IDOX PLC
ANNUAL REPORT & ACCOUNTS 2019
Company Number: 03984070
Contents
Strategic Report
1 Financial and Operational Highlights
3 Chairman’s Statement
6 Strategy, Market Overview and Business Model
9 Chief Executive’s Review
13 Financial Review
19 Principal Risks and Uncertainties
Governance
24 Board of Directors
25 Directors’ Report
30 Corporate Governance Report
37 Directors’ Responsibilities Statement
38 Report of the Audit Committee
Financial Statements
43 Independent Auditor’s Report to the Members of Idox plc
54 Consolidated Statement of Comprehensive Income
55 Consolidated Balance Sheet
56 Consolidated Statement of Changes in Equity
57 Consolidated Cash Flow Statement
58 Notes to the Accounts
102 Company Balance Sheet
103 Company Statement of Changes in Equity
104 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
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET
Deloitte LLP
Statutory Auditor
110 Queen Street
Glasgow
G1 3BX
Pinsent Masons LLP
30 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 2019
__________________________________________________________________________________
Idox plc (AIM: IDOX), a leading supplier of specialist information management software and solutions to the public and
asset intensive sectors, is pleased to report its financial results for the year ended 31 October 2019.
Idox along with most companies has been impacted by the emerging Covid-19 pandemic. We continue to assess the
impact of the Covid-19 pandemic on the business, taking actions to mitigate or limit the impacts on our organisation
where we can and supporting our staff, customers and partners in dealing with the emerging situation. As part of the
preparation of our FY19 results, the Group has carefully assessed the likely impact of the Covid-19 pandemic on our
business and considered specifically changes in the way we engage with our customers, staff, supply chains and
banking partners. Idox is fundamentally resilient to the Covid-19 pandemic due to the Group's high recurring revenue
base, its focus on public sector markets and the high proportion of staff that routinely work from home. The Group
retains significant liquidity with cash and available committed bank facilities and has strong headroom against financial
covenants. We continue to monitor the situation as it continues to evolve and adapt our approach as required.
Financial highlights:
Revenue of £65.5m (2018: £66.4m for continuing business, restated for prior year adjustments as disclosed
in note 1).
Revenue visibility significantly improved, with annualised recurring revenue run rate at 31 October 2019 up
20% to £38.9m following adoption of IFRS 15 (16% organic).
Order book for contracted software and services up 29% to £12.1m.
Adjusted EBITDA*: £14.4m (2018: £13.6m, restated) for continuing business. Adjusted EBITDA* margin
improved to 22% (2018: 20%, restated).
Cash conversion of Adjusted EBITDA* to net cash from operating activities improved to 86% (2018: 72%,
restated). Free cashflow of £4.4m (2018: £4.2m inflow).
Adjusted EPS** for continuing operations 1.30p (2018: 2.23p, restated).
Net debt*** at 31 October 2019 down 17% at £26.4m (2018: £31.8m).
Post year end, new banking arrangements put in place for a £35m, three-year revolving credit facility.
Statutory Equivalents
Reconciliations between adjusted and statutory earnings are contained within these financial statements (page 54).
The statutory equivalents of the above results are as follows:
Loss before tax £0.03m (2018: £30.2m loss, restated) for continuing operations, including an impairment
charge of £Nil (2018: £33.3m). Loss before tax on discontinued operations of £0.6m (2018: £9.7m).
Basic EPS loss of 0.26p (2018: loss 6.67p, restated) for continuing operations. Basic EPS loss of 0.14p (2018:
loss 2.19p) on discontinued operations.
Alternative Performance Measures
These items are excluded from statutory measures of profit to present a measure of cash earnings from underlying activities on an
ongoing basis. This is a standard methodology in the capital markets in which we operate and how management, shareholders and
other stakeholders track performance.
* Adjusted EBITDA is defined as earnings before amortisation, depreciation, restructuring, acquisition costs, impairment, financing
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, financing, impairment
and acquisition costs.
*** Net debt is defined as cash less third party borrowings less long term bond.
1
Strategic Report - Financial and Operational Highlights (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Operational highlights:
New Board, new senior management and finance teams, with improved accounting practices; enhanced
employee, customer and shareholder engagement; full integration of prior period acquisitions; and improved
governance throughout the organisation.
Disposed of our loss-making Digital business in November 2018 which was classed as discontinued
operations in the prior year accounts.
Settled a number of operational legacy issues, including disposal of surplus offices, resolved all outstanding
material litigation, resolved a number of customer disputes and initiated focus on recurring revenue, ceased
loss-making or unsustainable products, and secured long-term supply arrangements with a number of key
software partners.
Acquired Tascomi, a cloud-native supplier of solutions to our core Local Authority property and environmental
services markets, in July 2019 to enhance the Group's technological capabilities and market leading positions.
The acquisition was funded by a £7.4m equity placing.
Established new sales and marketing methodologies to identify our strongest markets and align existing and
new resources to maximise the growth opportunities we are presented with.
A continued focus on managing costs to drive increased profitability, and a focus on achieving positive trading
terms with our partners to ensure a high level of cash conversion and generation from our operations.
David Meaden, Chief Executive of Idox said:
“This has been a turnaround year for Idox. We enter FY20 on a sound footing having secured new financing
arrangements, reduced debt, improved recurring income and overhauled our governance structures, addressing the
material legacy issues impacting the Group over the previous 18 months. Our attention is now focussed on customer
and employee engagement, growing in our chosen markets and improving margins and cash. 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 deliver their services.
Cash conversion in the Group has improved notably within the year compared to prior periods, as our revenues and
profit are closer linked to services we provide and so more tightly aligned to payments the Group receives for work
delivered to our customers. Following the improvements seen in FY19, the Board has full confidence in the Group’s
future prospects and currently intends to introduce a final dividend in respect of the year ending 31 October 2020.
We have a high degree of confidence that we will continue to create value at Idox for employees, customers,
shareholders and other stakeholders as we build on the achievements of FY19 and deliver on the ambitious targets we
have set ourselves for FY20 and beyond”.
2
Strategic Report - Chairman’s Statement
For the year ended 31 October 2019
__________________________________________________________________________________
Introduction
I joined our company as Chairman in November 2018, and reflected that the financial year ending in October of that
year had been very busy, with the management team and Board spending a lot of time on issues that needed to be
resolved for the good of all of our stakeholders, but which were not directly linked to delivering value for our customers.
More recently Idox along with most companies has been impacted by the emerging Covid-19 pandemic. We continue
to assess the impact of the Covid-19 pandemic on the business, taking actions to mitigate or limit the impacts on our
organisation where we can and supporting our staff, customers and partners in dealing with the emerging situation.
Idox is a very resilient business, as the core of our Group operates in public sector markets which we anticipate will
continue to be robust; in the normal course of business a high proportion of staff are long-term homeworkers meaning
the challenges and impact of the switch to predominantly remote working is much lower than for many other
organisations. In addition, we have high levels of recurring and repeating revenues, and can continue to deliver products
and services remotely with no need for physical contact. We also have significant headroom in our banking facilities
following the successful re-negotiation that was completed on 19 December 2019. We therefore remain very vigilant
as to the impact of the pandemic, and we are in a strong operational and trading position to react as necessary. Further
details regarding the impact of the Covid-19 pandemic and the Group’s response are provided in the Going Concern
disclosures in the Directors’ Report on pages 28 and 29.
As the year ended 31 October 2019 has unrolled, further issues relating to historic accounting and management
practices emerged, resulting in various prior period restatements and a number of improvements to our overall
governance and controls framework as detailed in our Audit Committee Report and notes to our financial statements.
I am pleased to say that, following the audit, all of these issues have been dealt with effectively, and all the indicators,
the balance between order book, utilisation, revenue and cash, tell us that there are no more of these historical issues
to emerge. I understand the frustration of our shareholders that we have had to spend so much time on these legacy
issues, and that they have consequently impacted our expected performance, but I am happy to report that we are at
the end of this phase of the Idox story. Our Executive Management Team (EMT) has done an excellent job in working
through the issues, dealing with them quickly and in a transparent way, and putting the business on a good footing to
go forwards.
A major component of the stabilisation programme has been a significant upgrade in our management team. We have
welcomed new colleagues to lead our Finance, Software Development, Operations and Sales organisations, and as a
result, we have a much stronger team, with the skills and experience to drive the business forwards as we focus on the
core of our business, building and delivering products and services that deliver clear value for our customers. This is
not a new strategy. As I stated in last year’s Annual Report, our strategy of building discrete software and software
enabled services businesses around specific Intellectual Property (IP) assets 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 has led to us building 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. Now that we have dealt with the distractions, and associated cost burdens,
of the legacy issues, we can concentrate on doubling down on this strategy, and expect to see the benefits of that focus
lead to a significant improvement in our own margins.
Last year I wrote in my report about disposing of businesses that had been acquired that did not fit our model. This
year I am very pleased to report that, in contrast, we have completed an acquisition that fits our model perfectly. We
are thrilled that, with our shareholders support, we have been able to complete the acquisition of Tascomi Limited.
Tascomi is a business that has been built from the ground up as a very flexible, cloud-native software business, with
its core applications targeted at our markets of Land and Property management. This is an essential direction of travel
for the Group and bringing the Tascomi business together with our existing operations will accelerate our own progress
to the cloud significantly, as well as adding some very talented engineers to our teams. We are very pleased to welcome
them all to the Group.
As with all rebuilding programmes, there is a huge amount of work that goes on in the background to get the foundations
right. The benefits of these improvements are not immediately obvious, but it is essential to put the time and effort in
to get this stage right so that the value we all want from the further, more obvious work, can be realised. I believe we
are now at this stage.
3
Strategic Report - Chairman’s Statement (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
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 (EIM) 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 and
increasingly cloud-based technologies and solutions.
As a result of the work described above to fully rectify the legacy problems and deal with the challenges the Group has
faced in the year, the Board believes that our business will progress very positively now with a strong improvement in
margins and cash generation. We operate in very good markets, with excellent market positions and insights, and we
have every confidence that we can continue to deliver growing value from these positions for our customers and all
other stakeholders.
Board
FY19 has seen a number of changes to the Board of Directors:
On 1 November 2018, Rob Grubb joined us as Chief Financial Officer. Rob has brought 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 1 November 2018, 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 10.13% 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 22 November 2018.
On 29 March 2019, Barbara Moorhouse stepped down from the Board following the Group's 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.
On 29 March 2019, Phil Kelly was appointed as a Non-Executive Director, and Chair of the Remuneration
Committee. Phil has served as a non-executive director of several listed and private companies in the software
and related services sector, and is currently a non-executive director of Castleton Technology plc.
On 3 April 2019, Richard Kellett-Clarke stepped down from the Board. I would like to thank Richard for his
contribution to Idox in both Executive and Non-Executive roles dating back to 2005.
In addition to the changes listed above, Jeremy Millard has continued in his role as Non-Executive Director, and Chair
of the Audit Committee throughout FY19.
Each member of the Board brings different skills and experience to the Board and the Board Committees and I am
pleased with this balance which has supported the effectiveness of the Board throughout FY19.
I am satisfied that there is sufficient diversity in the Board structure to bring a balance of skills, experience,
independence and knowledge to the Group however I intend to keep this balance under review and continued
assessment.
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 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.
4
Strategic Report - Chairman’s Statement (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Acquisitions
As highlighted above, during the financial year the acquisition of Tascomi Limited was completed in line with our
strategy. Tascomi represents an expansion of our Local Government offerings and creates synergies and opportunities
for cost savings in existing products within the Group, which have contributed in a small part to this year’s financial
results. The Board believes Tascomi will deliver earnings enhancing contributions in future periods.
The acquisition was funded by means of a placing of new shares which raised gross proceeds of £7.4 million.
Dividends
The Board has decided no final dividend will be paid (2018: £Nil) for FY19 bringing the total for the year to £Nil (2018:
£Nil). This decision was reached after a full consideration of the pace of recovery in our business.
Following the improvements seen in the Group in FY19, the Board has full confidence in the Group’s future prospects
and currently intends to introduce a final dividend in respect of the year ending 31 October 2020.
Summary and Outlook
Although this financial year did not turn out exactly as anticipated, the fundamental plan and strategy have held up as
expected. The Group enjoys an exceptionally strong market position in the public sector, good products, and has
opportunities for growth and improving financial performance.
The new leadership team has made a great start to the new financial year, delivering a strong first quarter of trading
and securing new long-term bank facilities. I am confident of the Group’s future prospects.
Finally, I would like to extend my thanks to the entire workforce of the 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
9 April 2020
5
Strategic Report – Strategy, Market Overview and Business Model
For the year ended 31 October 2019
__________________________________________________________________________________
Strategy
The Group continued its focus on its purpose of 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 and cloud-
based technologies and solutions.
Market Overview
The Group continues to operate successfully 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. Recent announcements from all main political parties concerning
increased public sector spend are in line with our planning and expectations and should result in increased demand for
our solutions which provide improved processes, cost savings and efficiencies to our customers in our chosen markets.
Demand in both the markets that our EIM and Content businesses operate in remains robust, and we are confident the
operational improvements we have made in FY19 and continue to execute will allow us to capitalise on this demand.
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 666 colleagues located in the UK, the USA, Europe and India.
The Group’s business model provides the framework to support our strategic objectives to create shareholder value
specifically and improve stakeholder engagement more generally. These stakeholders include employees, creditors,
finance lenders, other business partners, and the local and national communities we are part of.
We create value through the efforts of our employees, supported by these stakeholders, principally through the
development and commercialisation of software products and other IP-rich content.
The risks and uncertainties we face in building value for shareholders and stakeholders is set out in the Principal Risks
and Uncertainties section of this Strategic Report.
6
Strategic Report – Strategy, Market Overview and Business Model (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Key Performance Indicators
Key financial performance indicators measure our effectiveness of executing our stated business model to deliver our
strategy and therefore build value for shareholders and other stakeholders.
These are monitored on an ongoing basis by management and are set out below.
2019
2018
Excluding Digital*
2018
2019
Measure
(see note 1 for restatement)
Revenue
Group Revenue
£65.5m
£72.6m
£66.5m
£66.4m Revenue received from provision of goods and
Annualised Recurring
Revenue (ARR) exit run-
rate
£38.9m
£36.3m
£38.9m
£32.4m
Profitability ratios
Adjusted EBITDA
£14.4m
£10.8m
£14.4m
£13.6m
Adjusted EBITDA margin
22%
15%
22%
20%
Adjusted EPS
1.15p
1.67p
1.30p
2.23p
services.
Annualised recurring revenue at 31 October that
is contracted or considered highly likely to recur in
subsequent years.
This is calculated by multiplying the last month of
the financial year (October) by 12 to provide an
annualised run-rate.
Profit before interest, tax, depreciation,
amortisation, restructuring costs, acquisition
costs, impairment, financing costs and share
option costs.
Profit before interest, tax, depreciation,
amortisation, restructuring costs, acquisition
costs, impairment, financing costs and share
option costs as a percentage of revenue.
Adjusted EPS excludes amortisation on acquired
intangibles, impairment, acquisition costs,
restructuring costs, financing costs and share
options costs.
Cash indicators
Free Cash flow
£4.4m
£4.2m
£4.4m
£6.0m
Net Debt
(£26.4m)
(£31.8m)
n/a
n/a
Net cashflow excluding: acquisitions, debt
repayments & drawdowns, and shareholder
placing & dividends.
Borrowing plus Bonds in issue, less cash and
cash equivalents.
* The Group disposed of its Digital Business on 2 November 2018
Alternative Performance Measures
Where relevant, adjusted measures of profit have been used alongside statutory definitions. The main items that are
added back to statutory profit are:
Amortisation from acquired intangible assets.
Impairment.
Restructuring costs.
Acquisition and financing costs.
Share option costs.
These items are excluded from statutory measures of profit to present a measure of cash earnings from underlying
activities on an ongoing basis. This is a standard methodology in the capital markets in which we operate and how
management, shareholders and other stakeholders track performance.
7
Strategic Report – Strategy, Market Overview and Business Model (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Non-financial Indicators
In addition to the financial indicators, the Group is working on establishing employee-related KPI’s, recognising our
employees are central to the Group’s efforts. Measurement of our ability to attract and retain the best talent is important
to understand our performance in delivering our strategy and creating value for shareholders and other stakeholders.
Idox Group practices 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 has no female Directors. There is diversity in the Board structure to bring a balance of skills,
experience, independence and knowledge to the Group, however, this balance is subject to ongoing review and further
assessment.
8
Strategic Report – Chief Executive’s Review
For the year ended 31 October 2019
__________________________________________________________________________________
Overview
It has been an intense and transformative year at Idox. The Chairman has referenced the unexpected issues that
emerged. It has required a very determined and focussed effort from a talented group of people to lead the business
through this set of circumstances and I am grateful to the newly constituted EMT for embracing the challenge so readily
and for their hard work and single-minded approach. That we have been able to address the issues so effectively and
establish a strong basis for future success has required a commitment and focus across the Group and I would like to
record my own thanks for the engagement of all our staff and their commitment to creating value for our clients during
this period.
We have been determined to restore the fortunes of the Group by having a laser like focus on the areas where we
create distinctive value. As such, the year saw us dispose of the Digital business that required a series of bespoke,
non-repeatable solutions and add the market leading, repeatable SaaS solution provided by Tascomi to our offerings
in regulatory and licencing services. We believe these activities are important in the key Local Government market and
support our future growth plans.
During the year we have continued to focus on the Four Pillars initiative. This is well communicated across the Group
and allows all employees to actively participate on improving the business through a focus on revenue, margins,
simplification and communication.
Revenue
We have established strong business controls across the Group to ensure we fully understand the financial and
operational implications for each piece of business that we engage in. This ensures that we do not pursue revenue for
the sake of growth, but that we focus upon our IP and value propositions and the certainty of delivering lasting value to
customers. We have improved the amount of recurring revenue in the business and this provides a strong foundation
for future growth in both revenues and margins.
Margins
Having captured business, we have focussed on cost management, professional services productivity, delivery of value
through the supply chain and standardised ways of working wherever possible. We believe we are well positioned to
sustain and improve margins in the business moving forward as we gain share in our respective markets. I said that
our focus during the year would be on cash generation and I am pleased to report a further reduction in our ongoing
net debt position of £5.4m.
Simplification
We have also focussed on simplifying our business model. During the course of the year we have driven closer
integration across previously diverse acquisitions. The supplier list has reduced by two-thirds from approximately 3,000
at the end of FY18 to approximately 900 at the end of FY19. In addition, we have integrated our support operations
and reduced the number of service desks from 6 to 2 providing a more coherent and consistent interaction with clients.
Our intention is to consolidate this further and create a single service facility during FY20.
In FY19 we have also reduced the number of supporting technologies and platforms in use across our Group. We have
consolidated our activities on a single ERP system and although there is further work to do, we are now using systems
and information across the business to much greater effect.
During the year we disposed of our London property lease previously used in conjunction with the Digital business.
After the year end we closed the Group’s remaining operations in Malta, following the disposal of the small emCare
business having transferred healthcare activities fully to the UK, and exited the Group’s scanning activities based in
the Republic of Ireland (ROI) that were originally acquired as part of the 6PM transaction.
Communication
Much of our focus this year has been on re-engaging with staff, listening and establishing disciplines across the
business that are practical, and that add value. Having set the goal to substantially improve our internal communications
we now have an internal magazine, a news channel, CEO broadcasts, relevant and targeted divisional updates, town
hall meetings, product videos, and our series of Regional Events, all rounded off by employee engagement surveys to
see how we are doing against these goals. I believe these things have been important in reshaping our business and
encouraging greater collaboration and open dialogue. I wish to express my gratitude to everyone that has been involved
and engaged with this programme.
9
Strategic Report – Chief Executive’s Review (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Products
The year has also seen us take significant steps forward with our product portfolio. Each product set now has a clear
roadmap for future development, leading to a much clearer engagement with the existing and potential clients that we
serve. We believe we have strong technology platforms supporting our core offerings and we have made it clear that
as we move forward, a SaaS first strategy is vital, offering our clients the most flexibility possible in their chosen
solutions. We were delighted during the year to add Tascomi to our Local Government offering, providing clients with
market leading SaaS capabilities. We plan to add further products to the Tascomi platform in due course.
The disposal of the Digital business in November 2018 ensured that Idox focuses on niche solutions to the public sector
and other regulated markets. In each of these areas we produce software that elegantly resolves complexity and which
we invest in for the long term to support our customer’s evolving needs. Whilst the Digital operation was delivering
bespoke solutions to unique client needs, our business is now solely focussed on delivering comprehensive repeatable
software solutions that we support and maintain with long term contracts.
Having taken a number of corrective measures, we are now well positioned to push the business forward and to deliver
greater customer and shareholder value.
Public Sector Software
During the period, revenue reduced by 3% following the adoption of IFRS 15 and generally a more balanced approach
to revenue growth. We have sought to improve or exit low-earning or loss-making revenue generating activities in the
year which has led to an overall decrease in revenues recorded but higher margin and cash generation overall. We
saw new Local Government client wins at South Staffordshire and Wakefield for the EDMS product and a further
extension on behalf of the Northern Ireland Planning Portal for our Planning Solution. This continues the existing
relationship along with additional developments of the system.
We have also seen a number of customers enter into new long-term contracts for existing products, for example
Winchester City Council signed a new 4-year contract for the Uniform product and a number of other distinct products.
Midlothian Council also extended their existing agreement a further 5 years moving their deployment to our cloud-
based hosted environment.
Leeds City Council made a further 5 year commitment to our Uniform solution, Idox will also be performing a full
operational review to help the Council ensure that they continue to maximise their use of technology both now and in
the future. The London Port Authority also became a new customer for our licensing solution with a 3-year contract.
During the year we have seen six new customers for our Social Care Education Health and Care Hub (EHC) enabling
collaboration of EHC assessments, plans and reviews. The EHC Hub continues to be a vehicle for significant cultural
change within Local Authorities providing live case tracking and 24/7 access to information for thousands of parents,
carers and young people involved in statutory SEND (Special Education Needs and Disabilities) processes. Across our
customers, the Hub is now being used to create, manage and review over 55,000 EHC Plans in England. We have
also partnered with Westminster City Council to develop an innovative new Family Hub which enables multi-agency
working with vulnerable families.
Our CAFM (Computer Aided Facilities Management) product has enjoyed a successful year with a number of new
deals including West Midlands Combined Authority and Serco Justice and Immigration. In all we won 10 new customers
including Apex Hotels, Bank of China and Canford Healthcare.
In Healthcare, we signed a deal with Virgin Care Services to provide our Lilie software in support of Cheshire West and
Chester Council as well as Bolton NHS Foundation Trust. We also secured a long-term five-year extension for iFIT
across 3 sites within the Betsi Cadwaladr Health Board, along with continued commitments from Gloucester, North
Devon and Cumbria.
In Transport we agreed contracts with Highways England to drive integration between Urban Traffic Management and
Control systems. During the year we have focussed on concluding a number of significant projects and moving clients
to live operation including WECA Bristol.
Our Elections team supported over 100 authorities to deliver the Local Elections and European Parliamentary election
in May. With less than 7 weeks' notice for delivering the poll, the Group supported customers covering over 12 million
electors. Idox was contracted to print 3.8 million election documents and train 7,000 polling staff.
10
Strategic Report – Chief Executive’s Review (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Public Sector Software (continued)
Idox also ran managed services across 17 sites to verify the statements and ballots of over 650,000 postal voters. In
addition, our Elections business won a contract from the Cabinet Office to implement phases 1 and 2 of the
Government's Canvass Reform programme, involving several hundred days of design, development, test, deployment
and support, and will allow customers to improve their annual electoral canvass.
We also deployed the electronic ballot counting solution on the island of Malta, enabling votes to be counted
electronically for the first time. Used in the European and local elections in late May, the solution cut the count duration
from a previous record of several days down to a few hours, making Malta one of the first EU countries to issue their
official European election results.
Engineering Information Management (EIM)
The Engineering division saw a revenue reduction of 8% as it continues to transition solutions and customers from an
on-premise deployment model to a SaaS delivery which directly impacts the revenue profile of contract wins. In addition,
we have sought to improve or exit low-earning or loss-making revenue generation activities in the year which has led
to an overall decrease in revenues recorded but higher margin and cash generation overall.
EIM continues to progress with its market leading, cloud-based FusionLive product which affords the Group greater
EBITDA margins and revenue visibility. In the first half of the year we secured a 5-year contract for our new offering
FusionLive with Wood PLC to manage its projects with Exxon Mobile. Other new clients to select FusionLive as their
new cloud technology platform included the LNG (Liquid Natural Gas) owner operators NextDecade and GNL, and the
engineering company IPS.
A number of new projects in the AEC (Architecture, Engineering and Construction) and transport space in Europe were
contracted and BNP Paribas renewed its commitment to our solution for a further two years beyond their current
contract term.
We released a new engineering tag extraction tool to support the digitalisation initiatives within the asset-intensive
energy industries. This capability will be fully integrated into our cloud platform in FY20 to provide an additional and
significant differentiator in the EPC (Engineering, Procurement and Construction) and Owner Operators markets.
A number of important services projects on our Enterprise platform were contracted and delivered, including
Sacramento Municipal Utility District, BC Hydro and Sonatrach.
During the year new talent was brought into the organisation including the appointment of a new divisional sales
manager from within the industry and we have subsequently restructured the sales team, aimed at providing a greater
focus on the UK and the USA in the coming year and in particular, the energy markets, where we believe that we can
capitalise on the successful projects delivered during FY19.
Content
The Content division has continued to trade strongly with a 6% growth in revenue, capitalising on the strong domain
knowledge we hold in our key target markets.
Our Compliance business delivered an innovative game based GDPR compliance training solution for Statkraft along
with a contract with Stada to communicate compliance training in eleven different languages. Other notable contracts
in the year were secured with Sto Group, Chevron and Groupe ADP.
There were further wins for our RESEARCHconnect and GRANTfinder products at Imperial College London, Swansea
University, a consortium of South African Universities and Orbit Heart of England Housing & Care. The Wildlife Trusts
signed a national contract for GRANTfinder in March. The University Grenoble Alpes committed to a 4-year contract
for Open4Research and the Welsh Government renewed their Open4Business contract along with re-commitments
from the London Borough of Islington, and Technische Universitat Munchen.
London Fire Brigade and the Greater London Authority procured a new 4-year shared services agreement for data
library and information services.
The Grants team also had several notable successes including contracts with BITS, N2000 and LightSense SME II,
Accenture and ICT Netherlands.
11
Strategic Report – Chief Executive’s Review (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Outlook
We continue to explore ways to accelerate the Group's strategy and are confident that we have the right team and
engagement throughout the organisation to deliver improved value for all our key stakeholders. A cloud-first approach
across each of our business areas is a strategic necessity and we will continue to invest selectively to grow our
capabilities and support our customers. The business has a strong foundation in property and asset-based solutions
and this, along with our focus on a broader SaaS provision, will underpin our future strategy and growth.
David Meaden
Chief Executive Officer
9 April 2020
12
Strategic Report – Financial Review
For the year ended 31 October 2019
__________________________________________________________________________________
Financial Review
The financial year ended 31 October 2019 has been a year of transition for the Group with a number of operational and
finance processes being re-established. In particular the Group has adopted a strong focus on sales and commercial
governance to ensure that only earnings-enhancing revenues are pursued. This approach has resulted in improving
Adjusted EBITDA and improved cash generation from the operations of the Group compared to prior periods.
Prior period adjustments have been recorded in respect of Revenue and Onerous Contracts following extensive and
detailed product and contract reviews. Results in respect of FY18 presented have been restated to reflect these prior
year adjustments. Further details are included in the Report of the Audit Committee and note 1 to the Group financial
statements.
The following table sets out the revenues and Adjusted EBITDA for each of the Group’s segments from its continuing
activities:
Restated
FY18
Variance
£000
£000
%
FY19
£000
Revenue
- Public Sector Software
41,642
42,539
(897)
- Engineering Information Management
9,170
10,003
(833)
- Content
- Total
Revenue
- Public Sector Software
- Engineering Information Management
- Content
Adjusted EBITDA*
- Public Sector Software
- Engineering Information Management
- Content
- Total
Adjusted EBITDA margin
- Public Sector Software
- Engineering Information Management
- Content
- Total
* See page 1 for definition of Adjusted EBITDA
-2%
-8%
6%
-1%
14,680
13,872
808
65,492
66,414
(922)
64%
14%
22%
64%
15%
21%
11,052
10,469
583
1,410
1,361
1,899
1,809
49
90
14,361
13,639
722
6%
4%
5%
5%
27%
15%
13%
22%
25%
14%
13%
21%
13
Strategic Report – Financial Review (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Public Sector Software
The PSS division, which now includes Health, due to shared common resources within PSS, accounted for 64% of
Group revenues (2018: 64%), delivered revenues of £41.6m (2018: £42.5m).
Public Sector Software Revenues
- Recurring
- Non-Recurring
- Recurring*
- Non-Recurring**
Restated
FY18
Variance
£000
£000
%
FY19
£000
24,144
19,239
4,905
17,498
23,300
(5,802)
41,642
42,539
(897)
25%
-25%
-2%
58%
42%
45%
55%
* Recurring revenue is defined as revenues associated with access to a specific ongoing service, with invoicing that typically
recurs on an annual basis and underpinned by either a multi-year or rolling contract. These services include Support &
Maintenance, SaaS fees, Hosting services, and some Managed Service arrangements which involve a fixed fee irrespective of
consumption.
** Non-Recurring revenue is defined as revenues without any formal commitment form the customer to recur on an annual basis.
Non-recurring product and services revenue decreased by 25% primarily as a result of the IFRS 15 adoption exercise
in our Local Authority business which has resulted in less revenue being recognised as product, and more revenue
allocated to ongoing support and maintenance, and hosting obligations, commensurate with our ongoing costs and
obligations for those services. Recurring revenues conversely increased markedly year on year as a result.
Adjusted EBITDA increased by 6% to £11.1m (2018: £10.5m), delivering a slightly improved EBITDA margin of 27%
(2018: 25%). We continue with our efforts to consolidate individual business units and products within PSS to drive
efficiency, and anticipate further margin improvement as we continue to leverage our common resources.
Engineering Information Management
The EIM division accounted for 14% of Group revenues (2018: 15%) with revenue of £9.2m (2018: £10.0m). The
business continued its transition from a traditional on-premise deployment to a SaaS solution.
EIM saw a fall in revenue due to a continued emphasis on SaaS and managed service deals with the orders won being
traded over future years.
Engineering Information Management
- Recurring
- Non-Recurring
- Recurring
- Non-Recurring
Restated
FY18
Variance
£000
£000
%
FY19
£000
7,100
7,285
(185)
-3%
2,070
2,718
(648)
-24%
9,170
10,003
(833)
-8%
77%
23%
73%
27%
Adjusted EBITDA increased by 4% to £1.4m (2018: £1.4m), delivering a slightly improved EBITDA margin of 15%
(2018: 14%). We continue to control costs tightly as the business transitions from its previous on-premise infrastructure
to its present SaaS-led business model.
14
Strategic Report – Financial Review (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Content
The Content division in the UK and Europe had revenue growth of 6% to £14.7m (2018: £13.9m), driven in the main
by continued success in our Dutch consultancy business, and German and Belgian compliance businesses. All other
business in the division performed as expected.
Content
- Recurring
- Non-Recurring
- Recurring
- Non-Recurring
Restated
FY19
£000
FY18
Variance
£000
£000
%
4,492
4,059
433
11%
10,188
9,813
14,680
13,872
375
808
4%
6%
31%
69%
29%
71%
Adjusted EBITDA increased slightly to £1.9m (2018: £1.8m), delivering a consistent EBITDA margin of 13% (2018:
13%). We continue to explore ways to improve EBITDA margin, both through targeting higher-margin revenue activities,
and also actively managing cost.
Loss Before Tax
The following table provides a reconciliation between adjusted EBITDA and statutory loss before taxation.
FY19
£000
Restated
FY18
£000
Variance
£000
%
Adjusted EBITDA
14,361
13,639
722
5%
Depreciation and Amortisation
(9,128)
(9,319)
191
-2%
Restructuring costs
(2,155)
(436)
(1,719)
394%
Acquisition (costs) / credits
(174)
856
(1,030)
-120%
Impairment
Financing costs
Share option costs
Net finance costs
-
(33,255)
33,255
-100%
(368)
(336)
(32)
10%
(859)
(50)
(809)
1,618%
(1,702)
(1,339)
(363)
27%
Loss before taxation
(25)
(30,240)
30,215
-100%
The reported loss before tax was £0.03m (2018: £30.2m loss).
Restructuring costs were £2.2m (2018: £0.4m) as the new Management team assessed in detail all operations of the
Group in the year; restructuring business units and Group processes to improve the Group’s current and future financial
performance and prospects.
15
Strategic Report – Financial Review (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Loss Before Tax (continued)
Acquisition costs of £0.2m (2018: £0.9m credit) relates to the acquisition of Tascomi Limited. The prior year credit was
in respect to an adjustment to deferred contingent consideration in relation to a prior period acquisition.
There were no impairments in the year (2018: £33.3m).
Net finance costs have increased to £1.7m (2018: £1.3m) as a direct consequence of the Group refinancing in February
2019 at more expensive terms to the previous financing arrangements. This has since been superseded by improved
commercial terms achieved for the Group’s new 3-year financing agreed in December 2019.
The Group continues to invest in developing innovative technology solutions and has incurred capitalised development
costs of £4.4m (2018: £3.6m).
Taxation
The effective tax rate (ETR) for the period was (190.07%) (2018: 8.39%).
The main factors for the lower ETR on the net loss before tax position were threefold. New share options granted during
the year, some of which were fully-vested on issue, resulted in a significant disallowable P&L impact. This was the
same for costs incurred as part of the Digital division disposal and the acquisition of Tascomi.
Lastly, non-recognition of losses in certain jurisdictions, owing to uncertainty over their future utilisation, decreased
ETR significantly. The main jurisdiction impact was in France which, alongside non-recognition of current-year losses,
elected to derecognise losses brought forward from prior years. This downward pressure on ETR was mitigated slightly
by recognition of previously unrecognised losses in Malta, following taxable profits in some of the subsidiaries based
there.
Unrelieved trading losses of £0.4m, across the UK and the US, remain available to offset against future taxable trading
profits with both likely to be extinguished during FY20. 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 £11.6m, split across Malta (£7.6m), the UK (£1.7m), Germany (£1.1m)
and France (£1.2m). 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 for continuing and discontinued operations improved to (0.41)p (2018: (8.86)p) as a result of
the impact of the impairment charge in FY18. Diluted earnings per share improved to (0.41)p (2018: (8.86)p).
Adjusted earnings per share for continuing operations fell to 1.30p (2018: 2.23p) as a result of the impact of the
restructuring costs in year. Adjusted diluted earnings per share fell to 1.29p (2018: 2.21p).
The Board proposes a final dividend of £Nil as the business transitions to a more stable platform, giving a total dividend
for the year of £Nil.
16
Strategic Report – Financial Review (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Balance Sheet and Cash Flows
The Group’s net assets have reduced to £44.6m compared to £47.9m at 31 October 2018. The constituent movements
are detailed in the Group’s consolidated Statement of Changes in Equity: which are summarised as follows:
12 months to
31 October 2019
(audited)
£000
Total Equity as per FY18 Financial Report
FY19 Prior Year Adjustment
Total Equity as per FY18 Financial Report Restated
IFRS 15 adoption, net of deferred tax
Transactions with owners (primarily issue of equity in respect of Tascomi acquisition)
Loss for the year
Non-controlling interest
Exchange gains on translation of foreign operations
Total Equity as per FY19 Financial Report
49,786
(1,918)
47,868
(9,588)
8,330
(1,706)
(113)
(180)
44,611
This movement is principally due to the IFRS 15 adoption, partially offset by the increase in intangible assets in the
year of £7.2m due to the acquisition of Tascomi Limited, which was funded by the issue of the equity noted above.
Cash generated from operating activities after tax as a percentage of Adjusted EBITDA was 86% (2018: 72%). Cash
conversion has improved within the year as revenues (and therefore profit) are better linked to services and so more
tightly aligned to payments the Group receives for work undertaken for our customers (in accordance with full adoption
of the principles of IFRS 15).
The Group ended the year with net debt of £26.4m (2018: £31.8m), a significant improvement on the previous year.
Net debt comprised cash of £7.0m less bank borrowings of £21.8m and the Malta Stock Exchange listed bond of
£11.6m.
The Group’s total signed debt facilities at 31 October 2019 stood at £28.8m, a combination of a £5.75m term loan and
£23m revolving credit facility, split £5.75m with the Royal Bank of Scotland and £23m with Silicon Valley Bank
respectively (the “Lenders”). Post year end, the Group has refinanced with The Royal Bank of Scotland plc, Silicon
Valley Bank and Santander UK plc. The new facilities, which comprise a revolving credit facility of £35m and £10m
accordion facility, are committed until December 2022, with an option to extend this commitment for a further two years.
Contract liabilities, representing invoiced maintenance and SaaS contracts yet to be recognised in revenue stood at
£20.3m (2018: £17.9m). Contract receivables, representing future cash flows, decreased to £7.2m (2018: £18.4m).
This reduction is a direct result of the adoption of IFRS 15 and more balanced revenue recognition assessment being
made in the year.
The Group has carefully assessed the likely impact of the Covid-19 pandemic on the business and our customers. Idox
is fundamentally resilient due to the Group's high recurring revenue base, its focus on public sector markets and the
high proportion of staff that routinely work from home. The Group retains significant liquidity with cash and available
committed bank facilities and has strong headroom against financial covenants. We continue to monitor the situation
and adapt our approach as required.
17
Strategic Report – Financial Review (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
IFRS 15
The Group adopted IFRS 15 Revenue from Contracts with Customers with effect from 1 November 2018 using the
cumulative effect method. The two most significant impacts of implementing the standard are:
Software license revenue previously recognised once a customer commitment was confirmed are now instead
recognised over the duration of the project implementation period as milestones are achieved.
Where software revenues are unbundled to individually recognise individual performance obligations (notably
initial license fees versus ongoing support and maintenance, and hosting obligations) this unbundling is performed
against pre-determined criteria to ensure that revenues recognised in the future for ongoing obligations are
commensurate with the ongoing costs of those obligations.
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 has been recorded as an adjustment to the
opening contract receivables, contract liabilities and retained earnings position. The comparative statement of
comprehensive income figures have therefore not been restated.
Further detail regarding the adoption of IFRS 15 is included within note 1, Accounting Policies, and note 2, Segmental
Analysis.
Rob Grubb
Chief Financial Officer
9 April 2020
18
Strategic report – Principal Risks and Uncertainties
For the year ended 31 October 2019
__________________________________________________________________________________
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 and remains committed to continuous improvements in controls, processes and reporting to build on the
strong progress in the year to ensure the Group remains best placed to suitably mitigate risks that emerge as the
Group’s operations evolve.
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 subject to regular review and any opportunities for improvements identified
are implemented. 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.
Risk
Principal risks
Management of risks
Covid-19
pandemic
As with most commercial
organisations,
the Group’s
activities are dependent on its
ability to interact directly with
its customers, suppliers, staff
and other partners. The
emerging impact of the virus
presents a risk to the Group’s
ability to operate in the most
effective manner.
Idox
continues
impact of
to
The Group
the
monitor
the
Covid-19 pandemic.
is
well placed because of the
Group's high recurring revenue
base, its focus on public sector
markets
high
proportion of staff that routinely
work from home.
and
the
The Group has introduced a
number of cost controls over
new and existing spend which,
together with linked Cost of
Sale reductions, will mitigate
reduction
any potential
in
the Covid-19
revenue
from
pandemic.
Management
continue to anticipate future
earnings and cash will be in line
with its previous expectations.
We have performed detailed
financial
forecasting of a
number of credible potential
Covid-19 pandemic scenarios,
as well as severe stress-testing
in our financial modelling. The
Group
significant
liquidity with cash and available
committed bank facilities
retains
Change in assessment of risk
in the period
The exposures identified to date
are as follows:
policy
is exposed
to
notably
Our Public Sector Software
to
business
in
government
Covid-19
response
pandemic,
the
recent postponement of the
local and mayoral elections
originally scheduled for May
2020 to May 2021 which will
impact the Elections sub-
segment of this business.
However, the overall PSS
business has strong levels
of recurring revenues from a
well-established
existing
customer base and growing
markets.
its
Our EIM business has seen
significant reduction in travel
given
cross-border
operations but we continue
to provide the majority of
and
solutions
service
customers
remotely. Our
EIM business also has
high
existing
strong
recurring
revenues which
account for approximately
19
Strategic report – Principal Risks and Uncertainties (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Risk
Principal risks
Management of risks
Covid-19
pandemic
(continued)
and has strong headroom
against financial covenants in
these potential scenarios.
Political
large
The Group has a
customer
Local
in
base
Government and other public
sector bodies. A change in
the
spending priorities by
current or a future Government
could materially
the
Group.
impact
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.
of
Our development priorities are
to ensure we remain at the
customer’s
heart
our
cost
operations, delivering
efficiencies and value
for
money, including moving to
cloud-based technologies.
Change
risk in the period
in assessment of
80% of its revenue targets,
and is well-placed given its
increasing focus on cloud-
based solutions.
Our Content business has
in Germany
operations
and
Netherlands,
however, the impact of the
to-
Covid-19 pandemic
date has been minimal.
We are not anticipating
any impact on the UK
element of our Content
is all
business which
recurring in nature and in
respect of public sector
customers.
We continue to update our risk
assessments and contingency
the
planning
in respect of
Covid-19 pandemic as
the
impact of the virus develops.
After many
years of a
Conservative-led Government
espousing austerity, the UK
has
seen
recently
from all main
commitments
political parties supporting an
end to austerity and increased
public spending.
the
recent
strong
With
Conservative majority, and
many of these commitments
included in their manifesto, we
are buoyed by the anticipated
for our
implications
funding
public sector customers whom
we continue to support in both
doing more with what they
already have, but also investing
for the future to drive longer-
financial benefits and
term
improved
customer
experience.
20
Strategic report – Principal Risks and Uncertainties (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Risk
Principal risks
Management of risks
Economic
environment
Our performance is affected by
the economic cycles of the
markets of the countries in
which we operate.
The ‘Brexit’ referendum on the
exit of the UK from the Treaty
of the European Union has
increased the uncertainty in the
and
economic,
environmental markets
in
which we operate.
social
geographic
A
diversified
footprint and sector
focus
reduces the risk of exposure
due
to adverse country or
sector specific conditions.
We have scaled back our
operations in ROI and Malta,
our
which
structure,
organisational
reducing
those
territories.
simplifies
risk
in
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.
UK,
with
In the main we operate within
the
discrete
businesses in Germany and
the Netherlands which serve
largely domestic customers.
The Board considers that it is
protected from cross border
Brexit risks, as businesses
largely serve the needs of the
they are
country
located.
in which
Acquisitions
Acquisitions and restructuring
the
may
not
the
anticipated
Group.
achieve
returns
for
acquired
reporting
entities
enhanced
Focus is placed on ensuring
management
lines
are clear, operational functions
are
of
supported,
or
consolidated in to wider Group
functions as appropriate, and
the potential for upsell and
cross-sell across the Group’s
portfolio
is
maximised.
products
of
Change
risk in the period
in assessment of
Our strategy has been to exit
non-core operations and
to
closely
integrate our core
operations. This has led to the
closure of our Malta and ROI
operations as we integrated
healthcare delivery in the UK
clients and
We continue to have discrete
operations in Germany and the
largely
Netherlands serving
domestic
so,
following the Malta and ROI
exit, we have little exposure to
the impact of Brexit beyond any
general
macro-economic
impact that is common to all UK
companies.
We have upgraded our skill set
in this area with recent senior
hires and have established
processes
effective
for
acquisition integration across
the Group.
we
consider
are
We
significantly better placed to
integrate and make a success
of acquisitions than in prior
periods.
We have project plans and
track restructuring projects to
their business case to ensure
that actions match anticipated
returns.
21
Strategic report – Principal Risks and Uncertainties (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Risk
Principal risks
Management of risks
Technological
development
The Group
risks being
outclassed by competitor
products that have increased
capabilities if the Group fails
to deliver continued product
development,
including
digital innovations.
We strive to invest in quality
assurance and research and
development to deliver quality
products
into our chosen
markets.
significantly
recent years we have
In
invested
in
increasing our capability in the
delivery of digital and cloud-
based solutions.
Ability to sell
effectively
The Group
deep
experience of selling our
broad portfolio of products.
has
is
It
imperative we have
effective sales and marketing
models, methodologies and
techniques
effectively
to
realise our investments in
to
software products and
recover
of
the
and
associated
support functions, and that
this is done in a profitable and
cash generative way.
delivery
costs
teams
in
These
The Group has developed
strong controls to support its
selling
sales
include
effectively.
upfront
approval
business
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.
Change in assessment of risk
in the period
In FY19, our acquisition of
Tascomi’s product portfolio of
cloud-native solutions includes
innovative solutions for Planning,
Building Control, Land Charges,
Environmental Health, Trading
Standards and Licensing. This
creates a strong platform for our
core product sets.
In our wider Group, we have
performed product assessments
to consider status of our products
and further work required against
market
and
revenue
opportunities,
adjusted
development plans accordingly.
and
As a result, we consider the
Group to have lower risk from
Technological development than
in previous periods.
The Group has significantly
improved the control framework
in our selling environment, which
has led to a direct impact on both
the margins and cash we are now
realising from the revenue we
commit to.
In addition, we have a strong link
between market opportunity and
our ability to exploit both with
product either ready or on our
development roadmap, and the
strength
sales
of
infrastructure to realise this.
our
than
effectively
As a result, we consider the
Group to have lower risk from
selling
in
previous periods, however we
consider selling to be a “whole-
the
team” activity
responsibility of every member of
the Group and so continue to
strive for further improvements.
that
is
22
Strategic report – Principal Risks and Uncertainties (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Risk
Principal risks
Management of risks
Change in assessment of risk
in the period
Capital
structure
Cyber risk
The Group has significant
borrowings in the form of
bank debt and a listed Bond
following
period
acquisitions.
prior
It is key that 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
ultimately
to deliver cash
returns for our investors.
headroom
We operate systems
that
maintain our confidential data
and in some cases that of our
customers.
information
An
security
breach or cyber-attack could
result in loss or theft of data,
intellectual
content
property.
or
Signed on behalf of the Board by:
David Meaden
Chief Executive Officer
9 April 2020
We perform regular reviews 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.
are
relationships with our
Our
lenders
significantly
improved on prior periods as a
on
result
of
better
commitments made,
control
and
environment
improving financial health of the
Group, including in particular,
cash generation.
delivering
We have cyber, data protection
and security policies in place
the
and
effectiveness of these policies.
regularly
review
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
and
Essentials
operates
27001
accredited Information Security
Management System.
standard
ISO
an
Whilst we are satisfied with our
actions in the period to mitigate
cyber risk, we remain cognisant
that, it is by nature a constantly
developing risk and we continue
to review our processes and
approaches on an ongoing basis.
23
Board of Directors
For the year ended 31 October 2019
__________________________________________________________________________________
Chris Stone Non-Executive Chairman
Chris 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 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.
Jeremy Millard Non-Executive Director
Jeremy Millard provides corporate finance advice to companies in the Technology sector as well as sitting on the board
of a number of private and listed companies. 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 and of Omega Diagnostics Group plc on 1 March 2019 (he chairs the
audit committee of both AIM-listed companies). He qualified as a Chartered Accountant in 1999 and holds an M. Eng
from Cambridge University. He is the Chairman of the Audit Committee.
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 previously
was a non-executive director of IQGeo Group plc and KBC Advanced Technologies plc prior to its takeover by
Yokogawa in 2016.
Phil Kelly Non-Executive Director
Phil has served as a non-executive director of several listed and private companies in the software and related services
sector, and is currently a non-executive director of Castleton Technology plc. Prior to that he had over 25 years’
experience as the Chief Executive of private and publicly quoted software companies supplying the commercial and
public sectors in the UK, Europe and the USA. Phil had previously worked for Digital Equipment Corporation and 3i
Consultants.
He has an Economics degree from the University of Leicester and a Master’s Degree in Business Administration from
Cranfield University.
24
Directors’ Report
For the year ended 31 October 2019
__________________________________________________________________________________
The Directors submit their report and audited financial statements for the year ended 31 October 2019.
Results and Dividends
The Group’s audited financial statements for the year ended 31 October 2019 are set out on pages 54 to 101. The
Group’s loss for the year after tax amounted to £1.8m (2018: £36.6m loss). The Directors have not paid a dividend in
FY19. The Directors do not propose any dividend to be paid in respect of the year ended 31 October 2019.
Post Balance Sheet Events
Refinancing
It was announced on 19 December 2019 that the Group had refinanced with the Royal Bank of Scotland plc, Silicon
Valley Bank and Santander UK plc. The new facilities, which comprise a revolving credit facility of £35,000,000 and
£10,000,000 accordion facility, are committed until December 2022, with an option to extend this commitment for a
further two years.
Disposal of SIX-PM Health Solutions (Ireland) Limited
The Group agreed on 22 November 2019 to sell its shareholding in SIX-PM Health Solutions (Ireland) Limited, a
medical-record scanning business based in Limerick, to its Managing Director for €1. During the year ended 31
October 2019 SIX-PM Health Solutions (Ireland) Limited recorded revenues of €392,000 (2018: €587,000) and loss
before tax on a standalone basis of €378,000 (2018: €12,000 loss).
Disposal of emCare Business
On 31 December 2019, the Group sold the trade and assets of its emCare business to Go plc, a telecoms business
based in Malta, for cash consideration of €100,000. During the year ended 31 October 2019 emCare business
recorded revenues of €317,000 (2018: €338,000) and profit before tax of €128,000 (2018: €115,000). Despite the
profitability recorded in the business in FY18 & FY19, the business was anticipated to become loss-making for the
foreseeable future.
UK Corporation Tax
On the 11 March 2020, the UK Government announced its intention to scrap its planned reduction of UK corporation
tax from its current rate of 19% to a reduced rate of 17%, starting 1 April 2020. The Group’s UK deferred tax assets
and liabilities at 31 October 2019 are measured at 17%, being the rate previously announced and enacted at the
balance sheet date. The impact on our deferred tax balances had they been recognised at the revised rate is as
follows:
Deferred tax assets
Deferred tax liabilities
Current
at 17%
£000
Revised
to 19%
£000
1,368
(4,015)
(2,647)
1,529
(4,487)
(2,958)
Covid-19 pandemic
The Group continues to monitor the impact of the Covid-19 pandemic. Idox is well placed because of the Group's high
recurring revenue base, its focus on public sector markets and the high proportion of staff that routinely work from
home.
Further details of our assessment of the impact of the Covid-19 pandemic on the Group is included in the Going
Concern disclosures in the Directors’ Report on pages 28 and 29.
Future Developments
Further information in relation to future developments has been disclosed in the Strategic Report as permitted by The
Companies Act 2006, S414c(11).
25
Directors’ Report (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
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:
C Stone (appointed 22 November 2018)
D Meaden
R Grubb (appointed 1 November 2018)
O Scott*** (appointed 1 November 2018)
P Kelly (appointed 29 March 2019)
J Millard
L Vaughan* (resigned 19 November 2018)
R Kellett-Clarke** (resigned 3 April 2019)
B Moorhouse (resigned 29 March 2019)
Number of shares
31 October 2019
1 November 2018
936,377
468,139
80,265
33,537,916
105,263
-
not applicable
not applicable
not applicable
-
-
-
-
-
-
232,250
15,098,668
-
* 2018: 232,250 of these shares are held through a Self-Invested Pension Plan.
** 2018: 2,761,667 of these shares are held through Self-Invested Pension Plans, 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.
*** 33,537,916 of these share are held through Kestrel Opportunities, which Oliver Scott is deemed to have a beneficial interest in.
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 30 to 31.
Details of the Directors’ service contracts can be found in the Report on Remuneration on pages 30 to 31.
Insurance for Directors and Officers
The Company has granted an indemnity to one or more of its Directors against liability in respect of proceedings brought
by third parties, subject to the conditions set out in section 234 of the Companies Act 2006. Such qualifying third party
indemnity provision remains in force as at the date of approving the Directors’ Report. Directors’ and officers’ liability
insurance with an indemnity limit of £10m has been purchased in order to minimise the potential impact of proceedings
against Directors in respect of claims that fall within the policy cover provided.
Substantial Shareholdings
As at 31 October 2019, the Company was aware of the following interests in 3% or more of its issued share capital:
Shareholder
Number of shares
% Holding
Canaccord Genuity Wealth Management
Soros Fund Management
Kestrel Investment Partners
Herald Investment Management
Long Path Partners
Richard Griffiths
Lombard Odier Asset Management
Gresham House
72,948,354
55,246,663
44,654,438
30,909,483
29,210,879
29,175,642
21,018,471
17,433,409
16.46
12.47
10.08
6.98
6.59
6.58
4.74
3.93
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.
26
Directors’ Report (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Health, Safety and Environmental Policies
The Group recognises and accepts its responsibilities for health, safety and the environment (H,S&E) and has a 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 2019. 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 UK-based 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.
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 an ongoing basis, the Board reviews the LIBOR
rate and discuss whether it is considered necessary to set up hedges to protect against interest rate movements.
27
Directors’ Report (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
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 19 December 2019 that the Group had refinanced with the Royal Bank of Scotland plc, Silicon
Valley Bank and Santander UK plc. The new facilities, which comprise a revolving credit facility of £35,000,000, are
committed until December 2022, with an option to extend this commitment for a further two years. The new facility is
on improved commercial terms with a lower margin grid and standard financial covenants in respect of leverage and
cash flow cover.
As the Group has net current liabilities of £26.3m as at 31 October 2019, the Directors have specifically considered
whether this represents an indication of an issue with the going concern basis for the Group’s accounting, particularly
as the corresponding balance as at 31 October 2018 was a net current asset position of £6.1m. The Directors have
identified that:
the FY19 closing position includes our £21.8m borrowings which are secured for up to five years, being disclosed
in less than one year due to the timing of finalising our new banking arrangement post year end, whereas the
borrowings in FY18 were in the main disclosed as greater than 12 months due to that refinancing being an
extension of additional facilities, and therefore excluded from current liabilities; and
in FY19 the Group has seen a large opening accounting, non-cash, adjustment in FY19 that has reduced contract
receivables and increased contract liabilities by a total of £12.6m following the adoption of IFRS 15.
After adjusting for these items to present an appropriate year on year comparison, the Group’s net current asset position
has improved by £2m from FY18 to FY19. Therefore, the Directors do not consider the net current liabilities reported
as at 31 October 2019 to be an indicator of any issue with the Group’s going concern assessment.
Covid-19 pandemic impact on Going Concern assessment
Idox along with most companies has been impacted by the emerging Covid-19 pandemic. We continue to assess the
impact of the Covid-19 pandemic on the business, taking actions to mitigate or limit the impacts on our organisation
where we can and supporting our staff, customers and partners in dealing with the emerging situation.
As part of the preparation of our FY19 results, the Group has carefully assessed the likely impact of the Covid-19
pandemic on our business and specifically considered if it creates any material uncertainty in our going concern
assessment. We have considered in detail anticipated changes in the way we engage with our customers, staff, supply
chains and banking partners as a result of the Covid-19 pandemic.
Idox is fundamentally resilient to the Covid-19 pandemic due to the Group's high recurring revenue base, its focus on
public sector markets and the high proportion of staff that routinely work from home. The Group retains significant
liquidity with cash and available committed bank facilities and has strong headroom against financial covenants. We
continue to monitor the situation as it continues to evolve and adapt our approach as required.
The exposures identified to date are as follows:
Our Public Sector Software business is exposed to government policy in response to the Covid-19 pandemic,
notably the recent postponement of the local and mayoral elections originally scheduled for May 2020 to May
2021 which will impact the Elections sub-segment of this business. However, the overall PSS business has strong
levels of recurring revenues from a well-established existing customer base and growing markets.
Our EIM business has seen significant reduction in travel given its cross-border operations which has had a limited
impact but we continue to provide the majority of solutions and service customers remotely. Our EIM business
also has strong existing high recurring revenues which account for approximately 80% of its revenue targets, and
is well-placed given its increasing focus on cloud-based solutions.
Our Content business has operations in Germany and Netherlands, however, the impact of the Covid-19
pandemic impact to-date has been minimal. We are not anticipating any impact on the UK element of our Content
business which is all recurring in nature and in respect of public sector customers.
The Group has introduced a number of cost controls over new and existing spend which, together with linked Cost of
Sale reductions, will mitigate any potential reduction in revenue from the Covid-19 pandemic. Management continue
to anticipate future earnings and cash will be in line with its previous expectations.
28
Directors’ Report (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
We have performed detailed financial forecasting of a number of credible potential Covid-19 pandemic scenarios, as
well as severe stress-testing in our financial modelling which includes potential restructuring in order to preserve the
Group as a going concern in the event of the most extreme possible impact on our Group of the Covid-19 pandemic.
The key assumptions in these scenarios are:
There will be a direct impact period until most of the current restrictions are lifted as well as a recovery period
until commercial and social life has broadly returned to normal (recovery period).
Revenues from existing support and recurring services contracts will not be materially impacted.
Revenues from new business and from current projects will be impacted by delays and some cancellation of
procurements in the current pipeline.
Cost management actions will be taken, consistent with these assumptions and the impacts experienced.
The scenarios considered most credible for the markets in which we operate and the customer base we have are:
A. A direct impact period of 3 months and a recovery period of 3 months. This scenario assumes 20% to 50% of
procurements are delayed but the majority resume. Project work recovers and any backlog is cleared by the
end of the recovery period.
B. A direct impact period of 6 months and a recovery period of 9 months. This scenario assumes 30% to 70% of
procurements are delayed into the recovery period and a number are cancelled. Project work recovers and
any backlog is cleared by the end of the longer recovery period.
We are satisfied these are valid and reasonable assumptions and that the scenarios tested are the most appropriate
and credible as the Group has high levels of recurring revenue and repeating revenues from a diverse customer base
across a number of business units. Both scenario A (our anticipated impact based on current information) and scenario
B (further sensitivity test) demonstrate the business is expected to have significant liquidity available from cash in hand
and from committed facilities and has strong headroom against financial covenants. In both scenario A and B, the
Group is forecasting liquidity in excess of £20m and headroom of at least 100% on financial covenants. Therefore, this
supports the going concern assessment for the business.
In our severe stress testing financial modelling we have sought to identify an extreme set of circumstances that would
result in the Group breaching banking covenants and extinguishing its available liquidity. In order to create such a set
of circumstances we further adjusted scenario B to reduce all Group revenues by 50% for the period April 2020 to June
2021, but with no further action on cost.
Whilst it is informative to identify extreme circumstances to test the Group’s liquidity, this scenario is considered highly
unlikely due to the high levels of recurring revenues the Group has in respect of software that is often either central to
the customer, or a specific regulatory requirement under statute. Furthermore, in the event the Group did find revenues
deteriorated further beyond the scenario’s modelled, the Group has identified mitigating actions to preserve its liquidity.
These actions include reducing any operations that may have become severely loss-making due to the Covid-19
pandemic either through further reduction in operational spend, restructuring of business units, or utilising available
government financial support with job retention schemes.
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.
Statement of Disclosure to Auditor
So far as each person who was a Director at the date of approving these financial statements is aware, there is no
relevant audit information of which the Group’s auditor is unaware. Additionally, each Director has taken all the
necessary steps, that they ought to have taken as a Director in order to make themselves aware of all relevant audit
information and to establish that the Group’s auditor is aware of this information.
This report was approved by the Board of Directors and authorised for issue. Signed on its behalf by:
Ruth Paterson
Company Secretary
9 April 2020
29
Corporate Governance Report
For the year ended 31 October 2019
__________________________________________________________________________________
In December 2018 the Board separated the activities of the Nomination and Remuneration Committee. This followed
changes in Board membership and a review of the Company’s governance arrangements. New Terms of Reference
were agreed for both committees and are available at https://www.idoxgroup.com/investors/corporate-governance/.
The Nomination Committee was formed in December 2018 with Oliver Scott as Chair, and all other Non-Executive
Directors as members.
The Remuneration Committee was formed in November 2018 with Barbara Moorhouse as Chair and all other Non-
Executive Directors as members. Barbara Moorhouse stepped down as Chair following her resignation as a Director
effective 29 March 2019. Phil Kelly was appointed as Chair of the Remuneration Committee on his appointment as a
Director on 29 March 2019.
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.
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 and life
cover. The bonus elements are dependent on the Executive Directors achieving performance criteria set out by the
Remuneration Committee. In addition, the Group operates a Long-term Incentive Plan for the Executive Directors.
Directors’ Remuneration
2019
Executive Directors
David Meaden
Rob Grubb (appointed 1 November 2018)
Non-Executive Directors
Chris Stone* (appointed 22 November 2018)
Oliver Scott (appointed 1 November 2018)
Phil Kelly (appointed 29 March 2019)
Jeremy Millard
Laurence Vaughan* (resigned 19 November 2018)
Richard Kellett-Clarke (resigned 3 April 2019)
Barbara Moorhouse (resigned 29 March 2019)
* Chairman
Basic
salary
and fees
2019
£000
331
175
94
42
21
56
31
23
15
788
Bonus
2019
£000
160
72
-
-
-
-
-
-
232
Benefits
in kind
2019
£000
Total
2019
£000
Pension
2019
£000
20
9
-
-
-
-
-
-
-
29
511
256
94
42
21
56
31
23
15
1,049
-
10
-
-
-
-
-
-
-
10
30
Corporate Governance Report (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Directors’ Remuneration (continued)
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
* Chairman
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
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:
Director
Richard
Kellett-Clarke
Chris Stone
David Meaden
Rob Grubb
Totals
At start
of year
800,000
-
-
-
585,500
3,512,400
1,000,000
800,000
5,097,900
Granted
Exercised
Lapsed
At end of
year
Exercise
price
Exercise
date from
Exercise
date to
-
-
-
-
-
(800,000)
-
-
-
-
585,500
3,512,400
1,000,000
(800,000)
5,097,900
38.38p
1p
0p
0p
Feb 2015
Mar 2019
Mar 2020
Mar 2020
Feb 2025
Mar 2029
Mar 2029
Mar 2029
The mid-market price of the Company’s shares at close of business on 31 October 2019 was 34.35p and the low and
high share prices during the year were 27.00p and 38.90p, respectively.
The Company recognised total expenses of £859,381 (2018: £50,000) related to equity-settled, share-based payment
transactions during the year. Of the total recognised, expenses of £859,381 (2018: £50,000) related to equity-settled,
share-based payment transactions during the year, of which £683,731 (2018: £44,000) related to the LTIP share option
scheme.
The pre-tax aggregate gain on exercise of share options during the year was £Nil (2018: £628,623). Note 26 of the
Group accounts contains full disclosure of the Company’s share options.
31
Corporate Governance Report (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Directors’ Share Interests
The Directors’ shareholdings in the Company are listed in the Directors’ Report on page 26.
Corporate Governance
Idox plc has adopted the QCA Corporate Governance Code (the “Code”) on a comply or explain basis. Further
the Compliance Statement published on our website:
Information on
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.
that can be
found within
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 systems 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 by its Auditors on future changes to such accounting policies.
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 ten 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, senior
and finance 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 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 three Non-Executive Directors. Short
biographies of the Directors are given on page 24.
32
Corporate Governance Report (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
The Board considers Chris Stone, Jeremy Millard and Phil Kelly as independent. 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 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 and 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. Given the level of changes in the recent period, the Chairman shall schedule a formal
review of 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 in FY20.
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
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 and Phil Kelly. The Report of
the Audit Committee can be found on pages 38 to 42.
In December 2018 the Board established two separate Committees to replace the previous Nomination and
Remuneration Committee, chaired by Peter Lilley until April 2018.
The Remuneration Committee was chaired by Barbara Moorhouse until her resignation as Director effective 29 March
2019, and was chaired by Phil Kelly from the date of his appointment as a Director, also on 29 March 2019. The
committee members include Chris Stone, Oliver Scott and Jeremy Millard.
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, Jeremy Millard and Phil Kelly as
members.
33
Corporate Governance Report (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
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, the Remuneration Committee met four times in the year, and the
Nominations Committee met two times in the year.
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.
There are no Directors due to retire by rotation and seek re-election at the next Annual General Meeting.
The new Director appointed since the last AGM, Phil Kelly, will 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 Board remains committed to a continuous programme to make
improvements in controls, processes and reporting to build on the strong progress in the year to ensure the Group
remains best placed to suitably mitigate risks that emerge as the Group’s operations evolve.
Prior period adjustments have been recorded in respect of Revenue and Onerous Contracts following extensive and
detailed product and contract reviews by both Management and the Group’s auditors.
The Audit Committee has maintained a close dialogue with Management and the Group’s external auditors in FY19
and the resulting audit process to ensure the extensive operational reviews performed by the new Management team
have been thorough and the resulting accounting has been appropriate. In addition, we have worked closely with the
new Management team as part of their efforts to upgrade processes and controls throughout the Group, and where
appropriate have requested recommendations for future improvements for addressing identified issues.
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;
on a monthly basis, financial results are monitored in detail against budgets, forecasts and other performance
indicators with action dictated accordingly at each meeting;
a structured approval process is maintained for sales order-to-cash and procurement purchase-to-pay
processes 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.
34
Corporate Governance Report (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
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. These improvements have included the introduction of a Business Approval Form, whereby all new
business must be approved based on size and risk before presentation to the customer, introduction of formal bid
reviews for material contracts, introduction of balance sheet and cash flow forecasting, and introduction of detailed
monthly business reviews.
The Board remains committed to further improvements in the internal control environment of the Group and is currently
working with senior operational and finance staff to;
further develop the Group’s suite of financial reporting through investments in its Customer Relationship
Management and Enterprise Resource Planning systems and internal resourcing to improve granularity and
robustness of routine reporting;
incorporate the outputs from the detailed monthly business reviews in Board reporting, detailing operational
issues as they arise and any impact on the Group’s financial reporting;
establish a programme for senior operational management to attend Board meetings and present on their
subject matter and answer questions;
embed risk management throughout the organisation, by establishing risk registers at a divisional level, to be
consolidated and presented to the Board; and
consider the need for internal audit, notably to ensure the control frameworks established are being suitably
adhered to.
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,
the Company Secretary 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.
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 Nominated Advisor (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.
35
Corporate Governance Report (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
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 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.
36
Directors Responsibilities Statement
For the year ended 31 October 2019
__________________________________________________________________________________
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.
Responsibility Statement
The Directors confirm that to the best of their knowledge:
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 9 April 2020 and is signed on its behalf by:
David Meaden
Chief Executive Officer
Rob Grubb
Chief Financial Officer
37
Report of the Audit Committee
For the year ended 31 October 2019
__________________________________________________________________________________
Overview
This report details the activities of the Committee during the financial year ended 31 October 2019. 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 four Non-Executive Directors: Jeremy Millard,
Chris Stone, Oliver Scott and Phil Kelly.
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, as noted
on page 24.
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 year under review, the Audit Committee held four scheduled meetings. The Group’s Auditor has a standing
invitation to attend meetings 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 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 of other internal control functions and the Auditor’s assessment
thereon; and
the Group’s procedures for responding to any allegations made by whistle-blowers.
The Audit Committee considers and reviews non-audit services provided by the Auditor, and this is tabled 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.
38
Report of the Audit Committee (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Audit Committee Activities in the Financial Year Ended 2019
The Committee met four times during the financial year ended 31 October 2019 to consider standing items on its
agenda and the prior period adjustments arising in the year. The Committee’s standing items on its agenda:
Received and considered, as part of the review of interim and annual financial statements, reports from the
Auditor in respect of the audit plan for the year and the results of the annual audit. These reports included the
scope of the 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 auditor.
Considered the risk register and principal risks to Group.
Considered the effectiveness of the Group’s risk management and internal control systems.
Considered the whistleblowing procedures.
Considered managements key judgement papers.
Considered the level and value of non-audit services.
Considered the review of business reporting segments in line with the guidance in respect of identifiable cash
generating units.
Considered the key audit matters from the Extended Audit Report.
Considered the effectiveness of the Group’s risk management and internal control systems, including
establishment of the improved controls described above, and ensuring the finance department is sufficiently
resourced with qualified and experienced individuals.
Prior Period Adjustments
In line with the improved governance in the year the Audit Committee, Management and the Group’s auditors have
worked closely to identify several prior period adjustments required to present the current and prior periods
appropriately in these financial statements. These items include:
Contract irregularities from FY16 identified from our detailed product and project reviews, and monthly
business review controls.
Identification of a loss-making contract by the Group’s auditors during the audit process that was subsequently
identified as an onerous contract that should have been recorded in prior periods. As a result, the Audit
Committee commissioned a review of all material contracts in the Group, and commissioned a report by the
Group’s Chief Process and Transformation Officer to identify how the onerous contract had not previously
been identified. These reviews concluded there were no other such examples of onerous contracts within the
Group and resulted in several recommendations to strengthen the link between operational controls and
financial reporting which the Audit Committee and Executive Management have fully adopted.
Contracts identified, during our detailed IFRS 15 adoption review, which had revenue overstatements in prior
periods whereby revenue was recognised by previous Management teams despite not being permissible
under IAS 18 Revenue, the applicable accounting standard at the time.
More details of these items and their impact on the financial statements are included in Significant Matters below and
presented in Note 1, Accounting Policies.
Internal Audit
During the year, the committee considered the need for a separate internal audit function and its impact on the external
audit. The committee concluded that given the level of transformation and activity by Management, the Board and the
Group’s auditors in assessing the Group’s control environment, establishment of a separate internal audit function
would not have been effective in FY19, however, the requirement for an internal audit function will be kept under review
by the committee as the Group and its control framework continue to evolve.
39
Report of the Audit Committee (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Effectiveness of the Auditor
The Committee continues to monitor the work of the Auditor to ensure that the Auditors remain effective. This includes
liaising directly on significant matters (such as the IFRS adoption in the year) and discussing with Executive Directors
and senior finance staff on Auditor performance.
The Committee is satisfied with the effectiveness of the Auditor in performing their audit for the year ended 31 October
2019.
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:
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
It is the Audit Committee’s policy to engage the Group’s Auditor for non-audit services where such level of expertise
are not readily available from comparable firms at a commensurate cost, and engaging for such services would not
impair the independence of the Group’s Auditor. The Committee considers each engagement for non-audit services
carefully against this policy, and when satisfied approves all non-audit work commission from the external auditors.
During the year the fees paid to the Auditor were £350,000 (2018: £275,000) for Group and subsidiary audit services,
£Nil (2018: £67,000) for interim audit services, and £187,000 (2018: £224,000) for non-audit services relating to tax
compliance and advice and refinancing advice.
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 and didn’t present a threat to Deloitte’s independence.
Significant Matters in Relation to Financial Statements
Revenue Recognition
Management assesses both legal paperwork and the underlying commercial specifics of transactions, alongside
accounting standards, to determine revenue recognition treatment. This assessment could involve internal chartered
accountants, internal legal staff, operational staff and professional advice where appropriate.
The Audit Committee has supervised the work of Management closely during the year as the Group’s new revenue
recognition framework has developed aligned to IFRS 15 and implemented throughout the business. In addition, the
Audit Committee have regularly liaised with the Group’s Auditors to validate that judgements made by Management in
respect of revenue recognition are appropriate for the Group and consistent with external expectation.
As part of this exercise, several examples of revenue overstatements in prior periods have been identified whereby
revenue was recognised by previous Management teams despite not being permissible under IAS 18 Revenue, the
applicable accounting standard at the time.
Management has concluded whilst these overstatements in respect of prior periods individually are not significant, they
are of sufficient quantum cumulatively to be represented as a prior year adjustment in these financial statements. See
note 1 for further details of the Restatement of comparative figures.
40
Report of the Audit Committee (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Goodwill and Intangible Valuation
The Group recognises intangible assets acquired as part of business combinations. These include, Goodwill, Customer
relationships, Trade names, Software, Development costs, Database and Order backlog, which are recorded 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.
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 performed and
supplied by independent valuation specialists.
The Audit Committee has considered Management’s assessments of value-in-use of cash generating units of intangible
assets at the reporting date. This included specifically considering and subsequently approving business plans
prepared by Management, supporting the future performance expectations used in the calculation of the value-in-use.
Impairment reviews were also an area of focus for the external auditor, which reported its findings to us.
Onerous Contract
In relation to the loss-making contract that was identified, by the Group’s auditors, that should have been recorded in
prior periods, the Audit Committee commissioned a review of all material contracts in the Group and commissioned a
report by the Group’s Chief Process and Transformation Officer to identify how the onerous contract had not previously
been identified. These reviews concluded there were no other such examples of onerous contracts within the Group
and resulted in several recommendations to strengthen the link between operational controls and financial reporting
which the Audit Committee and Executive Management have fully adopted.
Management has concluded the onerous contract identified in respect of prior periods is of sufficient quantum to be
represented as a prior year adjustment in these financial statements. See note 1 for further details of the Restatement
of comparative figures.
Prior Period Adjustments
As set out above, prior period adjustments have been recorded in respect of Revenue and Onerous Contracts following
extensive and detailed product and contract reviews by both Management and the Group’s auditors.
The Audit Committee has maintained a close dialogue with Management and the Group’s external auditors in FY19
and the resulting audit process to ensure the extensive operational reviews performed by the new Management team
have been thorough and the resulting accounting has been appropriate. In addition, we have worked closely with the
new Management team as part of their efforts to upgrade processes and controls throughout the Group, and where
appropriate have requested recommendations for future improvements for addressing identified issues.
We have specifically challenged Management’s presentation of historical issues as prior period adjustments and are
satisfied these are cumulatively material and should be accounted for as prior period adjustments in order to present
the FY19 results in a fair and meaningful manner.
Covid-19 Pandemic Impact
The Audit Committee, along with the remainder of the Board, has reviewed the Covid-19 pandemic impact assessment
undertaken by management and, in particular, the assumptions made and the scenarios chosen for the assessment.
The key assumptions are:
There will be a direct impact period until most of the current restrictions are lifted as well as a recovery period
until commercial and social life has broadly returned to normal (recovery period).
Revenues from existing support and recurring services contracts will not be materially impacted.
Revenues from new business and from current projects will be impacted by delays and some cancellation of
procurements in the current pipeline.
Cost management actions will be taken, consistent with these assumptions and the impacts experienced.
41
Report of the Audit Committee (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
The scenarios considered most credible for the markets in which we operate and the customer base we have are:
A. A direct impact period of 3 months and a recovery period of 3 months. A number of procurements are delayed
but the majority resume. Project work recovers and any backlog is cleared by the end of the recovery period.
B. A direct impact period of 6 months and a recovery period of 9 months. A number of procurements are delayed
into the recovery period and a number are cancelled. Project work recovers and any backlog is cleared by the
end of the longer recovery period.
We are satisfied these are valid and reasonable assumptions and that the scenarios tested are the most appropriate
and credible. Both scenario A (our anticipated impact based on current information) and scenario B (further sensitivity
test) demonstrate the business is expected to have significant liquidity available from cash in hand and from committed
facilities and has strong headroom against financial covenants, and therefore, support the going concern assessment
for the business.
Impact of IFRS 15: Revenue from Contracts with 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 adopted IFRS 15 on 1 November 2018 and applied the standard on a cumulative effect basis. During the
year ended 31 October 2018 and in the first half of the year ended 31 October 2019, 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 have been impacted by IFRS 15 and the two most
significant impacts of implementing the standard are:
Software license revenue previously recognised once a customer commitment was confirmed are now instead
recognised over the duration of the project implementation period as milestones are achieved.
Where software revenues are unbundled to individually recognise individual performance obligations (notably
initial license fees versus ongoing support and maintenance, and hosting obligations) this unbundling is
performed against pre-determined criteria to ensure that revenues recognised in the future for ongoing
obligations are commensurate with the ongoing costs of those obligations.
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.
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 QCA Corporate
Governance Code, the requirements of the UK Listing Authority's Listing Rules, Prospectus and Disclosure and
Transparency Rules, the AIM Rules for Companies 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
9 April 2020
42
Independent Auditor's Report to the Members of Idox plc
For the year ended 31 October 2019
__________________________________________________________________________________
Report on the audit of the financial statements
1. Opinion
In our opinion:
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 2019 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 financial statements, and the related notes 1 to 15 to the parent
Company financial statements.
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” (United Kingdom Generally Accepted Accounting
Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the
financial statements section of our report.
We are independent of the Group and 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 opinion.
43
Independent Auditor's Report to the Members of Idox plc (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
revenue recognition;
valuation of goodwill and intangible assets;
completeness and valuation of provisions for onerous contracts;
presentation and disclosure of prior year adjustments in relation to revenue recognition
and onerous contracts; and
the impact of Covid-19 pandemic on going concern.
Materiality
Scoping
The materiality that we used for the Group financial statements was £300,000 which was
determined using a blended benchmark considering EBITDA, income before tax and adjusted
income before tax.
Our audit covered 90% of the Group’s total revenue, 86% of the Group’s EBITDA and 95% of
the Group’s total assets.
Significant changes in
our approach
As a result of the identification of a loss making contract during the audit we have considered
the completeness and valuation of provisions for onerous contracts as a key audit matter.
We have also considered presentation and disclosure of prior year adjustments in relation to
revenue recognition and onerous contracts as a key audit matter due to the historic revenue
recognition irregularities.
Given the unprecedented level of uncertainty in the global economy arising from the Covid-19
pandemic, we have also included the impact on going concern as a key audit matter.
There were no other significant changes in our approach other than the new key audit matters
identified in the current year.
4. Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the following matters where:
We have nothing to report in
respect of these matters.
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.
5. 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.
44
Independent Auditor's Report to the Members of Idox plc (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
5.1. Revenue recognition
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
The Group generated £65.5m of revenues (2018: £66.4m from continuing operations) during
the year from the sale of goods (2019: £23.2m; 2018: £17.3m), being software, hardware and
consumables, and the rendering of services (2019: £42.2m; 2018: £49.1m). Each business
segment has its own revenue recognition policies (Please see note 1 accounting policies)
depending on the nature of the revenue and underlying contractual arrangements.
Management judgement is required around the timing of when performance obligations are
met, as well as the valuation of revenue recognised given the increased level of judgment and
estimation on application of principles set out in IFRS 15 Revenue from contracts with
customers. This judgment could be the subject of management bias and so we consider that
this represents a fraud risk.
Our key audit matter has been pinpointed to the cut-off, accuracy, and occurrence of product
and service revenue, and the corresponding balance sheet risks of existence and accuracy of
accrued revenue, and completeness of deferred revenue.
Further details are provided in note 2 to the financial statements.
The audit procedures we performed in respect of this matter included:
Obtained an understanding of the relevant controls over the recording of revenue;
Testing of product and service revenue for one month pre year-end and one month post
year-end, in order to assess the cut-off, agreeing each sampled item to invoice details
and evidence the performance obligations have been met;
Confirmations were sent out to corroborate the terms of the contracts held with
customers included within the accrued income balance;
Testing a sample of invoices raised in the year, to ensure they were accounted for in line
with the Idox revenue recognition policy. Each of these items were traced through to
invoice, third party support (e.g. purchase order or signed contract) and payment into the
bank;
Testing of accrued income, with each selected item agreed to evidence of the split of the
revenue (service/product/recurring), and also to evidence that the criteria for revenue
recognition had been met before the year end; and
Detailed testing of deferred income, agreeing each item to evidence of the split of the
revenue (service/product/recurring), and recalculating the portion of income that should
be deferred based on evidence of the duration of the contract.
Key observations
Based on the work performed we concur that all revenue was appropriately recognised in the
current year.
45
Independent Auditor's Report to the Members of Idox plc (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
5.2. Valuation of goodwill and intangible assets
Key audit matter
description
The Group has goodwill of £48.1m (2018: £45.9m) and other intangible assets of £37.9m
(2018: £32.9m) as at 31 October 2019. As required by IAS 36 Impairment of assets
management performs an impairment review for all goodwill balances on an annual basis, and
for other assets whenever an indication of impairment is identified.
How the scope of our
audit responded to the
key audit matter
This has been identified as a key audit matter as a result of the quantitative significance of the
balances, and the application of management judgement and estimation in performing
impairment reviews for the PSS and EIM groups of Cash-Generating Units (CGU) in particular
as significant components of the total intangible asset amount.
Determination of the recoverable amount incorporates judgements based on assumptions
about future operating cash flows for the related businesses, using assumptions around
discount rate, growth rates, and cash flow forecasts. Our key audit matter is focused around
the most sensitive and judgemental assumptions, being the forecast cash flows in
management’s assessment of recoverable amount based on value-in-use, and the discount
rates applied to the cash flows.
Further details are provided in note 12 to the financial statements.
The audit procedures we performed in respect of this matter included:
Obtained an understanding of the relevant controls over the carrying value of goodwill
and other intangible assets, in particular the controls over the forecasts that underpin the
value in use models, and controls around management’s selection of the discount rate;
Challenged management’s assessment of the cash flow assumptions in determining
value-in-use, including sensivities, by assessing historical accuracy of forecasting and
budgeting accuracy, reviewing sales order book and third party evidence where
available;
Agreed cash flow forecasts to board approved budgets including net working capital and
capital expenditure;
Performed sensitivity analysis on key assumptions based on comparison to readily
available economic and industry data;
Engaged our valuations specialist to perform a review of the discount rate applied; and
Assessed management’s disclosure of sensitivity within the EIM CGU grouping
Key observations
Based on the work performed we concluded that the valuation of goodwill and intangible assets
was appropriate, and that appropriate disclosure has been made in relation to sensitivities that
could give rise to future impairment.
46
Independent Auditor's Report to the Members of Idox plc (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
5.3. Completeness and valuation of provisions for onerous contracts
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
During the audit, we concluded that a loss-making contract, which was identified by
management through their business review process, had not been accounted for correctly. IAS
37 Provisions, Contingent Liabilities and Contingent Assets requires provision to recognised if
an entity has a contract that is onerous and as such a provision of £0.6m at 31 October 2018
and £0.4m at 31 October 2019 should be recognised. Please see page 41 of the audit
committee report and note 1 prior year adjustment disclosures for further information. Please
see section 5.4 below for details of the work performed and conclusions reached on whether
these amounts have been recorded in the correct period.
The identification of this loss making contract, coupled with the deficiency in the internal
financial reporting process and controls designed to ensure such an issue is accounted for
correctly, led to an increase in the scope of the audit to consider the general completeness
and valuation of accounting for onerous contracts, and the identification of this specific key
audit matter.
Further details are provided in note 20 to the financial statements.
The audit procedures we performed in respect of this matter included:
Profiled contracts to identify other similar contracts that may exist within the business;
Selected a sample of contracts, and reviewed the cost to complete analysis
management had performed to search for other onerous contract provisions that may be
required;
Increased the extent of testing over third party cost of sales, and challenging the
allocation of these costs to existing contracts;
Reviewed a sample of the monthly business review packs prepared by business unit
leads to review for potential other commercial and operational issues which may require
an onerous contract loss provision or for which the appropriate accounting has not been
applied due to a financial reporting control deficiency;
Reviewed management’s calculation of the required onerous contract provisions,
assessing the remaining term of the contract and the unavoidable costs of delivering in
line with the contract terms; and
Analysed the nature of the adjustment identified to assess whether it related to error or
estimation, and the availability of information to identifiy the provision at the prior year
end.
Key observations
Based on the procedures performed, we concur with managements’ conclusion that the
provision for onerous contracts is appropriate and includes all contracts that are in a loss
making position.
47
Independent Auditor's Report to the Members of Idox plc (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
5.4. Presentation and disclosure of prior year adjustments arising from revenue recognition and onerous
contracts
Key audit matter
description
How the scope of our
audit responded to the
key audit matter
In March 2019, and as described in the Group’s regulatory announcement on 29 March 2019
and its Interim Results announced 22 July 2019, management identified three instances of
irregularities in historic customer contracts, signed and recognised in the year ended 31
October 2016. These contracts had been inappropriately amended by a small number of
employees whom have since left the Idox Group. This amounted to revenue and £0.5m of
accrued income remaining as at 31 October 2018 that should not be have been recognised.
In addition, during the reviews required to transition to IFRS 15 which required detailed
considerations of performance obligations under all contracts, it was identified that there was
an additional overstatement of revenue in prior periods. Revenue had been recognised relating
to three specific and discrete sets of circumstances where revenue were either recognised in
the incorrect period, or should not have been recognised at all. The total impact of these
adjustments is to reduce prior year revenue by £1.0m.
As noted in section 5.3 above, there is an adjustment required to recognise an onerous
contract provision of £0.4m at 31 October 2019, £0.6m at 31 October 2018 and £0.9m at 1
November 2017, which relates to a contract entered into in a prior period.
IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, defines prior period
error as an omission from, and misstatement in, the entity’s financial statement for one or more
prior periods resulting from a failure to use, or misuse of, reliable information that was available
when the financial statements were authorised for issue and could reasonably have expected
to have been obtained and taken into account. When such a determination has been made
IAS 8 requires restatement where prior period errors have a material impact on the financial
statements. It distinguishes prior period errors from accounting estimates which, by their
nature, may need to be revised as additional information becomes known. IAS 8 defines
material misstatement as one that could, individually, or collectively, influence the economic
decisions that users make on the basis of the financial statements.
Management concluded that the prior period errors noted above, considered in aggregate are
quantitatively and qualitatively material and a restatement of the prior year financial statement
is required.
Given the judgements required by management over the period in which the adjustments
should be recognised, our key audit matter focussed on whether the adjustments were
complete, accurate and appropriately presented and disclosed.
Further details are included within the strategic report on page 13, the audit committee report
on pages 39 to 41, and critical accounting estimates and judgements in note 1 to the financial
statements.
In addition to the procedures set out in relation to the revenue and onerous contract provisions
note above, we performed additional audit procedures to analyse the nature of the
adjustments. These procedures were designed to assess whether adjustments related to
estimation or error, and the availability of information to make those adjustments at the prior
year-end. This included:
Made direct enquiries of management and reviewing reports produced by management
in relation to these areas;
48
Independent Auditor's Report to the Members of Idox plc (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Performed calculations and reviewing source documentation;
Reviewed key contracts and understanding the nature of negotiations with the customer
to assess the point at which it became onerous;
Assessed the information available, or which could have been reasonably expected to
be taken into account, as at 31 October 2018;
Reviewed prior year working papers and our wider audit procedures to search for
contradictory evidence that prior year errors were different to those proposed by
management; and
Reviewed the proposed disclosure in the financial statements in relation to any prior
year adjustment.
Based on the work performed we concluded that management’s judgement, that the impact of
the identified prior year errors are cumulatively material and so a restatement of the prior period
financial statements is required, was reasonable and that this has been appropriately
accounted for and disclosed.
Key observations
5.5. The impact of Covid-19 pandemic on going concern
Key audit matter
description
There is unprecedented level of economic uncertainty arising from the Covid-19 pandemic.
Assessing the impact of this on going concern resulted in considerable focus and time being
spent by both management and the audit team.
There is a challenge in modelling for the impact of the Covid-19 pandemic given the rapidly
changing situation in the UK and the wide-reaching changes in government policy.
Management spent time modelling different scenarios which may occur as a result of the
Covid-19 pandemic. These scenarios included several out turns with revenue and EBITDA
dropping 18% and 29% respectively during the remainder of 2020 and the full impact lasting
through to October 2021. Whilst no material uncertainty was identified, we revised our audit
plan to take account of these additional considerations when assessing the going concern
conclusion.
Under the various different scenarios presented by management, the Directors have
concluded that the going concern assumption remains appropriate.
Further details are included within the Chairman’s statement on page 3, the audit committee
report on page 41 to 42, note 1 going concern on page 58 to 60 and post balance sheet events
in note 31 to the financial statements.
The audit procedures we performed in respect of this matter included:
Reassessed our risk assessment on going concern for the impact of the Covid-19
pandemic;
Obtained an understanding of the processes and controls involved in management’s
going concern assessment in light of the Covid-19 pandemic;
Tested the integrity of management’s updated going concern model;
Assessed the reasonableness of the scenarios identified by management, reverse stress
testing performed, and key assumptions used by management in determining the impact
of the Covid-19 pandemic on going concern;
Assessed management's ability to execute mitigating actions, as required, in light of the
Covid-19 pandemic;
How the scope of our
audit responded to the
key audit matter
49
Independent Auditor's Report to the Members of Idox plc (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Key observations
Recalculated management’s forecast covenant compliance calculations throughout the
going concern period; and
Assessed the adequacy of disclosures related to the impact of the Covid-19 pandemic on
going concern made in the financial statements.
Based on the work performed we concluded that the scenarios identified by management,
reverse stress testing performed and key assumptions made in assessing the impact of the
Covid-19 pandemic were reasonable and that the conclusions on going concern are
appropriate.
6. Our application of materiality
6.1. 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
£300,000 (2018: £415,000)
£120,000 (2018: £166,000)
Parent Company materiality equates to 3%
(2018: 3%) of net assets which has been
capped at 40%
(2018: 40%) of Group
materiality.
As this is the ultimate holding Company for the
Group, the key balances are investments held,
external
intercompany
balances.
borrowings
and
Basis for
determining
materiality
We determined materiality using a blended
benchmark considering EBITDA, income before
tax, and adjusted income before tax. The
tax benchmark
adjusted
normalises the profit figure for the impact of
amortisation
is
consistent with prior year.
from acquisitions. This
income before
Rationale for the
benchmark
applied
We have used this blended benchmark for our
determination of materiality having considered
the important metrics of the business for
different stakeholder groups.
As a listed business shareholders are interested
in a statutory measure of income before tax as
an indicator of ability to pay dividends and
overall performance of the business. From
review of analysts’ reports, banking agreements
and management reporting it suggests that
EBITDA
these
stakeholders.
is of most
importance
for
income before
We have also considered the large gap between
EBITDA and
tax which
predominantly arises due to amortisation of
acquisition related intangible assets, and have
therefore adjusted income before tax for this
amortisation in arriving at an adjusted income
before tax.
50
Independent Auditor's Report to the Members of Idox plc (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected
and undetected misstatements exceed the materiality for the financial statements as a whole. Group performance
materiality was set at 60% of Group materiality for the 2019 audit (2018: 70%). In determining performance materiality,
we considered the following factors: our risk assessment, including our assessment of the Group’s overall control
environment and the fact we did not plan to rely on controls; our past experience of the audit; and identification of prior
period adjustments.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £9,000
(2018: £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.
Identification and scoping of components
7. An overview of the scope of our audit
7.1.
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, and Content.
On a legal entity basis, the significant components to the Group are Idox Plc, Idox Software Ltd, Idox Health Limited,
6PM Limited, and McLaren Software Inc.
These components represent 75% (2018: 82%) of the Group’s revenue, 80% (2018: 86%) of the Group’s EBITDA and
93% (2018: 86%) of the Group’s total assets. Specified procedures have also been performed over revenue, accrued
and deferred income within Idox Germany GmbH and Idox Netherlands. This adds an additional 15% of coverage over
revenue, 6% of EBITDA and 2% over total assets.
14%
6%
2%
5%
EBITDA
Total assets
80%
93%
Full audit scope
Full audit scope
Specified audit procedures
Specified audit procedures
Review at group level
Review at group level
During the year (and in prior year) all necessary work was performed by the Group engagement team and therefore no
reliance was placed on work with other auditors. All non-significant components were subject to analytical review by
the Group audit team.
51
Independent Auditor's Report to the Members of Idox plc (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
Our audit work on components was executed at levels of materiality applicable to each individual entity, which were
lower than Group materiality. Component materialities fall within the range of £120,000 to £210,000 (2018: £166,000
to £291,000).
At the Group level, we also tested the consolidation process.
7.2. Our consideration of the control environment
During our audit we did not plan to rely on IT controls, nor on controls over business cycles. This decision was taken
after taking consideration of a number of factors including: the level of changes across the Group in underlying
processes and system of reporting; the implementation of the Board’s improved governance processes; timing of when
changes to processes and controls were implemented during the year; level of change in client personnel; and the fact
that prior year errors were indicative of control weaknesses requiring remediation.
As documented in Corporate Governance Report (page 34) and in section 5.3 above a financial reporting control
deficiency was identified during the audit relating to the accounting for onerous contracts. Section 5.3 sets out the
background to the deficiency, and the additional work we performed having identified this issue. Management has
reviewed this issue and proposed control and process changes to be implemented, which have been discussed and
approved by the Audit Committee as detailed on page 41.
8. Other information
The Directors are responsible for the other information. The other information comprises the information included in the
annual report other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
there is a material misstatement in the financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in respect of these matters.
9. 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.
10. 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
52
Independent Auditor's Report to the Members of Idox plc (continued)
For the year ended 31 October 2019
__________________________________________________________________________________
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
11. Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.
In the light of the knowledge and understanding of the Group and the parent Company and their environment
obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the
directors’ report.
12. Matters on which we are required to report by exception
12.1.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Directors’ remuneration
• we have not received all the information and explanations we require for our audit; or
•
adequate accounting records have not been kept by the parent Company, or returns adequate for our audit
have not been received from branches not visited by us; or
the parent Company financial statements are not in agreement with the accounting records and returns.
•
We have nothing to report in respect of these matters.
Directors’ remuneration
12.2.
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 these matters.
13. 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
10 April 2020
53
Consolidated Statement of Comprehensive Income
For the year ended 31 October 2019
__________________________________________________________________________________
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit / (loss)
Analysed as:
Earnings before depreciation, amortisation, restructuring,
acquisition costs, impairment, financing costs and share
option costs
Depreciation
Amortisation
Restructuring costs
Acquisition (costs) / credit
Impairment
Financing costs
Share option costs
Finance income
Finance costs
Loss before taxation
Income tax (charge) / credit
Loss for the year from continuing operations
Discontinued operations
Loss for the year from discontinued operations
Loss for the year
Non-controlling interest
Note
2
2
3
3
3
5
25
6
6
8
9
2019
£000
65,492
(19,481)
46,011
(44,334)
1,677
14,361
(839)
(8,289)
(2,155)
(174)
-
(368)
(859)
172
(1,874)
(25)
(1,192)
(1,217)
(602)
(1,819)
113
Restated*
2018
£000
66,414
(18,115)
48,299
(77,200)
(28,901)
13,639
(1,106)
(8,213)
(436)
856
(33,255)
(336)
(50)
449
(1,788)
(30,240)
2,680
(27,560)
(9,067)
(36,627)
6
Loss for the year attributable to the owners of the parent
(1,706)
(36,621)
Other comprehensive loss for the year
Items that will be reclassified subsequently to profit or loss:
Exchange losses on translation of foreign operations net of tax
Other comprehensive loss for the year, net of tax
Total comprehensive loss for the year
Total comprehensive loss 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
10
10
10
10
(180)
(180)
(1,999)
(1,886)
(0.26)p
(0.26)p
(0.41)p
(0.41)p
*See Note 1 for restatement reconciliation
The accompanying accounting policies and notes form an integral part of these financial statements.
(133)
(133)
(36,760)
(36,754)
(6.67)p
(6.67)p
(8.86)p
(8.86)p
54
Consolidated Balance Sheet
At 31 October 2019
__________________________________________________________________________________
Restated
2017
£000
Restated
2018
£000
2019
£000
Note
11
12
13
14
16
17
9
18
19
19
20
22
9
14
19
19
20
21
22
24
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investment
Deferred tax assets
Total non-current assets
Current assets
Stock
Trade and other receivables
Current tax receivable
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 payable
Borrowings
Total current liabilities
Liabilities directly associated with assets
classified as held for sale
Non-current liabilities
Deferred tax liabilities
Deferred consideration
Other liabilities
Provisions
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
Issued capital and reserves attributable
to the owners of the parent
Non-controlling interest
Total equity
1,162
86,004
18
1,368
88,552
77
19,972
251
7,023
27,323
-
115,875
7,136
381
23,892
384
-
21,809
53,602
1,211
78,787
18
1,107
81,123
115
32,502
1,382
5,534
39,533
1,114
121,770
7,957
750
21,201
356
-
3,289
33,553
1,743
122,754
18
1,086
125,601
163
42,216
-
3,248
45,627
-
171,228
10,893
1,600
25,746
427
190
3,102
41,958
-
963
-
4,015
74
1,878
111
11,584
-
17,662
71,264
44,611
4,446
1,112
41,348
(621)
1,837
7,528
(365)
(64)
(10,500)
44,721
(110)
44,611
3,724
-
1,288
378
11,491
22,505
39,386
73,902
47,868
4,169
1,112
34,188
(621)
1,232
7,528
(399)
116
540
47,865
3
47,868
7,010
-
1,616
645
11,238
21,519
42,028
83,986
87,242
4,145
1,112
34,109
(621)
1,730
7,528
(349)
249
39,330
87,233
9
87,242
The financial statements were approved by the Board of Directors and authorised for issue on 9 April 2020 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
Rob Grubb
Chief Financial Officer
Company number: 03984070
55
Consolidated Statement of Changes in Equity
At 31 October 2019
_______________________________________________________________________________________________________________________
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
Balance at 1 November 2017
FY19 Prior period adjustment (note 1)
Restated balance at 1 November 2017
Issue of share capital
Share option costs
Exercise of share options
ESOP trust
Equity dividends paid
Transactions with owners
Loss for the year
FY19 Prior period adjustment (note 1)
Non-controlling interest
Other comprehensive loss
Exchange movement on translation of foreign
operations
Total comprehensive loss for the year
4,145
-
4,145
24
-
-
-
-
24
-
-
-
-
-
1,112
-
1,112
-
-
-
-
-
-
-
-
-
-
-
34,109
-
34,109
79
-
-
-
-
79
-
-
-
-
-
(621)
-
(621)
-
-
-
-
-
-
-
-
-
-
1,730
-
1,730
-
50
(548)
-
-
(498)
-
-
-
-
-
7,528
-
7,528
-
-
-
-
-
-
-
-
-
-
(349)
-
(349)
-
-
-
(50)
-
(50)
-
-
-
-
-
Restated Balance at 31 October 2018
4,169
1,112
34,188
(621)
1,232
7,528
(399)
IFRS 15 opening adjustment
IFRS 15 deferred tax opening adjustment
Issue of share capital
Share option costs
Exercise / lapses of share options
ESOP trust
Transactions with owners
Loss for the year
Non-controlling interest
Other comprehensive loss
Exchange movement on translation of foreign
operations
Total comprehensive loss for the year
-
-
277
-
-
-
277
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,160
-
-
-
7,160
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
859
(254)
-
605
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
34
34
-
-
-
-
249
-
249
-
-
-
-
-
-
-
-
-
(133)
(133)
116
-
-
-
-
-
-
-
-
-
40,669
(1,339)
39,330
-
-
548
-
(2,717)
(2,169)
(36,042)
(579)
-
-
(36,621)
540
(11,532)
1,944
-
-
254
-
254
(1,706)
-
(180)
(180)
-
(1,706)
At 31 October 2019
4,446
1,112
41,348
(621)
1,837
7,528
(365)
(64)
(10,500)
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.
9
-
9
-
-
-
-
-
-
-
-
(6)
-
(6)
3
-
-
-
-
-
-
-
-
(113)
-
(113)
(110)
56
Total
£000
88,581
(1,339)
87,242
103
50
-
(50)
(2,717)
(2,614)
(36,042)
(579)
(6)
(133)
(36,760)
47,868
(11,532)
1,944
7,437
859
-
34
8,330
(1,706)
(113)
(180)
(1,999)
44,611
Consolidated Cash Flow Statement
For the year ended 31 October 2019
___________________________________________________________________
Note
11
12
25
Cash flows from operating activities
Loss for the year 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
Movement in stock
Movement in receivables
Movement in payables
Cash generated by operations
Tax on loss refunded / (tax on profit paid)
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiaries
Net cash arising on disposal of discontinued operations
Purchase of property, plant and equipment
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
Issue of own shares
Net cash flows from / (used in) financing activities
Net movement in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange gains on cash and cash equivalents
Cash and cash equivalents at the end of the year
2019
£000
Restated
2018
£000
(627)
(39,983)
839
8,289
(750)
-
(172)
1,629
(54)
(182)
859
38
4,923
(3,595)
11,197
1,185
12,382
(6,394)
44
(780)
(5,871)
172
(12,829)
(1,423)
8,000
(81)
(12,039)
-
7,350
1,807
1,360
5,534
129
7,023
1,144
8,615
(684)
39,530
(211)
1,666
90
(832)
50
48
8,671
(7,456)
10,648
(760)
9,888
(209)
-
(606)
(3,868)
211
(4,472)
(1,484)
6,500
42
(5,500)
(2,717)
(53)
(3,212)
2,204
3,248
82
5,534
The accompanying accounting policies and notes form an integral part of these financial statements.
57
Notes to the Accounts
For the year ended 31 October 2019
___________________________________________________________________
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, limited by shares, 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 modified by the revaluation of
certain financial assets and liabilities, being, deferred consideration at fair value through profit or loss.
These financial statements are available on the Group’s website: https://www.idoxgroup.com/investors/financial-
reporting/.
As set out on page 28 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, in addition to levels of contracted and recurring revenue.
It was announced on 19 December 2019 that the Group had refinanced with the Royal Bank of Scotland plc, Silicon
Valley Bank and Santander UK plc. The new facilities, which comprise a revolving credit facility of £35,000,000 and
£10,000,000 accordion facility, are committed until December 2022, with an option to extend this commitment for a
further two years. The new facility is on improved commercial terms with a lower margin grid and standard financial
covenants in respect of leverage and cash flow cover.
As the Group has net current liabilities of £26.3m as at 31 October 2019, the Directors have specifically considered
whether this represents an indication of an issue with the going concern basis for the Group’s accounting, particularly
as the corresponding balance as at 31 October 2018 was a net current asset position of £6.1m. The Directors have
identified that:
the FY19 closing position includes our £21.8m borrowings which are secured for up to five years, being disclosed
in less than one year due to the timing of finalising our new banking arrangement post year end, whereas the
borrowings in FY18 were in the main disclosed as greater than 12 months due to that refinancing being an
extension of additional facilities, and therefore excluded from current liabilities; and
in FY19 the Group has seen a large opening accounting, non-cash, adjustment in FY19 that has reduced contract
receivables and increased contract liabilities by a total of £12.6m following the adoption of IFRS 15.
After adjusting for these items to present an appropriate year on year comparison, the Group’s net current asset
position has improved by £2m from FY18 to FY19. Therefore, the Directors do not consider the net current liabilities
reported as at 31 October 2019 to be an indicator of any issue with the Group’s going concern assessment.
Covid-19 pandemic impact on Going Concern assessment
Idox along with most companies has been impacted by the emerging Covid-19 pandemic. We continue to assess the
impact of the Covid-19 pandemic on the business, taking actions to mitigate or limit the impacts on our organisation
where we can and supporting our staff, customers and partners in dealing with the emerging situation.
As part of the preparation of our FY19 results, the Group has carefully assessed the likely impact of the Covid-19
pandemic on our business and specifically considered if it creates any material uncertainty in our going concern
assessment. We have considered in detail anticipated changes in the way we engage with our customers, staff,
supply chains and banking partners as a result of the Covid-19 pandemic.
58
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Going concern (continued)
Idox is fundamentally resilient to the Covid-19 pandemic due to the Group's high recurring revenue base, its focus on
public sector markets and the high proportion of staff that routinely work from home. The Group retains significant
liquidity with cash and available committed bank facilities and has strong headroom against financial covenants. We
continue to monitor the situation as it continues to evolve and adapt our approach as required.
The Group continues to monitor the impact of the Covid-19 pandemic. Idox is well placed because of the Group's
high recurring revenue base, its focus on public sector markets and the high proportion of staff that routinely work
from home.
The exposures identified to date are as follows:
Our Public Sector Software business is exposed to government policy in response to the Covid-19 pandemic,
notably the recent postponement of the local and mayoral elections originally scheduled for May 2020 to May
2021 which will impact the Elections sub-segment of this business. However, the overall PSS business has strong
levels of recurring revenues from a well-established existing customer base and growing markets
Our EIM business has seen significant reduction in travel given its cross-border operations which has had a
limited impact but we continue to provide the majority of solutions and service customers remotely. Our EIM
business also has strong existing high recurring revenues which account for approximately 80% of its revenue
targets, and is well-placed given its increasing focus on cloud-based solutions.
Our Content business has operations in Germany and Netherlands, however, the impact of the Covid-19
pandemic impact to-date has been minimal. We are not anticipating any impact on the UK element of our Content
business which is all recurring in nature and in respect of public sector customers.
The Group has introduced a number of cost controls over new and existing spend which, together with linked Cost of
Sale reductions, will mitigate any potential reduction in revenue from the Covid-19 pandemic. Management continue
to anticipate future earnings and cash will be in line with its previous expectations.
We have performed detailed financial forecasting of a number of credible potential Covid-19 pandemic scenarios, as
well as severe stress-testing in our financial modelling which includes potential restructuring in order to preserve the
Group as a going concern in the event of the most extreme possible impact on our Group of the Covid-19 pandemic.
The key assumptions in these scenarios are:
There will be a direct impact period until most of the current restrictions are lifted as well as a recovery period
until commercial and social life has broadly returned to normal (recovery period).
Revenues from existing support and recurring services contracts will not be materially impacted.
Revenues from new business and from current projects will be impacted by delays and some cancellation of
procurements in the current pipeline.
Cost management actions will be taken, consistent with these assumptions and the impacts experienced.
The scenarios considered most credible for the markets in which we operate and the customer base we have are:
A. A direct impact period of 3 months and a recovery period of 3 months. This scenario assumes 20% to 50%
of procurements are delayed but the majority resume. Project work recovers and any backlog is cleared by
the end of the recovery period.
B. A direct impact period of 6 months and a recovery period of 9 months. This scenario assumes 30% to 70%
of procurements are delayed into the recovery period and a number are cancelled. Project work recovers
and any backlog is cleared by the end of the longer recovery period.
We are satisfied these are valid and reasonable assumptions and that the scenarios tested are the most appropriate
and credible as the Group has high levels of recurring revenue and repeating revenues from a diverse customer base
across a number of business units. Both scenario A (our anticipated impact based on current information) and scenario
B (further sensitivity test) demonstrate the business is expected to have significant liquidity available from cash in hand
and from committed facilities and has strong headroom against financial covenants. In both scenario A and B, the
Group is forecasting liquidity in excess of £20m and headroom of at least 100% on financial covenants. Therefore,
this supports the going concern assessment for the business.
In our severe stress testing financial modelling we have sought to identify an extreme set of circumstances that would
result in the Group breaching banking covenants and extinguishing its available liquidity. In order to create such a set
of circumstances we further adjusted scenario B to reduce all Group revenues by 50% for the period April 2020 to
June 2021, but with no further action on cost.
59
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Going concern (continued)
Whilst it is informative to identify extreme circumstances to test the Group’s liquidity, this scenario is considered highly
unlikely due to the high levels of recurring revenues the Group has in respect of software that is often either central
to the customer, or a specific regulatory requirement under statute. Furthermore, in the event the Group did find
revenues deteriorated further beyond the scenario’s modelled, the Group has identified mitigating actions to preserve
its liquidity. These actions include reducing any operations that may have become severely loss-making due to the
Covid-19 pandemic either through further reduction in operational spend, restructuring of business units, or utilising
available government financial support with job retention schemes.
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:
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 16 ‘Leases’ – 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. The
standard is applicable to the Group for the period beginning 1 November 2019. At this time the group will recognise
the current leases (note 27) as a series of lease assets (£4.5m) and lease liabilities (£4.9m) using the modified
retrospective method, when an adjustment will be made to the opening balance of equity. The anticipated impact
on FY20 is a reduction in profit before tax of £0.1m.
Adoption of new and revised standards
IFRS 15 ‘Revenue from Contracts with Customers’ - the standard was adopted for the first time in the year ending
31 October 2019. The Group applied 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 does not alter the total
contract value, the timing of cash flows or the Group’s ability to pay dividends.
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 are impacted by IFRS 15 and the most significant impact of
implementing the standard is as follows:
o Software licence revenue: Under previous accounting policies revenue from software licences was 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 resulted 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 resulted in a delay in revenue previously recognised and
an increase in contract liabilities going forward. There was no change to the net contract values.
o Hardware revenue: Under previous accounting policies revenue from hardware was mainly recognised as
the hardware is issued to the customers. For bundled contracts this resulted 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 resulted 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 resulted in a delay in revenue previously recognised and an increase in contract
liabilities going forward. There was no change to the net contract values.
o Quantitative impact: The following table summarises the entries arising from the adoption of IFRS 15:
Deferral of revenues previously reported
Eliminate discounting of contract receivables balances greater than one year
Associated deferred tax
IFRS 15 impact
£000
11,880
(348)
(1,944)
9,588
60
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Adoption of new and revised standards (continued)
o Quantitative impact: The impact of adoption of IFRS 15 on our financial statements for the year ended 31
October 2019 was as follows:
Restated*
2018
£000
18,432
1,107
(17,859)
(540)
IFRS 15
Impact
£000
(5,872)
1,944
(5,660)
9,588
Opening
balance
2019
£000
12,560
3,051
(23,519)
9,048
Contract receivables
Deferred tax asset
Contract liabilities
Retained earnings
*Balances restated for the impact of prior period adjustments as detailed in the next section.
Further detail regarding the adoption of IFRS 15 are included within note 2, Segmental Analysis.
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:
IFRS 9 ‘Financial Instruments’ - an assessment of the impact of moving from recognising bad debt provisions on
potentially irrecoverable individual trade debtor balances, to calculating expected credit loss scenarios in regards
to trade debtors was carried out and the results analysed. It was concluded that the impact was not material to
the financial statements and there was not a significant increase in the credit risk relative to the date of initial
recognition.
We have no expected credit loss scenarios in respect of our contract assets which are in respect of local authority
entities.
Restatement of comparative figures
Reallocation of Cost of Delivery
There has been a reallocation of £9,588,000 between Administrative expenses and Cost of Sales in the FY18
comparatives to include an element of employment costs within the Cost of Sales to be more representative of gross
margin generated from revenue.
This reallocation has no impact on earnings.
Contract Irregularities
In March 2019, the new management team identified a small number of contract documentation irregularities in respect
to the 2016 year-end. As part of our more stringent approach to contract monitoring and execution we identified three
instances of irregularities in historic customer contracts, signed and recognised in the year ended 31 October 2016
(FY16) that had been inappropriately amended by a small number of employees whom have since left the Idox Group.
These contract irregularities amounted to £497,000, and as a result contract receivables and retained earnings within
the opening balance sheet for FY18 have been reduced by £497,000.
Onerous Contract
Following identification of a loss-making contract during the audit process, it was subsequently identified as an onerous
contract that should have been recorded in prior periods.
As a result of this contract being identified, the Audit Committee commissioned a review of all material contracts in the
Group and commissioned a report by the Group’s Chief Process and Transformation Officer to identify how the
onerous contract had not previously been identified. These reviews concluded there were no other such examples of
onerous contracts within the Group and resulted in several recommendations to strengthen the link between
operational controls and financial reporting which the Audit Committee and Executive Management have fully adopted.
As a result, an onerous contract provision of £911,000 has been recorded and an associated revision to brought-
forward retained earnings as at 31 October 2017. This provision has been partially realised by £267,000 in the restated
FY18 Consolidated Statement of Comprehensive Income, with a remaining onerous contract provision of £644,000
as at 31 October 2018 and £378,000 as at 31 October 2019.
61
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Restatement of comparative figures (continued)
Other Items
In addition to the adjustments noted above, there were further contracts identified, during the IFRS 15 review, in which
revenue overstatements in prior periods have been identified whereby revenue was recognised by previous
Management teams despite not being permissible under IAS 18 Revenue, the applicable accounting standard at the
time. Management has concluded whilst these overstatements in respect of prior periods individually are not
significant, they are of sufficient quantum cumulatively to be represented as a prior year adjustment in these financial
statements.
As a result of these adjustments, the impact on the prior year’s results are noted in the table below:
Pre FY18
£000
FY18
£000
Reduction in revenue
(30)
(1,029)
Increase in administrative expenses
-
(16)
(30)
(1,045)
Reduction in contract receivables
(30)
(194)
Increase in accruals
-
(16)
Increase in contract liabilities
-
(835)
(30)
(1,045)
Overall
The following tables summarise the impact of the reclassification of employment costs and the prior period errors in
the financial statements of the Group.
Consolidated Statement of
Comprehensive Income
Reclassification
Prior Period Adjustments
Contract
Irregularities
£000
Onerous
Contract
£000
Other
Items
£000
£000
31 October
2018
£000
(26,981)
Loss for the year from continuing
operations as originally presented
Reclassification of employment
costs:
Cost of sales
Employment costs
Restatement due to contract
irregularities and other contract
reviews:
Revenue
Cost of sales
Administrative expenses
Income tax
Loss for the year from continuing
operations as restated
(9,588)
9,588
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(9,588)
9,588
-
267
-
-
(1,029)
-
(16)
199
(1,029)
267
(16)
199
(27,560)
62
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Restatement of comparative figures (continued)
Consolidated Balance Sheet
Opening retained earnings as at 1 November
2017 as presented in FY18 Annual Report
Restatement of:
FY17 trade and other receivables
FY 17 provisions
FY17 current tax payable
Opening retained earnings as restated
Closing Net assets as originally presented
Restatement of:
Trade and other receivables
Current tax receivable
Trade and other payables
Other liabilities
Provisions
Closing Net assets as restated
Contract
Irregularities
£000
Onerous
Contract
£000
Other
Items
£000
31 October
2018
£000
(497)
-
-
-
(911)
-
(30)
-
99
(497)
-
-
-
-
-
-
(644)
(224)
298
(16)
(835)
-
40,669
(527)
(911)
99
39,330
49,786
(721)
298
(16)
(835)
(644)
47,868
Earnings per share from continuing and discontinued operations
31 October 2018
Basic EPS as originally presented
Impact on loss for the year (£000)
Basic EPS as restated
Diluted EPS as originally presented
Impact on loss for the year (£000)
Diluted EPS as restated
(8.72)p
(579)
(8.86)p
(8.65)p
(579)
(8.86)p
Critical judgements and key sources of estimation uncertainty
In applying the Group’s accounting policies, the Directors are required to make judgements (other than those involving
estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about
the carrying amounts of assets and liabilities that are not easily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
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 have the
most significant effect on the amounts recognised in financial statements:
63
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
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 quarterly. 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 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 typically 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 the underlying commercial specifics of transactions, alongside
accounting standards, to determine revenue recognition treatment. This assessment could involve internal chartered
accountants, internal legal staff, operational staff and professional advice where appropriate.
The adoption of IFRS 15 from 1 November 2018 has been a key revenue recognition consideration for the Group this
period and going forward. The Group has prepared an underlying technical framework to substantiate current and
ongoing judgements on revenue recognition.
Management exercise judgement over various elements of a contract, for example:
the point at which the customer takes full control of any bundled software solution ;
an estimate of the value of the underlying elements of a bundled software solution ; and
whether it is appropriate to recognise revenue on certain contracts prior to an invoice being raised, where
work has been completed and there is a high degree of certainty of the contract being completed, with the
invoice raised and cash received.
The underlying technical framework is used to inform and support areas of judgement, of the type mentioned in these
examples.
Key sources of estimation uncertainty
Management consider the following items to involve key assumptions and other sources of estimation uncertainty.
These items generate a significant risk of causing a material adjustment to the carrying amount of assets and liabilities
in the next financial year.
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 performed
and supplied by independent valuation specialists. See note 12 for further commentary and associated risk in relation
to the EIM division.
Basis of consolidation
The Group financial statements consolidate the financial statements 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.
64
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Basis of consolidation (continued)
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, intangible assets, and accrued and deferred balances to align accounting policies with
the Group.
Revenue
Revenue represents the income arising in the course of an entity’s ordinary activities, net of value added tax and after
eliminating sales within the Group.
Where work has been completed but the performance obligation has not been fully satisfied, the income has been
accrued and included in contract receivables on the balance sheet.
The Group derives its revenue from six revenue streams, as follows:
Recurring: Managed Services
Revenue from recurring managed services is recognised evenly across the managed service period, in line with the
pattern of how we deliver the services and how they are consumed by the customer.
Recurring: Hosting
Revenue from recurring hosting is recognised evenly across the hosting period, in line with the pattern of how we
deliver the services and how they are consumed by the customer.
Non-Recurring: Services
Revenue from non-recurring services is recognised over the course of the service provision in line with agreed delivery
milestones as control of the environment is progressively transferred to the customer.
Non-Recurring: Hardware
Revenue on hardware is recognised when control of the asset is passed to the customer which typically occurs on
delivery.
Recurring: Software (Recurring Licence Fee (RLF) and Support & Maintenance)
Revenue from Recurring License Fee (typically in respect of a term license granted) is recognised on delivery and
passing of full control of the software to the customer. In order to achieve this, anticipated license fees from future
recurring invoicing are typically ‘unbundled’ from the Support & Maintenance element and accrued until the invoicing
occurs.
Revenue from Support & Maintenance is recognised over the course of the service provision in line with agreed
delivery milestones as control of the environment is progressively transferred to the customer.
Recurring: Non-Recurring: Software (Initial Licence Fee (ILF))
Revenue from Initial License Fees (whether in respect of a perpetual or term license granted) is recognised on delivery
and passing of full control of the software to the customer.
For license fees (ILFs and RLFs) where the customer’s control of our software is dependent on associated services
such as non-recurring services which may be essential for the customer to use the software, the revenue from software
license fees will be recognised over the course of the service provision in line with agreed delivery milestones as
control of the whole solution is progressively transferred to the customer.
Contract revenue, receivables and liabilities
Long-term contracts for software solutions often contain multiple elements such as software, support, services, hosting
and/or managed services.
Where there is a need to unbundle a software solution into its constituent elements, software industry benchmarks are
applied.
Recognition of revenue on the software and services elements of longer-term contracts will be driven by new IFRS 15
treatment whereby revenue is recognised in line with agreed delivery milestones as control passes to the customer.
The remaining elements will be considered distinct performance obligations with revenue recognised over the course
of the contract.
65
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED
Contract revenue, receivables and liabilities (continued)
Contract receivables are recognised when performance obligations are discharged under a contractual arrangement
to the customer but have not been invoiced. Once the invoicing does occur a trade receivable is recognised, and the
contract receivable is derecognised.
Contract liabilities arise when invoicing occurs in advance of performance obligations being discharged. The revenue
associated with the invoicing is deferred until such time as the performance obligation is delivered.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-makers. The chief operating decision-makers have been identified as 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.
Subsidiary Audit Exemption
Idox Software Limited (02933889), Idox Trustees Limited (04111557), McLaren Software Limited (SC213218) and
Tascomi Limited (NI057879) are exempt from the provisions of Companies Act 2006 relating to the audit of individual
accounts by virtue of section 479A.
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.
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.
66
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
(i) Research and development (continued)
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.
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 or 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 purchase price of developed products either acquired as part of the acquisition of subsidiaries
or procured directly from a vendor. 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.
(v) Database
Database represents the grant information database purchased on the acquisition of subsidiaries. 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 subsidiaries. Amortisation on the managed service deferred revenue is calculated based on the
weighting and length of each contract purchased. Amortisation on the subscription deferred revenue is calculated
using the straight-line method over a period up to 5 years.
Impairment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash inflows (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 unit groupings 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.
67
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to the statement of comprehensive income 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% and 50% straight line
25% straight line
33 1/3% and 100% straight line
Useful economic lives and residual values are reviewed annually.
Employee benefits
Defined contribution pension plans
Contributions paid to pension plans of employees are charged to the statement of comprehensive income 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.
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.
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 / (losses).
“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.
68
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
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.
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.
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. There is no tax impact on these adjustments.
69
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
1 ACCOUNTING POLICIES (CONTINUED)
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.
The Group has a hold-to-collect business model in respect of financial assets held at amortised cost. The objective of
the ‘hold to collect’ business model is, in most cases, to hold financial assets to collect their contractual cash flows,
rather than with a view to selling the assets to generate cash flows.
Financial assets
Financial assets are classified according to the substance of the contractual arrangements entered into.
Trade and other receivables
The entity always recognises lifetime expected credit losses (ECL) for trade receivables, and contract assets, and
ECL are estimated using a provision matrix based on the Group’s historical credit loss experience.
Trade receivables do not carry any interest and are initially stated at their fair value, as reduced by appropriate credit
losses for estimated irrecoverable amounts.
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.
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.
Bonds in issue
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.
70
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
2 SEGMENTAL ANALYSIS
As at 31 October 2019, the Group was organised into three 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.
Health is now included in PSS as it shares resources within PSS and is no longer separately identifiable.
On 2nd November 2018 the Digital segment was sold. As Digital was a separately identifiable division the results for
the period ended 31 October 2019 and comparative period have been classified as a discontinued operation.
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.
The segment revenues by geographic location are as follows:
2019
Revenues from external customers
United Kingdom
USA
Europe
Australia
Rest of World
2018
Revenues from external customers
United Kingdom
USA
Europe
Australia
Rest of World
Continuing
2019
£000
Discontinued
2019
£000
Total Group
2019
£000
43,416
5,448
14,948
315
1,365
65,492
-
-
-
-
-
-
43,416
5,448
14,948
315
1,365
65,492
Restated
Continuing
2018
£000
Discontinued
2018
£000
Total Group
Restated
2018
£000
45,584
4,921
15,070
475
364
66,414
5,995
-
205
-
21
6,221
51,579
4,921
15,275
475
385
72,635
Revenues are attributed to individual countries on the basis of the location of the customer.
71
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
2 SEGMENTAL ANALYSIS (CONTINUED)
The segment revenues by type are as follows:
2019
Revenues by type
Recurring revenues – PSS
Recurring revenues – EIM
Recurring revenues – Content
Recurring revenues
Non-recurring revenues – PSS
Non-recurring revenues – EIM
Non-recurring revenues – Content
Non-recurring revenues
Revenue from sale of goods
Revenue from rendering of services
2018
Revenues by type
Recurring revenues – PSS
Recurring revenues – EIM
Recurring revenues – Content
Recurring revenues – Digital
Recurring revenues
Non-recurring revenues – PSS
Non-recurring revenues – EIM
Non-recurring revenues – Content
Non-recurring revenues – Digital
Non-recurring revenues
Revenue from sale of goods
Revenue from rendering of services
Continuing
2019
£000
Discontinued
2019
£000
Total Group
2019
£000
24,144
7,100
4,492
35,736
17,498
2,070
10,188
29,756
65,492
23,247
42,245
65,492
-
-
-
-
-
-
-
-
-
-
-
-
24,144
7,100
4,492
35,736
17,498
2,070
10,188
29,756
65,492
23,247
42,245
65,492
Restated
Continuing
2018
£000
Discontinued
2018
£000
Group Restated
2018
£000
19,239
7,285
4,059
-
30,583
23,300
2,718
9,813
-
35,831
66,414
17,335
49,079
66,414
-
-
-
3,276
3,276
-
-
-
2,945
2,945
6,221
61
6,160
6,221
19,239
7,285
4,059
3,276
33,859
23,300
2,718
9,813
2,945
38,776
72,635
17,396
55,239
72,635
Recurring revenue is income generated from customers on an annual contractual basis. Recurring revenue amounts
to approximately 55% (2018: 46%) of continuing revenue, which is revenue generated annually from sales to existing
customers.
All revenues are recognised over the period of the contract, unless our only performance obligation is to license or re-
license a customer’s existing user without any further obligations, in which case the revenue is recognised upon
completion of the obligation.
All contracts are issued with commercial payment terms without any unusual financial or deferred arrangements and
do not include any amounts of variable consideration that are constrained.
The Group’s total outstanding contracted performance obligations at 31 October 2019 was £56,410,000 and it is
anticipated that 73% of this will be recognised as revenue in FY20.
72
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
2 SEGMENTAL ANALYSIS (CONTINUED)
IFRS 15 adoption
The following table sets out the impact the opening IFRS 15 adjustment has on FY19 and future periods, as at 1
November 2018 when it was recorded:
IFRS 15 adoption opening adjustment (gross of deferred tax)
11,532
12 months to
31 October 2019
£000
Anticipated realisation:
-
-
-
-
-
FY19
FY20
FY21
FY22
FY23 - FY25
6,026
2,820
1,685
757
244
11,532
The following table sets out the Group’s estimation of the financial reporting of FY19 had IFRS 15 not been adopted:
Revenue
Cost of sales
Administrative expenses
Net finance cost
Income tax charge
IFRS 15
IAS 18
£000
£000
65,492
59,116
(19,481)
(19,481)
(44,334)
(44,334)
(1,702)
(1,500)
(1,192)
(19)
Loss for the year from continuing operations
(1,217)
(6,218)
Net Assets
44,611
39,610
Whilst the IAS 18 estimation of FY19 presents lower revenues and a larger retained loss from continuing activities, it
is important to note following the introduction of a new Board and Management team, the Group’s approach to revenue
recognition in FY19 is more cautious than in prior periods irrespective of the distinctions between IAS 18 and IFRS
15.
The changes in the way the revenue is recorded in FY19 and future periods as a result of the adoption of IFRS 15,
better reflect the Group’s delivery of performance obligations with its customers.
73
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
2 SEGMENTAL ANALYSIS (CONTINUED)
The segment results by business unit for the year ended 31 October 2019:
Revenue
Earnings before depreciation, amortisation, restructuring,
acquisition costs, impairment, financing costs and share option
costs
Depreciation
Amortisation – software licences, customer lists, order backlog
and R&D
Amortisation – acquired intangibles
Restructuring costs
Acquisition costs
Share option costs
Adjusted segment operating profit
Financing costs
Loss from the sale of discontinued operations
Finance income
Finance costs
Loss before taxation
PSS
£000
41,642
EIM
£000
9,170
CONTENT
£000
14,680
Continuing
Operations
Total
£000
65,492
Discontinued
Operations
Digital
£000
-
11,052
(720)
(2,991)
(3,270)
(1,613)
(174)
(850)
1,410
(93)
(772)
(440)
(30)
-
-
1,434
75
1,899
(26)
(340)
(476)
(512)
-
(9)
536
14,361
(839)
(4,103)
(4,186)
(2,155)
(174)
(859)
2,045
(368)
-
172
(1,874)
(25)
-
-
-
-
-
-
-
-
-
(602)
-
-
(602)
The corporate recharge to the business unit EBITDA is allocated on a head count basis in FY19, compared to a revenue basis in FY18.
Total
£000
65,492
14,361
(839)
(4,103)
(4,186)
(2,155)
(174)
(859)
2,045
(368)
(602)
172
(1,874)
(627)
74
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
2 SEGMENTAL ANALYSIS (CONTINUED)
The restated segment results by business unit for the year ended 31 October 2018:
Revenue
Earnings before depreciation, amortisation,
restructuring, acquisition costs, impairment, financing
costs and share option costs
Depreciation
Amortisation – software licences, order backlog and
R&D
Amortisation – acquired intangibles
Restructuring costs
Acquisition costs
Impairment
Share option costs
PSS
£000
33,285
EIM
£000
10,003
CONTENT
£000
13,604
DIGITAL*
£000
268
HEALTH
£000
9,254
Continuing
Operations
Total
£000
66,414
Discontinued
Operations
Digital
£000
6,221
8,939
(779)
(2,355)
(2,052)
(104)
850
(6,079)
(46)
1,361
(196)
(651)
(468)
(239)
-
(1,800)
-
2,295
(14)
(176)
(493)
(38)
6
-
(4)
(486)
-
-
-
(8)
-
-
-
1,530
(117)
(536)
(1,482)
(47)
-
(25,376)
-
13,639
(1,106)
(3,718)
(4,495)
(436)
856
(33,255)
(50)
(2,834)
(38)
(28)
(374)
(194)
-
(6,275)
-
Total
£000
72,635
10,805
(1,144)
(3,746)
(4,869)
(630)
856
(39,530)
(50)
Adjusted segment operating (loss) / profit
(1,626)
(1,993)
1,576
(494)
(26,028)
(28,565)
(9,743)
(38,308)
Financing costs
Finance income
Finance costs
Loss before taxation
(336)
449
(1,788)
-
-
-
(336)
449
(1,788)
(30,240)
(9,743)
(39,983)
*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.
75
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
3 OPERATING PROFIT / (LOSS) FOR THE YEAR
Operating profit / (loss) 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
Customer Contracts
Acquired intangibles **
Equity-settled share-based payments
2019
£000
18
332
-
75
425
36
76
1,564
839
743
3,172
29
160
4,185
859
2018
£000
10
265
67
119
461
42
63
2,664
1,106
934
2,784
84
-
4,411
50
*Depreciation excludes £Nil (2018: £38,000) in relation to the discontinued Digital division. The total depreciation charge of the year
including discontinued operations is £839,000 (2018: £1,144,000) as disclosed in note 11.
**Amortisation on acquired intangibles excludes £Nil (2018: £402,000) in relation to the discontinued Digital division. The total
amortisation charge for the year including discontinued operations of £8,289,000 (2018: £4,800,000), as disclosed in note 12.
Restructuring costs
Restructuring costs were £2.2m (2018: £0.4m) as the new Management team assessed in detail all operations of the
Group in the year; restructuring business units and Group processes to improve the Group’s current and future
financial performance and prospects. Includes costs relating to redundancies, disposal of property and resolution of
historic litigation.
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
2019
£000
Discontinued
Operations
2019
£000
27,938
3,232
1,324
32,494
-
-
-
-
Continuing
Operations
2018
£000
Discontinued
Operations
2018
£000
30,156
3,269
1,282
34,707
4,317
398
138
4,853
Total
2019
£000
27,938
3,232
1,324
32,494
Total
2018
£000
34,473
3,667
1,420
39,560
In addition, during the year share based payment charges of £859,000 (2018: £50,000) were incurred.
During the year, the Group incurred redundancy costs to former employees in respect of continuing operations of
£285,000 (2018: £436,000) and £Nil (2018: £194,000) in respect of discontinued operations.
76
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
4 DIRECTORS AND EMPLOYEES (CONTINUED)
The average number of employees of the Group during the year was 671 (2018: 804) 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
2019
No.
Discontinued
Operations
2019
No.
60
44
130
437
671
-
-
-
-
-
Continuing
Operations
2018
No.
Discontinued
Operations
2018
No.
55
56
133
477
721
2
3
12
66
83
Total
2019
No.
60
44
130
437
671
Total
2018
No.
57
59
145
543
804
The average number of Directors of the Group during the year was 7 (2018: 6).
Remuneration in respect of Directors was as follows:
Emoluments
Pension contributions
Share option exercise gain
2019
£000
2018
£000
1,049
10
-
1,059
880
13
629
1,522
In addition to the remuneration stated above, the Group incurred social security costs in respect of Directors of
£139,000 (2018: £181,000).
The amounts set out above include remuneration in respect of the highest paid Director as follows:
Aggregate emoluments
Pension contributions
2019
£000
511
-
511
2018
£000
202
1
203
During the year the highest paid Director did not exercise share options. In the prior year the highest paid Director
did not exercise share options.
During the year, the Group incurred social security costs in respect of the highest paid Director of £78,000 (2018:
£23,000).
Details of the remuneration for each Director are included in the Report on Remuneration, which can be found on
pages 30 to 31 but does not form part of the audited accounts.
77
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
5 ACQUISITION COSTS
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
6 FINANCE INCOME AND COSTS
Interest receivable
Dividends receivable
Foreign exchange differences
Other income
Time Value of Money Adjustment on contract receivables greater than 1 year
Finance income
Bank interest payable
Bond interest payable
Effective interest rate adjustment
Non-utilisation fees
Amortisation of employee equity scheme shares
Amortisation of bank fees
Foreign exchange differences
Finance costs
7 DIVIDENDS
Final dividend paid in respect of the year ended 31 October 2018
and 31 October 2017
Pence per ordinary share
Interim dividend paid in respect of the year ended 31 October 2019
and 31 October 2018
Pence per ordinary share
2019
£000
(174)
-
(174)
2019
£000
3
-
-
169
-
172
(850)
(539)
(33)
(85)
(122)
(164)
(81)
(1,874)
2019
£000
-
-
-
-
2018
£000
(3)
859
856
Restated
2018
£000
2
18
22
191
216
449
(814)
(618)
(76)
(52)
(106)
(122)
-
(1,788)
2018
£000
2,717
0.655p
-
-
The Directors have proposed the payment of a final dividend of £Nil per share, which would amount to £Nil (2018:
£Nil).
78
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
8 INCOME TAX
The tax charge is made up as follows:
Current tax
UK corporation tax on loss for the year
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 charge / (credit)
The tax charge is made up as follows:
Current tax
UK corporation tax on loss for the year
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 charge / (credit)
The tax charge is made up as follows:
Current tax
UK corporation tax on loss for the year
Under provision in respect of prior periods
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustment for rate change
Total deferred tax
Total tax credit
2019
£000
44
300
(195)
149
897
(170)
316
1,043
1,192
Restated
2018
£000
366
274
(1,384)
(744)
(3,020)
407
1
(2,612)
(3,356)
Continuing
Operations
2019
£000
Restated
Continuing
Operations
2018
£000
44
300
(195)
149
897
(170)
316
1,043
1,192
366
274
(1,395)
(755)
(2,289)
363
1
(1,925)
(2,680)
Discontinued
Operations
2019
£000
Discontinued
Operations
2018
£000
-
-
-
-
-
-
-
-
11
11
(731)
44
(687)
(676)
79
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
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:
Loss before taxation on total operations
Restated
% ETR
2018
% ETR
movement
£000 movement
(39,983)
2019
£000
(627)
Loss on ordinary activities multiplied by the standard
rate of corporation tax in the UK of 19% (2018: 19%)
(119)
19.00
(7,597)
19.00
Effects of:
Share option deduction
Tax losses utilised in year
International losses derecognised / (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
197
-
507
(6)
(7)
386
193
25
(49)
62
3
1,192
(31.39)
-
(52)
-
(80.96)
(1,163)
0.96
1.05
(61.52)
(30.74)
(3.93)
7.76
(9.89)
(0.41)
(190.07)
(29)
-
5,941
(606)
(246)
471
(77)
2
(3,356)
0.13
-
2.91
0.07
-
(14.86)
1.52
0.62
(1.18)
0.19
(0.01)
8.39
The effective tax rate (ETR) for the period was (190.07%) (2018: 8.39%). The main factors for the lower ETR on the
net loss before tax position were threefold. New share options granted during the year, some of which were fully-
vested on issue, resulted in a significant disallowable P&L impact. This was the same for costs incurred as part of the
Digital division disposal and the acquisition of Tascomi.
Lastly, non-recognition of losses in certain jurisdictions, owing to uncertainty over their future utilisation, decreased
ETR significantly. The main jurisdiction impact was in France which, alongside non-recognition of current-year losses,
elected to derecognise losses brought forward from prior years. This downward pressure on ETR was mitigated slightly
by recognition of previously unrecognised losses in Malta, following taxable profits in some of the subsidiaries based
there.
Movement on trading losses during 2019 are as follows:
Recognised trading losses
As at 1 November 2018
Impact of deferred tax recognition at local rate
Recognised / (derecognised) during the year
Utilised during the year
Adjustment for foreign exchange movements
Unrecognised trading losses
Losses not recognised
UK
unrelieved
trading
losses
£000
Foreign
unrelieved
trading
losses
£000
Total
unrelieved
trading
losses
£000
-
-
1,729
-
-
1,729
1,186
50
(593)
(238)
(26)
379
1,186
50
1,136
(238)
(26)
2,108
Tax effect
£000
347
11
79
(50)
(5)
382
(1,698)
(1,698)
(9,925)
(9,925)
(11,623)
(11,623)
(3,394)
(3,394)
80
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
8 INCOME TAX (CONTINUED)
For comparative purposes, movement on trading losses during 2018 were 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
Losses not recognised
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
(1,698)
(1,698)
(8,693)
(8,693)
(10,391)
(10,391)
(2,978)
(2,978)
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 derecognised during the year were in France as they are not expected
to be utilised in future. The foreign losses recognised during the year were in Netherlands and are expected to be
utilised in the future. The foreign losses utilised during the year were in the US. The closing unrecognised losses
of £11,623,000 relate to Malta, the UK, France 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 £347,000 to £382,000. There is no expiry dates for any of
the unrelieved trading losses carried forward.
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 statement of
comprehensive income, were as follows:
Revenue
Expenses
Loss on Disposal
Loss before tax
Attributable tax credit
Net loss attributable to discontinued operations
2019
£000
-
-
(602)
2018
£000
6,221
(15,964)
-
(602)
(9,743)
-
676
(602)
(9,067)
During the year, Digital contributed £Nil (2018: (£1,856k)) to the Group’s net operating cash flows, paid £Nil (2018:
£Nil) in respect of investing and financing activities. Expenses for discontinued operations in FY19 relate to
disposal costs.
For the year ending 31 October 2018 the Digital operations were 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 was recognised on the classification of these operations held
for sale.
81
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
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
2019
£000
-
-
-
-
-
-
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 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
Diluted earnings per share
2019
£000
Restated
2018
£000
(1,104)
(27,554)
420,788,528
413,116,107
(0.26)p
(6.67)p
420,788,528
413,116,107
1,491,219
1,316,142
423,595,889
1,491,219
1,214,256
415,821,582
(0.26)p
(6.67)p
Diluted earnings per share cannot further dilute the loss attributable to the owners, therefore, diluted earnings
per share during a loss making period is the same as basic earnings per share.
82
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
10 EARNINGS PER SHARE (CONTINUED)
Adjusted earnings per share
Loss for the year
Add back:
Amortisation on acquired intangibles
Impairment
Acquisition costs
Restructuring costs
Financing costs
Share option costs
Tax effect
Adjusted profit for year
2019
£000
Restated
2018
£000
(1,104)
(27,554)
4,215
-
174
2,155
368
859
(1,210)
5,457
4,495
33,255
(856)
435
336
50
(937)
9,224
Weighted average number of shares in issue - basic
Weighted average number of shares in issue - diluted
420,788,528
424,320,396
413,116,107
416,729,859
Adjusted earnings per share
Adjusted diluted earnings per share
1.30p
1.29p
2.23p
2.21p
Alternative Performance Measures
In the financial statements presented in FY18 and prior periods, share option costs were not included as an adjusting
item in the adjusted earnings per share calculation.
We have concluded share option costs should be included as an adjusting item to present a comparable measure
against our peers. Adjusted earnings per share for FY19 has been presented on this basis and the FY18 comparatives
have also been updated given the prior period restatements.
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
Diluted earnings per share
2019
£000
2018
£000
(602)
(9,067)
420,788,528
413,116,107
(0.14)p
(2.19)p
420,788,528
413,116,107
1,491,219
1,316,142
423,595,889
1,491,219
1,214,256
415,821,582
(0.14)p
(2.19)p
83
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
10 EARNINGS PER SHARE (CONTINUED)
Total 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
Diluted earnings per share
Adjusted earnings per share
Loss for the year
Add back:
Amortisation on acquired intangibles
Impairment
Acquisition costs
Restructuring costs
Financing costs
Share option costs
Tax effect
Adjusted profit for year
2019
£000
Restated
2018
£000
(1,706)
(36,621)
420,788,528
413,116,107
(0.41)p
(8.86)p
420,788,528
413,116,107
1,491,219
1,316,142
423,595,889
1,491,219
1,214,256
415,821,582
(0.41)p
(8.86)p
2019
£000
Restated
2018
£000
(1,706)
(36,621)
4,215
-
174
2,155
368
859
(1,210)
4,855
4,897
39,530
(856)
630
336
50
(1,050)
6,916
Weighted average number of shares in issue - basic
Weighted average number of shares in issue - diluted
420,788,528
424,320,396
413,116,107
416,729,859
Adjusted earnings per share
Adjusted diluted earnings per share
1.15p
1.14p
1.67p
1.66p
84
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
11 PROPERTY, PLANT AND EQUIPMENT
Computer
hardware
£000
Fixtures,
fittings and
equipment
£000
Library
books and
journals
£000
Cost
At 1 November 2017
Foreign exchange
Additions
Additions on acquisition
Disposals
Internal reallocation of asset category
At 31 October 2018
Foreign exchange
Additions
Additions on acquisition
Disposals
At 31 October 2019
Depreciation
At 1 November 2017
Foreign exchange
Provided in the year
Eliminated on disposal
Internal reallocation of asset category
At 31 October 2018
Foreign exchange
Provided in the year
Disposals
At 31 October 2019
Net book amount at 31 October 2019
Net book amount at 31 October 2018
3,410
120
595
1
(1,094)
6
3,038
(16)
674
35
-
3,731
1,953
51
994
(1,012)
5
1,991
6
754
-
2,751
980
1,047
2,038
97
10
-
(858)
(6)
1,281
76
73
15
(39)
1,406
1,758
78
146
(858)
(5)
1,119
72
80
(39)
1,232
174
162
17
(1)
1
-
(6)
-
11
-
11
-
-
22
11
-
4
(6)
-
9
-
5
-
14
8
2
Total
£000
5,465
216
606
1
(1,958)
-
4,330
60
758
50
(39)
5,159
3,722
129
1,144
(1,876)
-
3,119
78
839
(39)
3,997
1,162
1,211
The Group has pledged the above assets to secure banking facilities granted to the Group.
85
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
12 INTANGIBLE ASSETS
Customer
relation-
ships
£000
Goodwill
£000
77,263
-
-
240
-
-
-
-
61
77,564
-
8
2,269
-
79,841
3,878
-
-
-
27,831
-
31,709
-
-
31,709
30,807
-
-
-
-
-
-
-
-
30,807
-
-
1,151
-
31,958
9,814
-
1,909
-
5,754
-
17,477
2
1,663
19,142
Trade
names
£000
12,593
-
-
-
-
-
-
-
-
12,593
-
-
-
-
12,593
4,292
-
859
-
2,717
-
7,868
-
697
8,565
Develop
-ment
costs
£000
Software
£000
Order
backlog
£000
Customer
lists
£000
Total
£000
16,002
1
222
14
14
-
(189)
(14)
(12)
16,038
-
2,206
4,448
(5)
22,687
5,217
-
2,979
5
2,041
(189)
10,053
-
2,512
12,565
12,671
17
3,646
-
-
(1,694)
(524)
-
-
14,116
22
4,351
799
-
19,288
3,609
7
2,784
-
(507)
(524)
5,369
17
3,172
8,558
307
4
-
-
-
-
-
-
-
311
9
-
-
-
320
79
3
84
-
-
-
166
7
85
258
- 149,643
22
-
3,868
-
254
-
14
-
(1,694)
-
(713)
-
(14)
-
-
49
- 151,429
31
-
6,838
273
8,667
-
(5)
-
273 166,960
-
-
-
-
-
-
-
(1)
160
159
26,889
10
8,615
5
37,836
(713)
72,642
25
8,289
80,956
48,132
12,816
4,028
10,122
10,730
62
114
86,004
45,855
13,330
4,725
5,985
8,747
145
-
78,787
Cost
At 1 November 2017
Foreign exchange
Additions
Additions on acquisition
Additions on hive-in
Impairment
Disposals
Disposals on hive-in
Fair value adjustment
At 31 October 2018
Foreign exchange
Additions
Additions on acquisition
Disposals
At 31 October 2019
Amortisation
At 1 November 2017
Foreign exchange
Amortisation for the year
Additions on acquisition
Impairment
Disposals
At 31 October 2018
Foreign exchange
Amortisation for the year
At 31 October 2019
Carrying amount at 31 October
2019
Carrying amount at 31 October
2018
Average remaining
amortisation period (years)
31 October 2019
31 October 2018
n/a
n/a
7.7
7.0
5.8
5.5
4.0
2.0
3.4
3.1
0.7
1.7
0.7
n/a
During the year, goodwill and intangibles were reviewed for impairment in accordance with IAS 36, ‘Impairment of
Assets’. An impairment charge of £Nil (2018: £31,455,000) was processed in the period in relation to the PSS division,
£Nil (2018: £6,275,000) in relation to the Digital division and £Nil (2018: £1,800,000) in relation to the EIM division.
86
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
12 INTANGIBLE ASSETS (CONTINUED)
Impairment test for goodwill
For this review, goodwill was allocated to individual Cash Generating Unit groupings (CGUs) 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. This was previously separated as, Local Authority, Transport, Social Care,
Computer Aided Facilities Management and Health.
The carrying value of goodwill by each CGU is as follows:
Cash Generating Unit Groupings
Public Sector Software
Engineering Information Management
Content
2019
£000
30,737
9,974
7,421
48,132
2018
£000
28,468
9,974
7,413
45,855
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 2020 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 2019, 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 2018.
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 Groupings
Public Sector Software
Engineering Information Management
Content
Discount
rate
Current
year
12.4%
13.1%
11.8%
Compound
Annual
Growth
Rate
5.7%
9.9%
6.5%
Long term
growth rate
Current
year
1.5%
1.5%
1.5%
Discount
rate
Prior
year
11.7%
13.9%
12.2%
Growth rate
Prior year
1.5%
1.5%
1.5%
Individual Weighted Average Costs of Capital were calculated for each CGU and adjusted for the market’s assessment
of the risks attaching to each CGUs 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 £Nil within the year (2018: £39,530,000). The charge in FY18 was broken down on
a divisional and then business unit level as; PSS Transport £6,079,000, Health £25,376,000, 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 used would not lead to the carrying amount of each CGU exceeding the recoverable
amount.
Sensitivities have also been run on cash flow forecasts for all CGUs EBITDA by 10%. Management are satisfied that
this change would not lead to the carrying amount of each CGU exceeding the recoverable amount.
Sensitivities have also been run on cash flow forecasts for all CGUs reducing the growth rate to 0%. Management are
satisfied that this change would not lead to the carrying amount of the PSS and Content CGU exceeding the recoverable
amount. A growth rate of 4.9% in EIM would result in CGU carrying amount equalling its recoverable amount. A growth
rate of less than 4.9% would result in an impairment in EIM. If growth rates reduced to 0% in EIM, this would cause its
CGU carrying amount to exceed its recoverable amount by £5.0m which would result in an impairment in EIM.
Management have further considered the CGUs for which prior period impairments were recorded to reduce the value-
in-use of those CGUs to their recoverable amount, and how such carrying values are subject to the current year
sensitivities noted above.
87
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
12 INTANGIBLE ASSETS (CONTINUED)
Whilst the current year impairment reviews and sensitivities have not provided any indicators of further impairment on
these assets, management have considered whether a reversal of the prior period impairment is required and
concluded this is not appropriate at this time due to the ongoing transformation and improvement of those businesses.
13 INVESTMENTS
The investment relates to a 22.5% (2018: 22.5%) shareholding, of membership units, in Javaili LLC a company
incorporated in the USA, with a principal place of business of the UK. This investment was acquired as part of the
acquisition of the 6PM Group in February 2017.
14 DEFERRED 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
Opening adjustment re IFRS 15
Credit to income for the year
Adjustment for changes in rate
Adjustment to prior year provision
Other movements
Arising on acquisition
At 31 October
2019
£000
2018
£000
1,368
1,107
(4,015)
(2,647)
(3,724)
(2,617)
2019
£000
(2,617)
1,944
(952)
144
(235)
10
(941)
(2,647)
2018
£000
(5,924)
-
1,035
(452)
(1)
8
2,717
(2,617)
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
IFRS 15
£000
At 1 November 2017
Charge to income
Charge to equity
Changes in rate
Deferred tax
recognised on
acquisition
At 31 October 2018
At 1 November 2018
Opening adjustment
re IFRS 15
Charge to income
Charge to equity
Changes in rate
Deferred tax
recognised on
acquisition
At 31 October 2019
195
(78)
-
(11)
-
106
106
-
40
-
-
-
146
41
9
-
(8)
-
42
42
-
4
-
-
-
46
336
(9)
-
20
-
347
347
-
35
-
-
-
382
514
126
-
(28)
-
612
612
-
(499)
-
-
-
113
-
-
-
-
-
-
-
1,086
48
-
(27)
(7,010)
971
-
(402)
-
1,107
2,717
(3,724)
1,107
(3,724)
2,025
(1,344)
-
-
2,025
(1,764)
-
-
-
650
-
-
-
681
-
1,368
(941)
(4,015)
88
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
14 DEFERRED TAX (CONTINUED)
Deferred tax is recognised where there is evidence that there will be sufficient future profitability of Group companies
in the required jurisdictions to utilise the unrelieved losses or timing difference that gives rise to the deferred tax. Such
evidence includes profitability of these companies in the year, and an estimate on future profitability based on budgeted
future financial performance. The deferred tax liability relates to deferred tax on intangible assets acquired on
acquisition of subsidiaries.
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:
Non-current:
Investment
Current:
Trade receivables, net
Other receivables
Contract receivables
Cash and cash equivalents
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:
Non-current:
Other liabilities*
Current:
Other liabilities*
Note
13
16
16
16
17
Note
21
22
22
18
19
19
19
2019
£000
18
18
8,822
1,684
7,164
7,023
24,693
2019
£000
11,584
-
11,584
21,809
7,136
2,862
31,807
74
74
381
381
Restated
2018
£000
18
18
10,704
952
18,432
5,534
35,622
Restated
2018
£000
11,491
22,505
33,996
3,289
7,957
1,898
13,144
-
-
750
750
*Hierarchy 3 being inputs for the asset or liability which are not based on observable market data. The current year liability relates to
deferred consideration on the acquisition of Tascomi Limited and the acquisition of the Funding Solutions customer lists, the prior
year liability relates to deferred consideration on the acquisition of Open Objects Limited.
89
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
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
2019
£000
455
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
-
There have been no changes to valuation techniques in the year.
16 TRADE AND OTHER RECEIVABLES
Trade receivables, gross
Allowance for credit losses
Trade receivables, net
Other receivables
Contract receivables
Financial assets
Prepayments
Non-financial assets
Trade and other receivables due within one year
2019
£000
8,891
(69)
8,822
1,684
7,164
17,670
2,302
2,302
19,972
Restated
2018
£000
10,908
(204)
10,704
952
18,432
30,088
2,414
2,414
32,502
Total trade receivables (net of allowances) held by the Group at 31 October 2019 amounted to £8,822,000 (2018:
£11,648,000), comprising the amount presented above of £8,822,000 (2018: £10,704,000) and trade receivables
classified as held for sale of £Nil (2018: £944,000).
The carrying amount of trade and other receivables approximates to their fair value, which has been calculated based
on expectations of debt recovery, impairment provision calculations are based on historic performances. The
implementation of IFRS 9 – Financial Instruments has had no material impact on the Group.
The following table sets out expected credit losses of gross trade receivables at 31 October 2019:
Expected credit loss rate
Expected total gross carrying amount at
default (£000)
Lifetime ECL
Not
past
due
1-30
days
past
due
31-60
days
past
due
61-90
days
past
due
>90
days
past
due
Total
0.4%
0.7%
2.8%
3.6%
9.6%
5,227
23
1,044
7
70
2
190
7
308
30
69
90
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
16 TRADE AND OTHER RECEIVABLES (CONTINUED)
We have no expected credit loss scenarios in respect of our contract assets which are in respect of local authority
entities.
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.
Contract receivables represent work completed and delivered to the customer but due to the contractual payment
terms have not yet been invoiced. £5,866,000 (2018: £14,989,000) of the balance is in relation to deferred payment
deals on local authority contracts, which typically have three to five year payment terms. The reduction in these Local
Authority balances is due to the adjustment following adoption of IFRS 15 as at 1 November 2019.
All of the closing Group trade receivables are in UK sterling with the exception of:
Euros
Australian Dollars
US Dollars
Canadian Dollars
Norwegian Krone
Polish Zloty
2018
2019
€4,509,840
€4,051,914
AUD79,000
AUD144,574
$1,824,897
$1,646,950
CAD42,056 CAD322,000
-
PLZ1,000
NOK660,300
-
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
The ageing of trade receivables at the reporting date for the Group was:
2019
£000
4,109
4,782
8,891
2018
£000
5,231
5,677
10,908
Gross
2019
£000
Impairment
2019
£000
Gross
2018
£000
Impairment
2018
£000
Not past due
Past due 0 to 30 days
Past due 31 to 60 days
More than 60 days
6,436
1,459
52
944
8,891
-
-
-
69
69
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
7,954
780
343
1,831
10,908
2019
£000
204
197
(332)
69
-
-
-
204
204
2018
£000
564
403
(763)
204
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.
91
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
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
2019
£000
7,023
7,023
2018
£000
5,534
5,534
2019
£000
2,366
4,770
7,136
Restated
2018
£000
3,721
4,236
7,957
Total trade payables held by the Group at 31 October 2019 amounted to £2,366,000 (2018: £3,874,000), comprising
the amount presented above of £2,366,000 (2018: £3,721,000) and trade payables classified as held for sale of £Nil
(2018: £153,000).
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
Contract liabilities
Other Liabilities payable within one year
Other payables – deferred consideration
Contract liabilities
Other Liabilities payable after one year
2019
£000
2,583
381
2,862
18,447
24,273
74
1,878
1,952
Restated
2018
£000
2,732
750
1,898
16,571
21,951
-
1,288
1,288
Contract liabilities 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. Of the £17,425,000 contract liabilities
present at 31 October 2018, £16,137,000 has been recognised as revenue in FY19.
20 PROVISIONS
At 1 November
Provision made during the year
Provision utilised during the year
At 31 October
2019
£000
734
67
(306)
495
Restated
2018
£000
1,072
8
(346)
734
The opening and closing provisions relate to estimated dilapidation costs in relation to the exit of previously leased
properties and an onerous contract. Of the full provision, £384,000 is expected to be payable during the year ending
31 October 2020 and £111,000 is expected to be payable in the year ended 31 October 2021.
92
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
21 BONDS IN ISSUE
Bonds in issue are measured at amortised cost.
130,000 bonds at €100 each
2019
£000
11,584
11,584
2018
£000
11,491
11,491
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. At 31 October 2019 the bond was
trading at 101% which equates to a fair value of £11,725,000.
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
2019
£000
2018
£000
21,809
3,289
-
22,505
21,809
25,794
Reconciliation of liabilities arising from financing activities:
2019
2018
Bonds in
issue
Long-term
borrowings
Short-term
borrowings
Total
Bonds in
issue
Long-term
borrowings
Short-term
borrowings
Total
£000
£000
£000
£000
£000
£000
£000
£000
As at 1 November
Cash movements:
Repayment of
borrowings
New loans
Non-cash
movements:
Movement in ageing
Movement in
amortisation
Movement in foreign
exchange rate
Movement in EIR
Adjustment
As at 31 October
11,491
22,505
3,289
37,285
11,238
21,519
3,102
35,859
-
-
-
-
69
24
(12,039)
-
(12,039)
-
(5,500)
-
(5,500)
-
8,000
8,000
-
6,500
97
6,597
(10,466)
10,466
-
-
-
(54)
(54)
-
69
75
-
-
-
-
-
-
108
132
178
(14)
-
90
-
-
-
90
75
164
11,584
-
21,809
33,393
11,491
22,505
3,289
37,285
93
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
22 BORROWINGS (CONTINUED)
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 £5.75m (2018: £7.0m) and a revolving credit
facility of £23m (2018: £23m).
During the period the loan was held, the average interest rate on the term loan was 3.75% (2018: 2.98%) and on the
revolving credit facility was 3.67% (2018: 3.05%).
There are unamortised loan fees of £54,000 (2018: £Nil) at the balance sheet date.
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.
It was announced on 19 December 2019 that the Group had refinanced with the Royal Bank of Scotland plc, Silicon
Valley Bank and Santander UK plc. The new facilities, which comprise a revolving credit facility of £35,000,000 and
£10,000,000 accordion facility, are committed until December 2022, with an option to extend this commitment for a
further two years. The interest payable on the new facilities ranges from 2.0% to 3.5%, plus LIBOR.
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 its 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
2019 and 2018, all the Group’s borrowings at variable rates were denominated in UK Sterling. The average interest
rate during the year ended 31 October 2019 was 3.75% (2018: 2.98%) for the term loan and 3.67% (2018: 3.05%) for
the revolving credit facility. Interest payable in the year was £850,000 (2018: £775,000). If the average interest rate
during the year had been 1% different, this would have had an impact of £230,000 (2018: £256,000) on the interest
payable during the year.
94
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
23 RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
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
Contract receivables
Other receivables
Financial assets
2019
£000
7,023
8,822
7,164
1,684
24,693
Restated
2018
£000
5,534
10,704
18,432
952
35,622
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.
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 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 2019, the Group’s financial liabilities have contractual maturities (including interest payments where
applicable) as summarised below:
Within 1
month
£000
Current
1 - 3
months
£000
3 - 12
months
£000
Non-current
1 - 5
years
£000
Later than 5
years
£000
Bonds in issue
Bank borrowings
Trade and other payables
-
64
3,978
-
22,057
2,970
444
-
39
2,370
-
130
12,229
-
19
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
-
838
7,337
Current
1 - 3
months
£000
3 - 12
months
£000
Non-current
1 - 5
years
£000
Later than 5
years
£000
-
1,436
151
440
1,744
66
2,356
22,795
180
12,670
-
223
The above amounts reflect the contractual undiscounted cash flows, which may differ from the carrying values of the
liabilities at the reporting date.
95
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
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)
Capital-to-overall-financing ratio
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
444,631,006 ordinary shares of 1p each (2018: 416,908,167)
2019
£000
44,611
(7,023)
37,588
44,611
11,584
21,809
78,004
Restated
2018
£000
47,868
(5,534)
42,334
47,868
11,491
25,794
85,153
0.48
0.50
2019
£000
2018
£000
6,500
6,500
4,169
277
4,446
4,145
24
4,169
Movement in issued share capital in the year
During the year to 31 October 2019, two employees exercised share options across three separate exercises. To
satisfy the exercise of these transactions, the Company issued and allotted 1,757,927 new ordinary shares of 1p
each.
During the year, the Company issued 25,964,912 new 1p ordinary shares at a cost of 28.5p per share, as part of
a placing in respect of the acquisition of Tascomi Limited.
The Company has one class of ordinary share which carries no right to fixed income.
At 31 October 2019, there were 3,018,545 (2018: 3,190,648) shares in issue under ESOP. During the year, the
average issue share price was 33p (2018: 35p).
At 31 October 2019, there were 1,491,219 (2018: 1,491,219) shares held in treasury.
96
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
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
1,365,854
2,000,000
340,000
180,000
200,000
446,668
800,000
2,395,000
700,000
-
8,427,522
Granted
Exercised
Lapsed
At end of
year
Exercise
price
Exercise
date from
Exercise
date to
-
-
-
-
-
-
-
-
-
(682,927)
(1,000,000)
-
-
682,927
10.25p
Mar 2010 Mar 2020
1,000,000
20.00p
Mar 2011 Mar 2021
(75,000)
(150,000)
115,000
18.00p
Mar 2011 Mar 2021
-
-
-
-
-
-
(180,000)
-
35.00p
Apr 2012 Apr 2022
-
200,000
35.75p
Jul 2013
Jul 2023
(296,668)
150,000
39.00p
Jul 2014
Jun 2024
(800,000)
-
38.38p
Feb 2015 Feb 2025
(1,870,000)
525,000
50.00p
Apr 2016 Apr 2026
(300,000)
400,000
50.00p
Apr 2016 Apr 2026
585,500
585,500
-
(1,757,927)
-
(3,596,668)
585,500
3,658,427
1.00p
Mar 2019 Mar 2029
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
2019
2018
No.
8,427,522
585,500
(1,757,927)
(3,596,668)
3,658,427
3,658,427
WAEP
Pence
32.80
1.00
16.13
44.42
24.30
24.30
No.
8,971,424
-
(543,902)
-
8,427,522
8,427,522
WAEP
Pence
31.75
-
15.44
-
32.80
32.80
The share options outstanding at the end of the year have a weighted average remaining contractual life of 4 years.
The share options exercised during the year had a weighted average exercise price of 16.13p and a weighted average
market price of 31.00p.
585,500 share options were granted during the year ended 31 October 2019.
The fair values were calculated using the Black-Scholes Pricing Model and the following information:
Date of
issue
Mar 19
Number
granted
No.
585,500
Weighted
average
share
price
Pence
33.7
Weighted
average
exercise
price
Pence
1.00
Expected
volatility
%
37.00
Expected
life
Years
3
Risk
free
rate
%
0.75
Expected
dividend
yield
%
-
Weighted
average
fair value
at grant
date
£
0.30
97
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
25 SHARE OPTIONS (CONTINUED)
The Group recognised a total charge of £175,650 (2018: £6,000) for equity-settled share-based payment transactions
related to the unapproved share option scheme during the year. The charge of £175,650 (2018: £6,000) related to
share options granted and £Nil (2018: £Nil) related to share options exercised.
Long-Term Incentive Plan (LTIP)
During the year, 9,157,982 options were granted under the Long-Term Incentive Plan.
The Group recognised a total charge of £683,731 (2018: £44,000) 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
2019
No.
2018
No.
-
3,600,000
9,157,982
(728,572)
-
8,429,410
-
-
(1,700,000)
(1,900,000)
-
-
98
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
26 ACQUISITIONS
Tascomi Limited
On 9 August 2019, the Group acquired the entire share capital of Tascomi Limited (Tascomi).
Tascomi is a cloud-native supplier of solutions to Local Authority property and environmental services markets, and
will complement the Group’s existing Local Authority business within the PSS division.
Goodwill arising on the acquisition of Tascomi has been capitalised and consists largely of the value of the workforce,
synergies and economies of scale expected from combining the operations of Tascomi with Idox. None of the goodwill
recognised is expected to be deductible for income tax purposes. The purchase of Tascomi has been accounted for
using the acquisition method of accounting.
Book value
£000
Fair value
£000
799
83
162
-
2
1,046
(239)
(37)
(661)
(303)
-
(1,240)
Intangible Assets
Property, plant and equipment
Trade receivables
Other receivables
Cash at bank
Total Assets
Trade payables
Other liabilities
Contract liabilities
Social security and other taxes
Deferred tax liability
Total Liabilities
Net Assets
Goodwill arising on acquisition
Purchased customer relationships capitalised
Purchased software capitalised
Total consideration
Satisfied by:
Cash to vendor
Earn out consideration
Total consideration
799
50
207
8
2
1,066
(239)
-
(875)
(160)
(941)
(2,215)
(1,149)
2,269
1,151
4,448
6,719
6,394
325
6,719
The revenue included in the consolidated statement of comprehensive income since 9 August 2019 contributed by
Tascomi was £536,000. Tascomi also made a profit after tax of £127,000 for the same period. If Tascomi had been
included from 1 November 2018, it would have contributed £2,144,000 to Group revenue and a profit after tax of
£507,000.
Acquisition costs of £174,000 have been written off in the consolidated statement of comprehensive income.
99
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
27 OPERATING LEASE COMMITMENTS
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
2019
£000
1,236
2,239
22
3,497
2018
£000
2,162
5,422
2,756
10,340
Operating lease payments represent rentals payable by the Group for office premises, motor vehicle leasing charges
and equipment.
28 CAPITAL COMMITMENTS
We are committed to pay a supplier £950,000 in December 2019 in relation to the usage of Software Licences.
29 CONTINGENT LIABILITIES
There were no material Group contingent liabilities at 31 October 2019 or 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
2019
£000
2,513
63
684
3,260
2018
£000
2,160
68
44
2,272
During the year ended 31 October 2019, no Directors and one member of the Executive Management Team exercised
share options resulting in a taxable gain of £251,707. Two Directors and no members of the Executive Management
Team exercised share options resulting in a taxable gain of £628,623 in the year ended 31 October 2018.
Details of the remuneration for each Director are included in the Report on Remuneration, which can be found on
pages 30 to 31 but does not form part of the audited accounts.
31 POST BALANCE SHEET EVENTS
Refinancing
It was announced on 19 December 2019 that the Group had refinanced with the Royal Bank of Scotland plc, Silicon
Valley Bank and Santander UK plc. The new facilities, which comprise a revolving credit facility of £35,000,000 and
£10,000,000 accordion facility, are committed until December 2022, with an option to extend this commitment for a
further two years.
Disposal of SIX-PM Health Solutions (Ireland) Limited
The Group agreed on 22 November 2019 to sell its shareholding in SIX-PM Health Solutions (Ireland) Limited, a
medical-record scanning business based in Limerick, to its Managing Director for €1. During the year ended 31
October 2019 6PM Ireland Limited recorded revenues of €392,000 (2018: €587,000) and loss before tax on a
standalone basis of €378,000 (2018: €12,000 loss).
Disposal of emCare Business
On 31 December 2019, the Group sold the trade and assets of its emCare business to Go plc, a telecoms business
based in Malta, for cash consideration of €100,000. During the year ended 31 October 2019 emCare business
recorded revenues of €317,000 (2018: €338,000) and profit before tax of €128,000 (2018: €115,000). Despite the
profitability recorded in the business in FY18 & FY19, the business was anticipated to become loss-making for the
foreseeable future.
100
Notes to the Accounts (continued)
For the year ended 31 October 2019
___________________________________________________________________
31 POST BALANCE SHEET EVENTS (CONTINUED)
UK Corporation Tax
On the 11 March 2020, the UK Government announced its intention to scrap its planned reduction of UK corporation
tax from its current rate of 19% to a reduced rate of 17%, starting 1 April 2020. The Group’s UK deferred tax assets
and liabilities at 31 October 2019 are measured at 17%, being the rate previously announced and enacted at the
balance sheet date. The impact on our deferred tax balances had they been recognised at the revised rate is as
follows:
Deferred tax assets
Deferred tax liabilities
Current
at 17%
£000
Revised
to 19%
£000
1,368
(4,015)
(2,647)
1,529
(4,487)
(2,958)
Covid-19 Pandemic
The Group continues to monitor the impact of the Covid-19 pandemic. Idox is well placed because of the Group's
high recurring revenue base, its focus on public sector markets and the high proportion of staff that routinely work
from home.
Further details of our assessment of the impact of the Covid-19 pandemic on the Group is included in the Going
Concern disclosures in the Directors’ Report on pages 28 and 29.
101
Company Balance Sheet
At 31 October 2019
__________________________________________________________________________________
Note
6
7
8
9
10
Non-current assets
Investments
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
2019
£000
98,290
98,290
2018
£000
91,924
91,924
292
58
(41,818)
(41,526)
56,764
-
56,764
4,446
1,112
41,348
6,234
(621)
1,834
2,411
56,764
(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
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 £4,244,000 (2018:
£30,400,000 loss).
The financial statements were approved by the Board of Directors and authorised for issue on 9 April 2020 and are
signed on its behalf by:
David Meaden
Chief Executive Officer
9 April 2020
The accompanying accounting policies and notes form an integral part of these Company financial statements.
Company name: Idox plc
Company number: 03984070
102
Company Statement of Changes in Equity
For the year ended 31 October 2019
___________________________________________________________________
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 loss for the
year
At 31 October 2018
Issue of share capital
Share options reserve movement
Exercise of options
Lapse of options
Transactions with owners
Loss for the year
Total comprehensive loss for the
year
Called-up
share capital
£000
4,145
24
-
-
-
-
Capital
redemption
reserve
£000
1,112
-
-
-
-
24
-
-
4,169
277
-
-
-
277
-
-
-
-
-
1,112
-
-
-
-
-
-
-
Share
premium
account
£000
34,109
79
-
-
-
-
79
-
-
34,188
7,160
-
-
-
7,160
-
-
Other
reserve
£000
6,234
-
-
-
-
-
-
-
-
6,234
-
-
-
-
-
-
-
Treasury
reserve
£000
(621)
-
-
-
-
-
-
-
-
(621)
-
-
-
-
-
-
Share
option
reserve
£000
1,726
-
(498)
-
-
-
(498)
-
-
1,228
-
606
-
-
606
-
-
At 31 October 2019
4,446
1,112
41,348
6,234
(621)
1,834
Retained
earnings
£000
38,970
-
-
310
238
(2,717)
(2,169)
(30,400)
(30,400)
6,401
-
-
146
108
254
(4,244)
(4,244)
2,411
Total
£000
85,675
103
(498)
310
238
(2,717)
(2,564)
(30,400)
(30,400)
52,711
7,437
606
146
108
8,297
(4,244)
(4,244)
56,764
103
Notes to the Company Financial Statements
For the year ended 31 October 2019
___________________________________________________________________
1 COMPANY INFORMATION
Idox plc is a company which is incorporated and domiciled in the UK, which is its principal place of business. 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 under the historical cost convention as modified by the revaluation of
certain financial assets and liabilities, being, deferred consideration at fair value through profit or loss.
These financial statements are separate financial statements for Idox plc the Company.
The financial statements are prepared in pounds sterling.
Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by
FRS 101. Therefore, these financial statements do not include:
A statement of cash flows and related notes.
Disclosure of key management personnel compensation.
Certain disclosures 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.
The Directors are required to make judgements (other than those involving estimations) that have a significant impact
on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and
liabilities that are not easily apparent from other sources. The estimates and associated assumptions are based on
historical experience and other factors that are considered to be relevant. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
Key sources of estimation uncertainty
Management consider the following items to involve key assumptions and other sources of estimation uncertainty.
These items generate a significant risk of causing a material adjustment to the carrying amount of assets and liabilities
in the next financial year.
Impairment of investments
Management considers, at least annually, whether investments have 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 performed
and supplied by independent valuation specialists.
104
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2019
___________________________________________________________________
2 ACCOUNTING POLICIES (CONTINUED)
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.
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.
105
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2019
___________________________________________________________________
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 30 to 31 but
which do not form part of the audited accounts.
4 DIVIDENDS
Final dividend paid in respect of the year ended 31 October 2019
and 31 October 2018
Pence per ordinary share
Interim dividend paid in respect of the year ended 31 October 2019
and 31 October 2018
Pence per ordinary share
2019
£000
2018
£000
-
-
-
-
2,717
0.655p
-
-
The Directors have proposed the payment of a final dividend of £Nil per share, which would amount to £Nil (2018:
£Nil).
5 PROFIT FOR THE FINANCIAL YEAR
The parent company’s loss for the year was £4,244,000 (2018: £30,400,000 loss). 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 loss for the year ended 31 October 2018.
6 INVESTMENTS
Cost or market value
At 1 November 2018
Additions
Disposals
At 31 October 2019
Impairment
At 1 November 2018
Provided in the year
At 31 October 2019
Net book amount
At 31 October 2019
At 31 October 2018
Investment in
Group
undertakings
£000
126,007
7,587
(1,221)
132,373
34,083
-
34,083
98,290
91,924
The Group has performed impairment reviews in respect of the assets of all its CGUs as disclosed in note 12 of the
Group’s financial statements.
The Company’s investments in Group undertakings associated with its EIM and Content CGUs have comparable
carrying values to the carrying values of the assets of those CGUs, and therefore, sensitivity of impairment reviews
against value-in-use calculations is also comparable.
The Company’s investments in Group undertakings associated with its PSS CGUs has a higher carrying value than
the carrying value of the assets of the PSS CGUs, however, headroom of impairment reviews against value-in-use
calculations is significant in both cases.
106
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2019
___________________________________________________________________
6 INVESTMENTS (CONTINUED)
Any comparable movement in sensitivity which resulted in an impairment of intangibles would result in a similar
impairment to investments. However, at present there is no significant risk of an impairment to the investment values
unless there was a movement in the EIM growth rate as disclosed in note 12 of the Group’s financial statements.
At 31 October 2019 the Company held investments in the following companies (* indirect holdings):
Country of
registration
Registered office
Class of
share
held
Proportion
held
Nature of
business
Idox Trustees Limited
England
Idox Software Limited
England
Idox Belgium NV
Belgium
Idox Netherlands BV
Netherlands
Idox Germany GmbH
Germany
McLaren Software
Limited
Scotland
McLaren Software Inc
USA
Idox France SARL
France
Idox India Private
Limited*
India
McLaren Software
Group Limited
McLaren Software
GmbH*
Scotland
Germany
McLaren Consulting BV* Netherlands
McLaren Software
SARL*
Switzerland
CT Space Inc
USA
Citadon Inc
USA
6PM Holdings plc
Malta
Halarose Holdings
Limited
Atlas Adviesgroep
Twente B.V.
England
Netherlands
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
2nd Floor, 1310
Waterside, Arlington
Business Park, Theale,
Reading, RG7 4SA
2nd Floor, 1310
Waterside, Arlington
Business Park, Theale,
Reading, RG7 4SA
1831 Machelen (Brab.),
Pegasuslaan 5, Belgium Ordinary
Klavermaten 25, 7472
DD Goor, the
Netherlands
Hauptstrabe 65, 12159
Berlin, Germany
72 Gordon Street,
Glasgow, Scotland, G1
3RS
818 West Seventh St,
2nd Floor, LA, CA 90017 Ordinary
75, Avenue Parmentier,
75544 Paris cedex 11,
France
Kapil Towers Sixth Floor
C Wing Dr. Ambedkar
Road Pune MH 411001
India
72 Gordon Street,
Glasgow, Scotland, G1
3RS
Hauptstrabe 65, 12159
Berlin, Germany
Costerweg 5, 6702AA
Wageningen
Avenue Antoine-Henri-
Jomini 8
1209 Orange Street,
Corporation Trust
Center, Wilmington, DE
19801
919 North Market St,
Suite 950, Wilmington,
DE 19801
Idox Business Centre
Triq it-Torri, Swatar
Birkirkara
2nd Floor, 1310
Waterside, Arlington
Business Park, Theale,
Reading, RG7 4SA
Klavermaten 25, 7472
DD Goor, Netherlands
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
Corporate trustee
of Employee share
ownership trust
Software services
Information
services
Information
services
100%
Software services
100%
Software services
100%
Software services
100%
Software services
100%
Software services
100%
100%
100%
100%
Holding Company
Dormant
Company
Dormant
Company
Dormant
Company
100%
Dormant Company
100%
Dormant Company
100%
Holding Company
100%
Dormant Company
100%
Software services
107
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2019
___________________________________________________________________
6 INVESTMENTS (CONTINUED)
Country of
registration
Registered office
Class of
share
held
Proportion
held
Nature of
business
3 Ballynahinch Street,
Hillsborough, Northern
Ireland BY26 6AW
2nd Floor, 1310
Waterside, Arlington
Business Park, Theale,
Reading, RG7 4SA
GVZH Advocates, 192
Old Bakery Street,
Valletta, VLT 1455,
Malta
GVZH Advocates, 192
Old Bakery Street,
Valletta, VLT 1455,
Malta
Unit H, L.E.D.P., Roxboro,
Limerick, Ireland
GVZH Advocates, 192
Old Bakery Street,
Valletta, VLT 1455,
Malta
GVZH Advocates, 192
Old Bakery Street,
Valletta, VLT 1455,
Malta
GVZH Advocates, 192
Old Bakery Street,
Valletta, VLT 1455,
Malta
5,Vasil Gjorgov Street
1000 Skopje, North
Macedonia
2nd Floor, 1310
Waterside, Arlington
Business Park, Theale
Ordinary
Ordinary
100%
100%
Software services
Dormant Company
Ordinary
100%
Software services
Ordinary
100%
Software services
Ordinary
100%
Software services
Ordinary
100%
Software services
Ordinary
100%
Software services
Ordinary
100%
Dormant Company
Ordinary
100%
Software services
Ordinary
100%
Software services
Tascomi Limited
Halarose Limited*
Northern
Ireland
England
6PM Limited*
Malta
6PM Infrastructure*
Limited*
Malta
SIX-PM Health Solutions
(Ireland) Limited*
emCare360 Limited*
Ireland
Malta
emCare Group Malta
Limited*
Malta
6PM Agencies Limited*
Malta
Idox DOOEL*
North
Macedonia
Idox Health Limited*
England
* Indirect holding
7 DEBTORS
Falling due within one year:
Other debtors
Amounts owed by Group undertakings
8 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loan
Amounts owed to Group undertakings
Other creditors
Accruals
Amounts owed to Group undertakings are interest bearing and are repayable on demand.
2019
£000
232
60
292
2019
£000
21,809
19,391
438
180
41,818
2018
£000
-
58
58
2018
£000
2,500
13,006
854
406
16,766
108
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2019
___________________________________________________________________
9 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Bank loan
2019
£000
2018
£000
-
22,505
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 £5.75m (2018: £7.0m) and a revolving credit
facility of £23m (2018: £23m) and were in place to February 2020.
During the period the loan was held, the average interest rate on the term loan was 3.75% (2018: 2.98%) and on the
revolving credit facility was 3.67% (2018: 3.05%).
There are unamortised loan fees of £54,000 (2018: £Nil) at the balance sheet date.
An accounting adjustment of £108,000 (2018: £5,000) 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.
It was announced on 19 December 2019 that the Group had refinanced with the Royal Bank of Scotland plc, Silicon
Valley Bank and Santander UK plc. The new facilities, which comprise a revolving credit facility of £35,000,000 and
£10,000,000 accordion facility, are committed until December 2022, with an option to extend this commitment for a
further two years.
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
444,631,006 ordinary shares of 1p each (2018: 416,908,167)
2019
£000
2018
£000
6,500
6,500
4,169
277
4,446
4,145
24
4,169
Movement in issued share capital in the year
During the year to 31 October 2019, two employees exercised share options across three separate exercises. To
satisfy the exercise of these transactions, the Company issued and allotted 1,757,927 new ordinary shares of 1p each.
During the year, the Company issued 25,964,912 new 1p ordinary shares as part of a placing in respect of the
acquisition of Tascomi Limited.
The Company has one class of ordinary share which carries no right to fixed income.
At 31 October 2019, there were 3,018,545 (2018: 3,190,648) shares in issue under ESOP. During the year, the
average issue share price was 33p (2018: 35p).
At 31 October 2019, there were 1,491,219 (2018: 1,491,219) shares held in treasury.
109
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2019
___________________________________________________________________
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 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
1,365,854
2,000,000
340,000
180,000
200,000
446,668
800,000
2,395,000
700,000
-
8,427,522
Granted
Exercised
Lapsed
At end of
year
Exercise
price
Exercise
date from
Exercise
date to
-
-
-
-
-
-
-
-
-
(682,927)
(1,000,000)
-
-
682,927
10.25p
Mar 2010 Mar 2020
1,000,000
20.00p
Mar 2011 Mar 2021
(75,000)
(150,000)
115,000
18.00p
Mar 2011 Mar 2021
-
-
-
-
-
-
(180,000)
-
35.00p
Apr 2012 Apr 2022
-
200,000
35.75p
Jul 2013
Jul 2023
(296,668)
150,000
39.00p
Jul 2014
Jun 2024
(800,000)
-
38.38p
Feb 2015 Feb 2025
(1,870,000)
525,000
50.00p
Apr 2016 Apr 2026
(300,000)
400,000
50.00p
Apr 2016 Apr 2026
585,500
585,500
-
(1,757,927)
-
(3,596,668)
585,500
3,658,427
1.00p
Mar 2019 Mar 2029
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
2019
2018
No.
8,427,522
585,500
(1,757,927)
(3,596,668)
3,658,427
3,658,427
WAEP
Pence
32.80
1.00
16.13
44.42
24.30
24.30
No.
8,971,424
-
(543,902)
-
8,427,522
8,427,522
WAEP
Pence
31.75
15.44
32.80
32.80
The share options outstanding at the end of the year have a weighted average remaining contractual life of 4 years.
The share options exercised during the year had a weighted average exercise price of 16.13p and a weighted average
market price of 31.00p.
585,500 share options were granted during the year ended 31 October 2019.
The fair values were calculated using the Black-Scholes Pricing Model and the following information:
Date of
issue
Mar 19
Number
granted
No.
585,500
Weighted
average
share
price
Pence
33.7
Weighted
average
exercise
price
Pence
1.00
Expected
volatility
%
37.00
Expected
life
Years
3
Risk
free
rate
%
0.75
Expected
dividend
yield
%
-
Weighted
average
fair value
at grant
date
£
0.30
110
Notes to the Company Financial Statements (continued)
For the year ended 31 October 2019
___________________________________________________________________
11 SHARE OPTIONS (CONTINUED)
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, 9,157,982 options were granted under the Long-Term Incentive Plan.
The Group recognised a total charge of £683,731 (2018: £44,000) 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
2019
No.
2018
No.
-
3,600,000
9,157,982
(728,572)
-
8,429,410
-
-
(1,700,000)
(1,900,000)
-
-
As the LTIP share option scheme is a Group scheme, there has been no charge recognised in the parent Company
accounts.
12 RELATED PARTY DISCLOSURES
As permitted by FRS 101, related party transactions with wholly owned members of the Group and remuneration
of key management personnel have not been disclosed.
13 CAPITAL COMMITMENTS
The Company had no capital commitments at 31 October 2019 or 31 October 2018.
14 CONTINGENT LIABILITIES
There were no material Company contingent liabilities at 31 October 2019 or 31 October 2018.
15 ULTIMATE CONTROLLING PARTY
There is no ultimate controlling party.
111