4,217)
(2,263)
(1,209)
(1,209)
38,970
-
-
310
238
(2,717)
(2,169)
Total
£000
61,648
27,368
(492)
2,278
299
(4,217)
25,236
(1,209)
(1,209)
85,675
103
(498)
310
238
(2,717)
(2,564)
(30,400)
(30,400)
(30,400)
6,401
(30,400)
52,711
84
Notes to the Company Financial Statements
For the year ended 31 October 2018
___________________________________________________________________
1 COMPANY INFORMATION
Idox plc is a company which is incorporated and domiciled in the UK. The address of its registered office is 2nd Floor,
1310 Waterside, Arlington Business Park, Theale, Reading, RG7 4SA. The registered number of the Company is
03984070.
2 ACCOUNTING POLICIES
Basis of preparation
These financial statements have been prepared in accordance with applicable accounting standards and in
accordance with Financial Reporting Standard 101 – ‘The Reduced Disclosure Framework’ (FRS 101). The principal
accounting policies adopted in preparation of these financial statements are set out below. These policies have all
been applied consistently throughout the year unless otherwise stated.
The financial statements have been prepared on a historical cost basis as modified by the revaluation of certain
financial assets and liabilities, being, derivatives at fair value through profit or loss.
The financial statements are presented in Sterling (£).
Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by
FRS101. Therefore, these financial statements do not include:
• A statement of cash flows and related notes.
• Disclosure of key management personnel compensation.
• Certain disclosure in relation to share based payments.
• Disclosures in relation to impairment of assets.
•
The effect of future accounting standards not adopted.
Judgements and estimates
Management assess critical judgements and estimates in line with the Financial Reporting Council’s (“FRC”) guidance.
Management do not deem there to be any critical adjustments and/or estimates to be present within the individual
Company’s financial statements.
Share based payment
All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 November 2006
are recognised in the financial statements.
All goods and services received in exchange for the grant of any share-based payment are measured at their fair
values. Where employees are rewarded using share-based payments, the fair values of employees' services are
determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is
appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and
sales growth targets).
Employees to whom share options have been granted provide their services in subsidiary companies of Idox plc. All
equity settled share-based payments are recognised as an expense in the profit and loss account of the relevant
subsidiary company. In Idox plc, the cost is allocated to investments in subsidiaries.
If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based
on the best available estimate of the number of share options expected to vest. Estimates are revised subsequently if
there is any indication that the number of share options expected to vest differs from previous estimates. Any
cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense
recognised in prior periods if share options that have vested are not exercised.
Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to reserves.
Investments
Fixed asset investments in subsidiary undertakings are stated at cost less provision for impairment. If there is a
subsequent change in the total consideration paid, such as a refund received from the seller, then the Company will
recognise an adjustment to the acquisition price which will reduce the cost, and consequently the net book value, of
that investment.
85
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2018
___________________________________________________________________
2 ACCOUNTING POLICIES (CONTINUED)
Financial instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after
deducting all of its financial liabilities.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt
instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in
the balance sheet.
Share capital is classed as an equity instrument where the contractual terms do not have any terms meeting the
definition of a financial liability. Dividends and distributions relating to equity instruments are debited direct to equity.
Interest and expenditure arising on financial instruments is recognised on the accruals basis and credited or charged
to the profit and loss account in the financial period to which it relates.
Reserves
Equity comprises the following:
•
•
•
•
•
•
“Capital redemption reserve” for the Company was created during 2003 when the entire deferred ordinary
share capital was bought in exchange for one ordinary 1p share.
"Share premium" represents the excess over nominal value of the fair value of consideration received for
equity shares, net of expenses of the share issue.
“Other reserves” arose as a result of share premium arising on consideration shares issued on the acquisition
of 6PM Holdings plc and Halarose Holdings Limited.
Treasury reserve” represents shares repurchased by the Company to be held for redistribution as share
options. The cost of treasury shares is debited to the Treasury reserve.
“Share options reserve” represents shares to be issued on potential exercise of those share options that have
been accounted for under FRS 101.
“Retained earnings” represents retained profits.
3 DIRECTORS AND EMPLOYEES
There are no wages and salaries paid by the parent company.
The Company has no employees and Directors are remunerated by other Group companies. Details of the
remuneration for each Director are included in the Report on Remuneration which can be found on pages 19 to 21 but
which do not form part of the audited accounts.
4 DIVIDENDS
Final dividend paid in respect of the year ended 31 October 2017
and 31 October 2016
Pence per ordinary share
Interim dividend paid in respect of the year ended 31 October 2018
and 31 October 2017
Pence per ordinary share
2018
£000
2017
£000
2,717
2,627
0.655p
0.650p
-
-
1,590
0.385p
The Directors have proposed the payment of a final dividend of £Nil per share, which would amount to £Nil (2017:
0.655p).
5 PROFIT FOR THE FINANCIAL YEAR
The parent company’s loss for the year was £30,566,000 (2017: loss £1,209,000). During the prior year, the Idox
Group performed a review of intercompany balances and elected to waive various balances. This resulted in a credit
of £1,509,000 to the Company’s profit for the year ended 31 October 2018 (2017 £Nil).
86
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2018
___________________________________________________________________
6 INVESTMENTS
Cost or market value
At 1 November 2017
Additions
Reversal of disposals
At 31 October 2018
Impairment
At 1 November 2017
Provided in the year
At 31 October 2018
Net book amount
At 31 October 2018
At 31 October 2017
Investment in
Group
undertakings
£000
124,153
1,854
-
126,007
3,057
31,026
34,083
91,924
121,096
At 31 October 2018 the Company held investments in the following companies:
Country of
registration
Class of
share held
Proportion
held
Nature of
business
Idox Trustees Limited
England
Ordinary
100%
Idox Software Limited
Cloud Amber Limited
Open Objects Software Limited
Reading Room Limited
Rippleffect Studio Limited
Idox Belgium NV
Idox Netherlands BV
Idox Germany GmbH
McLaren Software Limited
McLaren Software Inc
Idox France SARL
Idox India Private Limited
McLaren Software Group Limited
McLaren Software GmbH
McLaren Consulting BV
McLaren Software SARL
Buildonline Global Limited
CT Space Inc
Citadon Inc
6PM Holdings plc
Halarose Holdings Limited
Atlas Adviesgroep Twente B.V.
Ordinary
England
Ordinary
England
Ordinary
England
Ordinary
England
Ordinary
England
Belgium
Ordinary
Netherlands Ordinary
Ordinary
Germany
Ordinary
Scotland
Ordinary
USA
Ordinary
France
Ordinary
India
Ordinary
Scotland
Ordinary
Germany
Ordinary
Holland
Ordinary
Switzerland
Ordinary
England
Ordinary
USA
Ordinary
USA
Ordinary
Malta
England
Ordinary
Netherlands Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Corporate trustee of
Employee share
ownership trust
Software services
Dormant Company
Dormant Company
Dormant Company
Dormant Company
Information services
Information services
Software services
Software services
Software services
Software services
Software services
Holding Company
Dormant Company
Dormant Company
Dormant Company
Dormant Company
Dormant Company
Dormant Company
Software services
Dormant Company
Software services
87
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2018
___________________________________________________________________
7 DEBTORS
Falling due within one year:
Other debtors
Amounts owed by Group undertakings
Falling due after one year:
Amounts owed by Group undertakings
2018
£000
2017
£000
-
58
58
-
128
-
128
56
Included in the above for the Company is £Nil (2017: £56,000) owed by Group undertakings which is due after
more than one year. The Directors consider this loan to be recoverable.
8 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loan
Amounts owed to Group undertakings
Other creditors
Accruals and deferred income
Amounts owed to Group undertakings are interest bearing and are repayable on demand.
9 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Bank loan
2018
£000
2,500
13,006
854
406
16,766
2017
£000
2,500
9,246
2,206
134
14,086
2018
£000
2017
£000
22,505
21,519
At the balance sheet date, the Group had two loan facilities in place through a two-bank facility with Royal Bank of
Scotland and Silicon Valley Bank. The facilities consist of a term loan of £7m (2017: 9.5m) and a revolving credit
facility of £18m (2017: £23m).
At the balance sheet date, the term loan had an outstanding balance of £7m (2017: £9.5m) and during the period the
loan was held, the average interest rate was 2.98% (2017: 2.81%).
At the balance sheet date, the revolving credit facility had an outstanding balance of £18m (2017: £14.5m) and during
the period the loan was held, the average interest rate was 3.05% (2017: 2.58%).
There are unamortised loan fees of £Nil (2017: £90,000) at the balance sheet date.
An accounting adjustment of £5k (2017: £19k) has been processed during the period to take into account the effective
rate of interest on the bank facilities.
As security for the above loans, Royal Bank of Scotland and Silicon Valley Bank hold a fixed and floating charge over
the assets of Idox plc and certain subsidiaries, a guarantee supported by Idox plc and certain subsidiaries and a share
pledge in respect of the entire issued share capital of each subsidiary company.
The Directors estimate that the fair value of the Group’s borrowing is not significantly different to the carrying value.
88
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2018
___________________________________________________________________
10 SHARE CAPITAL
Authorised:
650,000,000 ordinary shares of 1p each
Allotted, called up and fully paid:
As at 1 November
Issued and allotted during the year
416,908,167 ordinary shares of 1p each (2017: 414,464,265)
2018
£000
2017
£000
6,500
6,500
4,145
24
4,169
3,640
505
4,145
Movement in issued share capital in the year
During the year to 31 October 2018, three employees exercised share options across four separate exercises. To
satisfy the exercise of these transactions, the Company issued and allotted 2,443,902 new ordinary shares of 1p each.
The Company has one class of ordinary share which carries no right to fixed income.
At 31 October 2018, there were 3,190,648 (2017: 2,479,532) shares in issue under ESOP. During the year, the
average issue share price was 35p (2017: 67p).
At 31 October 2018, there were 1,491,219 (2017: 1,491,219) shares held in treasury.
11 SHARE OPTIONS
The Company has an unapproved share option scheme for all employees (including Directors). All share options are
exercisable at a price equal to the average market price of the Company's shares on the date of grant. The vesting
period is quarterly from the date of grant. Per the contractual agreements, the options are settled in equity once
exercised.
An Employee Share Investment Trust is in place to allow employees a tax efficient way of investing in the Company.
The Company purchases matching shares which become the property of the employee after a three year vesting
period.
At start of year
1,609,756
2,250,000
390,000
180,000
200,000
446,668
800,000
2,395,000
700,000
8,971,424
Granted
-
-
-
-
-
-
-
-
-
-
Exercised
243,902
250,000
50,000
-
-
-
-
-
-
543,902
Lapsed
-
-
-
-
-
-
-
-
-
At end of year
1,365,854
2,000,000
340,000
180,000
200,000
446,668
800,000
2,395,000
700,000
-
8,427,522
Exercise
price
10.25p
20.00p
18.00p
35.00p
35.75p
39.00p
38.38p
50.00p
50.00p
Exercise
date from
Exercise
date to
Mar 2010
Mar 2020
Mar 2011
Mar 2021
Mar 2011
Mar 2021
Apr 2012
Apr 2022
Jul 2013
Jul 2014
Jul 2023
Jun 2024
Feb 2015
Feb 2025
Apr 2016
Apr 2026
Apr 2016
Apr 2026
Details of all share options over 1p Ordinary shares, falling within the measurement and recognition criteria of IFRS
2 “Share-based Payment” and forming part of the unapproved share scheme, including their contractual life and
exercise prices are as follows:
89
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2018
___________________________________________________________________
11 SHARE OPTIONS (CONTINUED)
The following table sets out the number of share options and associated weighted average exercise price (WAEP)
outstanding during the year:
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
2018
2017
No.
8,971,424
-
(543,902)
-
8,427,522
8,427,522
WAEP
Pence
31.75
-
15.44
-
32.80
32.80
No.
17,135,395
-
(8,163,971)
-
8,971,424
8,796,424
WAEP
Pence
25.95
-
19.57
-
31.75
31.39
The share options outstanding at the end of the year have a weighted average remaining contractual life of 5 years.
The share options exercised during the year had a weighted average exercise price of 15.44p and a weighted average
market price of 34.73p.
No share options were granted during the year ended 31 October 2018.
The Group recognised a total charge of £6,000 (2017: £146,000) for equity-settled share-based payment transactions
related to the unapproved share option scheme during the year. The charge of £6,000 (2017: £146,000) related to
share options granted and £Nil (2017: £Nil) related to share options exercised.
As the share option scheme is a Group scheme, there has been no charge recognised in the parent Company
accounts.
Long-Term Incentive Plan (LTIP)
During the year, no further options were granted under the LTIP.
The Group recognised a total charge of £44,000 (2017: £178,000) for equity-settled share-based payment transactions
related to the LTIP during the year. The total cost was in relation to share options granted.
The number of options in the LTIP scheme is as follows:
Outstanding at the beginning of the year
Granted
Forfeited
Vested
Outstanding at the end of the year
Exercisable at the end of the year
2018
No.
2017
No.
3,600,000
3,600,000
-
(1,700,000)
(1,900,000)
-
-
-
-
-
3,600,000
-
As the LTIP share option scheme is a Group scheme, there has been no charge recognised in the parent Company
accounts.
Richard Kellett-Clarke stepped down as CEO on 9 November 2016. The Nomination & Remuneration Committee of
the Idox Board agreed that Richard’s outstanding LTIP award of 1,900,000 shares would become unconditional. The
vesting date was 14 March 2018.
As part of the conditions of the LTIP under a Lock In deed, Richard is restricted from selling any or all of them, unless
required to settle tax liability, for a further two years from that date. Sufficient shares were sold on 27 March 2018 at a
price of 29p to cover the resulting liability.
Andrew Riley’s LTIP entitlement, consisting of 1,700,000 shares at an exercise price of 1p, was forfeited during the
year on account of the failure to meet all specified criteria for vestment.
90
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2018
___________________________________________________________________
12 RELATED PARTY DISCLOSURES
As permitted by FRS 101, related party transactions with wholly owned members of the Group have not been
disclosed. Related party transactions regarding remuneration and dividends paid to key management of the
Company have been disclosed in note 30 of the Group financial statements.
13 CAPITAL COMMITMENTS
The Company had no capital commitments at 31 October 2018 or 31 October 2017.
14 CONTINGENT LIABILITIES
There were no material Company contingent liabilities at 31 October 2018 or 31 October 2017.
15 ULTIMATE CONTROLLING PARTY
There is no ultimate controlling party.
91