Kooth plc Annual Report 2020

Plain-text annual report

Kooth plc Annual Report 2020 koothplc.com 1 Strategic ReportKooth plc Annual Report 2020Strategic report Mental health is a defining global challenge of our time Our purpose Chair’s statement Chief Executive Officer’s statement Kooth plc business model Market review Strategy Key performance indicators Chief Financial Officer’s review Section 172 statement 4 5 7 11 14 17 20 22 25 31 We create a welcoming space for effective personalised digital mental health care. Available to all. Strategic report Mental health is a defining global challenge of our time Our purpose Chair’s statement Chief Executive Officer’s statement Kooth plc business model Market review Strategy Key performance indicators Chief Financial Officer’s review Section 172 statement Corporate governance Chair’s introduction to governance Report of the Audit Committee Report of the Remuneration Committee Directors’ report Statement of Directors’ responsibilities Financial statements Independent auditor’s report Consolidated financial statements Notes to the consolidated financial statements Company financial statements Notes to the Company financial statements Company Information 4 5 7 11 14 17 20 22 25 31 34 41 44 48 52 55 68 73 105 107 111 3 3 Strategic ReportKooth plc Annual Report 2020 Mental health is a defining global challenge of our time The imperative for governments and corporations to act is becoming clear. NHS funding for mental health increased 4% to £13.1 billion in 2019/20, with an additional £2.3 billion committed by 2023/24. In business, research from the Chartered Management Institute (CMI) found that 72% of employees have named wellbeing as a top priority for managers in 2021. Kooth was founded with the mission to tackle this global challenge by democratising access to effective digital mental health care, making it available to all. The World Health Organisation forecasts that by 2030 poor mental health will be the number one cause of mortality and morbidity globally. The United Nations cites mental health within their 17 Sustainable Development Goals as a global call to action to achieve a better and sustainable future for all. In addition, while the long-term impact of COVID-19 is hard to predict, an estimated 10 million people in England will need new or additional mental health support as a direct consequence of the pandemic according to the Centre for Mental Health. Health, the economy, and employment are all connected. Stress, depression, and anxiety accounted for almost half of the 38.8 million lost working days in the UK in 2019/20. The overall cost to the UK economy is estimated at £45 billion per annum. Our purpose We create a welcoming space for effective personalised digital mental health care. Available to all. As a pioneer and innovator in digital mental health care, Kooth’s technology platform and clinical operating model have been developed over 15 years to deliver an integrated, personalised approach to mental health support, providing individuals with access to self-help tools, community-powered peer support, and text-based professional counselling. Our strategy and business model is to make digital mental healthcare universally available to all, through sales into the public sector, corporations, and international partnerships. Safety, Anonymity, Accessibility Community Peer Support Self-Help Counselling Outcomes, Insights Headline Statistics Adults Corporates International Children & Young People Public Sector Kooth Digital Platform & Clinical Operating Model 25% Adults who experience mental illness per year Kooth at a glance 20% Children who experience mental illness each year 72% Employees surveyed by CMI who rank wellbeing as top priority for managers in 2021 • Trusted partner and position within the NHS and public sector markets - with excellent potential to expand in response to ever growing demand. • Data advantage - more than a decade of anonymised mental health data gives clients unique insights into emerging trends. • Proprietary Technology - Kooth’s integrated and intelligent platform has been built with safety, anonymity, and accessibility at its heart. • Clinical Operating Model - a wide range of support in one platform stands Kooth apart from competitors. Offering choice and a range of services as and when is needed. • Consistently high Recurring Revenue - contracted revenue of 12 months or more represents more than 90% of revenue at an average three year growth rate of 36%+ per annum. 4 5 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020 Chair’s statement Dear Shareholders, “ In an unprecedented year, Kooth has risen to the challenge. Peter Whiting Non-Executive Chair, Kooth plc I am delighted to present Kooth plc’s maiden full year results as a public company following our successful listing on AIM in September 2020. It is also my first as Chair since joining Kooth last May. Our IPO has already begun to deliver a number of strategic benefits to the Company, supporting our investment in product development, our clinical operating model, and expanding our team to pursue new market opportunities. We begin life as a public company in a position of financial strength, with a robust balance sheet and a net cash position. As a listed company we now operate with a high level of transparency that we know our customers, partners, and service users’ value. Key achievements People and culture At a time of exceptional uncertainty, Kooth stepped up to support our customers and partners, scaling our service to meet demand and delivering strong revenue growth ahead of our expectations. Our progress reflects Kooth’s leading position supporting children and young people via the NHS, and early success with our expansion to support the NHS Adult and Corporate markets. We continued to see strong organic growth in our existing contract base with expansions in service usage and the age ranges supported. Our Children and Young People’s service (CYP) expanded to cover 85% of English Clinical Commissioning Groups (CCGs) and continued to expand into Wales. Our Public Sector Adult Services are now available to 1.5 million adults and we began to make inroads in the nascent corporate market. Kooth’s platform is now available to more than 7.8 million people across the UK. 2020 was a year for ensuring solid foundations for future growth at Kooth, with our culture, values, purpose, and people a key focus for us. The journey ahead will be to continue to embed our values into business- as-usual, as described in the CEO’s statement. I am pleased to confirm that we continue to retain and attract talent based on these values. Our teams include colleagues with a wide variety of skills - clinical, technical and finance - all brought together by a common drive to grow their areas of the business and deliver on our purpose to make effective, personalised digital mental health care available to everyone. Diversity and inclusion are essential to Kooth’s core purpose. In July 2020 we appointed Steve Gilbert, OBE to chair our Diversity and Inclusion Council and we also established an Employee Voices Group so that we can better understand and embrace diversity across the organisation. 6 7 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020Board changes Our Executive Board was strengthened in 2020 by the appointment of Tim Barker as CEO and Sanjay Jawa as CFO. Tim brings with him a wealth of experience from his career in the technology industry including leadership positions at DataSift and Salesforce. Prior to his appointment Sanjay had been a Non-Executive Director since 2018 through his role as an operating partner at ScaleUp Capital. He previously held senior finance positions at a combination of public and private equity- backed technology and services businesses including Qualitest, Barclays and FTI Consulting. As a clinical-first organisation I am very pleased to be joined by Professor Dame Sue Bailey as a Non-Executive Director. Sue is a qualified psychiatrist and academic who specialises in the field of Children and Young People’s mental health, underlined by her positions as Vice President of the British Association of Counselling and Psychotherapy and Chair of the Centre for Mental Health. Sue has extensive experience across Government, the NHS and charitable organisations, and in 2013 was made a Dame for services to mental health. Corporate governance Summary The Board is fully committed to its obligation individually and collectively to act in good faith to seek to promote the success of the company for the benefit of its shareholders as a whole and the interests of other stakeholders. Further details of our approach are set out in pages 34 to 52. Independent Advisory Board In addition to our plc Board, we established an independent advisory board to provide guidance and strategic advice on the ever evolving landscape of mental health. Chaired by Sir Norman Lamb, our advisory board has proved a valuable partner in helping guide our strategic direction and deepen our partnerships within the NHS, commercial, and charity sectors. Kooth begins 2021 with excellent momentum and a clear strategy for growth, after strong revenue growth and gross margin improvement in 2020. In 2021, innovating and investing in our proprietary technology platform, data science, and a continued focus on our clinical delivery model are key to our future success. Kooth’s strategy is strongly aligned to NHS and other Government policy which we expect to continue to drive growth in our core Government markets. In 2021 we aim to continue growing substantially in the public sector adult market and begin to drive growth in the corporate market. The Board believes that we are well positioned for future success. Peter Whiting Non-Executive Chair 13th April 2021 8 9 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020“ We’re proud that in 2020, Kooth stepped up and continued to scale up to support the mental health of our nation. Tim Barker Chief Executive Officer Chief Executive Officer’s statement A landmark year for Kooth 2020 was a year where remote-first technologies came to the foreground, with many industries accelerating their transformation to digital-first delivery models. As a mental health care business that was ‘born digital’, this was a re-enforcement of the benefits of the digital operating model that Kooth has pioneered in partnership with the NHS over many years. We worked with NHS commissioners to expand access to Kooth into more regions within the UK, supported more people than ever before, and provided a safe, welcoming space for individuals in need. This was reflected in positive revenue growth of 50%, adjusted EBITDA growth from £0.1 million to £0.9 million, and an improved adjusted EBITDA margin to 7.2%. (2019: 1.6%) Transition to life as a PLC In September 2020, we successfully floated on AIM. The move has bought many positive changes to Kooth. Our customers value the greater scrutiny and transparency that comes with life as a public company. We invested in our systems to simplify and streamline reporting ahead of our IPO - meaning we operate our business with greater rigour than ever. Following the IPO, new investment in our technology, data science, and clinical product development will enable us to continue to deliver on our vision of personalised mental health care. We’ve seen further contract expansion and high customer retention across the business, retaining 95% of our customers and delivering a net revenue retention of 105%. In the Children and Young Persons market we now cover 85% of Clinical Commissioning Groups (CCGs) in England and have had our first commission from the Welsh Health Boards. Our Adult platform has seen considerable growth with 18 additional contracts coming on board in 2020. We now support more than 1.5 million adults across the UK. Ongoing investment in clinical safety and outcomes has led us to maintain a strong clinical performance in supporting our service users. The £16 million raised has allowed us to pay down all debt and create an investment plan to extend our technology, data science, clinical, and research functions to serve more users more effectively. Lastly, the IPO has enabled us to create a better relationship with our customers through increased transparency, and with our employees through our ability to offer our staff long term incentives to reward their hard work, passion and impressive results. 10 11 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020Our customers COVID-19 2020 has been a year in which the NHS has needed support like never before. I have been exceptionally proud of how Kooth has collaboratively worked with the NHS and the country through the pandemic. As a remote-first organisation we have been able to support the NHS by continuing to expand our coverage for Children and Young People, increasing coverage of existing contracts to meet increased demand and a rapid scale up of our adult services to provide complementary online alternatives to IAPT (the NHS program to Improve Access to Psychological Therapies) and traditional face to face counselling services. We have worked collaboratively with the UK Government, providing our national data and insights to help gain a better picture of the impact of the pandemic on the nation’s mental health. We are well-placed to meet the coming demand and structural changes in the NHS. As the market leaders we have exceptional local relationships across primary care, NHS providers and NHS commissioning systems. These relationships allow us to understand the value Kooth can continue to add to help reduce cost and improve outcomes across the mental health pathway. Innovation 2020 was pivotal for us to innovate in two key areas of our business: data and self- help. Data collection, security and usage is a critical part of our service, enabling us to better support our users, customers, and prove the effectiveness of our interventions. By introducing a self-assessment (known as a ‘measure of need’) for users we can now clinically measure the level of mental health support that individuals need, and track changes over time. In addition, our data science and research team continued to collaborate with academia and industry partners to prove the effectiveness of Kooth’s service built on our ‘Theory of Change’ model. 2020 also saw the addition of new self-help tools, with the introduction of the activity- centre, providing a range of self-guided activities and a peer-support community to help individuals manage their own mental health. Talent Kooth is all about its people. Employees at Kooth provide the most important support behind the platform to some of the country’s most vulnerable people. Our employees have been exceptional in 2020, juggling caring, health and childcare needs with the drive and determination to make sure all our service users are supported. us with a wealth of leadership experience in the digital health space. Kate was previously CEO of Doctor Care Anywhere and CEO of Blenheim Chalcot. In 2020 we grew to 306 employees, the majority of whom joined our product development and clinical delivery teams. We continue to retain and attract key talent and I am especially delighted that we welcomed our new Chief Operating Officer, Kate Newhouse, in May 2020 who joins Following our IPO in September we launched our first staff long term share incentive scheme (as outlined in the IPO admission document). Kooth has provided vital support to UK citizens throughout the pandemic. Our remote delivery model has enabled us to scale up quickly and effectively to support our NHS colleagues in handling increased demands and shifting from traditional face to face services to digital support. We have been swift in moving to a greater focus on online promotion and using social media and our links with schools, GPs and social work to mobilise digital campaigns. Outlook Kooth has a robust business model with 95% recurring revenue and is well positioned to help deliver effective and scalable services to deal with the aftermath of COVID-19 and the burgeoning mental health needs of the nation. As a resilient and dynamic business we have a strong focus on delivering our 2021 strategy and utilising the funds from the IPO to deliver on our purpose to make digital mental health care available to all, driving our expansion and growth. Longer term, we are fully aligned with NHS policy and the transition to Integrated Care Systems and Primary Care Networks. We are well placed to continue to build our adult services into adjacent areas such as supporting employers, the unemployed, universities and victims of crime. Tim Barker Chief Executive Officer 13th April 2021 12 13 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020Kooth plc business model Kooth provides an integrated platform to meet the majority of mental health needs without waiting lists. Inputs • Proprietary technology that meets NHS data protection and security standards • Highly skilled counsellors who provide a wide range of therapeutic interventions • The only UK-wide digital service accredited by the British Association of Counselling and Psychotherapy • Strong relationships with our stakeholders and communities we serve • Culture of care and support for our service users • Excellent revenue visibility How we generate revenue Kooth operates a subscription-based business model, with customers paying an annual fee based on expected platform usage (for public sector contracts), or a per-employee fee (for corporate customers). The platform is free at the point of access for eligible users. Contracts are promoted via local promotion and digital and social marketing campaigns. Contracts expand due to increased usage and expansion across a population. Kooth has a very high percentage of recurring revenue. Our values Our values have been built by our service users and our employees and underpin everything that we do. Our channels Commissioned by the NHS. Freely available to 7.8 million Children and Adults Corporates Supporting every employee to thrive. International Partnership and direct expansion into new geographies Our platform: an anonymous, safe space Community Self-help Peer Support Network Content & Activities Live Chat Immediate Support Wellbeing Practitioners Counsellors Alongside you Flexible We are alongside you, warm, welcoming and companionable. We offer choice because you are in control of what you need. Compassionate We don’t judge. We listen, counsel and support. Committed No matter what support you need, we’re here to help. Safe We are a safe space for users and we are serious about safeguarding. Benefits 14 15 Personalised mental health care Clinical outcomes Mental health trends and insights Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020How we add value Who? What we do How this helps NHS Customers UK Public We provide the NHS with a safe, effective and scalable solution for mental health services across the country that reduces demand on the system and saves money We provide anonymous, safe and easily acces- sible mental health support to improve the country’s well-being 85% of Clinical Commissioning Groups commission Kooth 7.8m people across the UK now have access to Kooth Shareholders We deliver long-term shareholder value 50% revenue growth in 2020 Corporates Employees We engage with employers to provide anonymous support to their staff Over 30,000 employees now covered by Kooth in 2020 We invest in technology development, data science and engineering to accelerate service efficacy We doubled our engineering team in 2020 and invested over £1.5 million in tech and research and development Market review Mental health has emerged as a defining global challenge of our time. Research shows 1 in 4 adults and 1 in 5 children in the UK experience a mental illness in any given year. Untreated mental health problems account for 13 per cent of the total global burden of disease. It is projected that, by 2030, mental health problems will be the leading cause of mortality and morbidity globally. In addition to the direct costs associated with mental health illnesses for individuals and their loved ones, the economic cost to businesses is substantial. It is estimated that mental illness costs UK employers up to £45 billion per annum through lost productivity, employee turnover, and absenteeism. In the last few years, the NHS has become increasingly aware of the growing need to invest in mental health services and treatment. In 2019-2020, the NHS budget for mental health totalled around £13.1 billion. This was an increase of 4% on the previous year. As part of the 2019 NHS Long Term plan, a further £2.3 billion is committed to mental health funding by 2023/24. Yet despite this increased spending, expenditure on mental health has not kept pace with demand. The COVID-19 pandemic has also had a marked effect on mental health globally. Measures taken by national governments, including social distancing and mandatory working from home, have been viewed as essential in decreasing the rate of the virus spreading. These same measures, however, contribute to a severe negative effect on populations’ wellbeing: a lack of social interactions; restricted access to open spaces; confined living conditions with young children and elderly relatives; and anxiety associated with working from home, being furloughed or made redundant are all proven to be detrimental to mental wellbeing. Given the growing demand for mental health services this is an area where digital platforms can play a significant role in expanding access to mental health support, providing access to high quality professional counselling and self-help tools, delivering early intervention, prevention and ongoing support for individuals with mental health problems. The need for Kooth in numbers 62% 22% increase in demand (logins) for Kooth in 2020 increase in suicidal ideation and self-ham vs 2019 9% increase in eating difficulties 21% increase in concerns about parenting / family relationships 16 17 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020“ Digital delivery of quality mental health service is the only way to meet demand. Never before has early intervention, prevention and fast access to quality support been more important. The growing need for effective mental health services is putting a huge strain on the NHS, communities and having a broader socioeconomic impact. We know that the faster someone accesses support, when and how they need it, the more likely they are to engage in treatment and recover. That is why at Kooth we continue to provide a highly accessible service that provides a variety of therapeutic interventions and offers choice to our service users. 94% of our service users would recommend Kooth to a friend or family which is a statistic we can all be really proud of. Dr Lynne Green Chief Clinical Officer Gathering momentum Kooth continues to gather momentum in our chosen UK markets and sees continued growth in these areas for 2021: • Corporate Expansion: A potential market opportunity in excess of £150 million to expand into the UK corporate market to support employee mental health initiatives. • International Markets: A large market opportunity exists to take Kooth’s innovative technology and clinical operating model into new markets through local partnerships and direct expansion into the US market. • NHS Children and Young People Growth: Continued growth of Kooth for children and young people to serve the growing demand for mental health care services. A potential market opportunity of up to £85 million to expand to nationwide support for 10-25 year olds and expanded usage by the population. • NHS Adult Growth: NHS spending on Adult mental health was estimated at £11 billion for 2019/20. A potential opportunity of £300 million to provide early intervention and ongoing support into NHS CCGs, Local Authorities, and Public Sector organisations to provide help for adults, either as public health services within a region, or focused on specific groups such as new parents, victims of crime, or frontline workers. 18 19 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020 Strategy Kooth has a clear 4-pillar growth strategy to support the increasing demand for mental health services in the public and private sector, both in the UK and internationally, all underpinned by our proprietary technology platform and clinical operating model. NHS CYP Growth Continue to scale Kooth to support children and young people. International Growth Grow Kooth into international markets. Kooth Platform & Clinical Delivery Model Safe, Effective, Personalised. NHS Adult Growth Replicate our success in the adult public sector market. Corporate Expansion Bring the benefits of Kooth to every workplace. Continue to scale Kooth to support young people As the UK’s largest digital provider to the NHS for Children and Young People, we intend to continue to invest, grow and scale in this important market to meet the growing demand for mental health support across the UK. We aim to achieve this by: • Selling to Commissioners yet to partner with Kooth in England and devolved nations to continue to expand the availability of Kooth across the UK • Focusing on digital and in-person promotion of Kooth within schools, GPs, and with other key stakeholders to raise awareness and educate potential users on how to access support via Kooth • Expanding our current contracts as we grow usage, supported by a dedicated account management team to ensure commissioner’s objectives are met; and • Growing our Service Delivery team to support the growing demand Replicate our success in the adult public sector market Bring the benefits of Kooth to every workplace In (pre-pandemic) 2019/20, the NHS spent approximately £11 billion a year on Adult Mental Health. The Directors believe that there is a significant need and opportunity for Kooth’s digital services within the Adult population, working in partnership with the public sector. 2020 has proved to be a foundational year for establishing Kooth Adult within the market, adding 18 new customers and £0.9 million ARR. We intend to continue to focus on expanding this business, providing easy access to effective, professional mental health care. Deloitte’s 2020 report (Mental Health and Employers) estimates that poor mental health costs UK employers up to £45 billion a year. More recently, the Chartered Management Institute (CMI) reported that 72% of employees have named wellbeing as a top priority for managers in 2021, a trend that has been accelerated by the pandemic. The Directors believe there is a large, untapped market opportunity to support employers and employees. While a nascent market today, Kooth’s expertise and track record gives us a strong proposition to bring to businesses, especially as organisations adapt to a ‘new normal’ of remote working, digital transformation, and an imperative to support the wellbeing of the workforce. Expand Kooth proprietary technology platform & clinical delivery model A key area of focus for 2021 will be to continue to invest in our proprietary technology and clinical operating model that underpins our service, with three key focus areas: Safe: As a service that supports vulnerable individuals, safeguarding is at the heart of everything we do at Kooth. We will continue to invest in our safeguarding processes, people, and training for our practitioners. Effective: Measurement of outcomes is a key area of focus for Kooth and our customers. In 2021 we will continue to partner with academia and the NHS to prove the effectiveness of digital mental health, both in its therapeutic and economic impact. Personalised: Our bespoke approach to mental health helps address the challenge that “no one size fits all” in mental health. Our strategy is to use the collective data from our service to personalise our service to the wants and needs of individuals. This helps improve outcomes, service effectiveness, and provides insights that we can use for future service improvement. 20 21 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020 Key performance indicators Total revenue Annual Recurring Revenue (ARR) Number of customers Population coverage £13.0m 2020 £8.7m 2019 £14.1m 2020 £10.6m 2019 132 2020 81 2019 7.8m 2020 5.9m 2019 As we continue to invest in and grow our business, revenue growth demonstrates the progress we are making. Annual Recurring Revenue (ARR) is the annualised revenue of customers engaged or closed at the year end date (31 December 2020) and is an indication of the upcoming annual value of the recurring revenue. This is used by management to monitor long term revenue growth of the business. The total number of live contracts with customers. This demonstrates the progress the business has made within the market and subsequently drives not only existing revenues but also the potential for future growth and uplifts. The total number of people who have access to the Kooth service and is a clear indicator of our accessibility. Gross margin Adjusted EBITDA Service User logins 60.9% 2020 51.5% 2019 £0.9m 2020 £0.1m 2019 Direct costs include the cost of our practitioners, clinical staff directly involved in the delivery of our services and our engagement team who are responsible for promoting Kooth within a region. Earnings before interest, tax, depreciation and amortisation in the financial year, adjusted for share based payments and exceptional costs. This metric provides a more comparable indication of the Group’s core business performance by removing the impact of non-trading items that are reported separately. 1,100,000 2020 682,000 2019 The number of logins to Kooth from users, more than 62% growth since 2019. 7.8m 22 23 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020“ We have laid a strong foundation for the future through significant growth and investment in 2020. Sanjay Jawa Chief Financial Officer Chief Financial Officer’s statement Significant growth IPO outcome This is the first annual report and accounts issued by Kooth plc following a corporate reorganisation implemented shortly prior to the Admission to trading on AIM on 2 September 2020 (the “IPO”). The fundraising undertaken by Kooth plc as part of the IPO was highly successful, raising £16 million for the Company (prior to expenses of £1.8 million), reflecting the strength of institutional investor demand for Kooth. This allowed Kooth to repay in full all debt and leaves us with a healthy cash position. Incorporation, Group reorganisation & scope of financial results The Company was incorporated as Hamsard 3564 Limited on 19 March 2020 as a private limited company. On 6 August 2020, the Company acquired all the issued share capital of Kooth Group Limited (formerly Xenzone Group Limited), by way of a share for share exchange with the shareholders of Kooth Group Limited at that time. On 24 August 2020, by a special resolution of the Company, the Company was re-registered as a public company limited by shares and the name of the Company was Revenue Group total revenue grew by 50% to £13.0 million in the year, driven primarily by fee uplifts from existing NHS clients and new business in Adult and CYP as well as a small number of one-off COVID-19 related projects. Recurring revenue comprises income invoiced for services that are repeatable and consumed and delivered on a monthly basis over the term of a customer contract. Annual Recurring Revenue (ARR) is the annualised revenue of changed to Kooth plc. This was undertaken in anticipation of the IPO. The financial results included in this annual report cover the Group’s combined activities for the 12 months ended 31 December 2020 with the comparatives for the previous 12 months being those of Kooth Group Limited and its subsidiaries (prepared in accordance with applicable International Financial Reporting Standards). customers engaged or closed at that date (31 December 2020) and is an indication of the upcoming annual value of the recurring revenue. This is used by management to monitor long term revenue growth of the business. ARR grew by 33% driven by fee uplifts from existing clients and new business in Adult and CYP. 24 25 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020Gross margins Statutory loss after tax year Gross margin grew from 51.5% to 60.9% in the year. Direct costs include the cost of our practitioners, clinical staff directly involved in the delivery of our services and our engagement team who have responsibility for promoting Kooth to potential users in a region. With the start of the UK national lockdown in March 2020 there was a significant reduction in our physical engagement team activity with most engagement meetings conducted virtually. This led to a reduction in travel and subsistence costs as well as allowing the team to reach more users, driving an increase in gross margin. This was partially offset by an increase in overall marketing and social media costs within administrative expenses. Gross margin also benefited from shorter go-live periods between closing a contract and commencement of services and revenue as clients looked to accelerate the implementation of Kooth particularly during the lockdown closure of schools. The costs we incurred in achieving the IPO and the share based payment expense incurred as a result of accounting for the fair value of shares acquired by employees pre IPO contributed to the Group loss after tax for the year of £1.5 million (2019: loss of £1.1 million). Administrative expenses Excluding depreciation, exceptional and other non-trading items, administrative expenses grew by £2.8 million in the year, a 61.2% increase year on year, in line with our strategic investment plan. This was primarily driven by increases in staff costs resulting from increases in overall headcount across the support teams, the strengthening of the senior management team that took place during 2020 and costs associated with being a listed company. In addition, the Group increased marketing expenditure significantly in 2020 over relatively modest expenditure in 2019 to offset the reduction in direct engagement by the Kooth Engagement teams. Adjusted EBITDA Adjusted results are prepared to provide a more comparable indication of the Group’s core business performance by removing the impact of certain items including exceptional items (material and non- recurring), and other, non-trading, items that are reported separately. Adjusted results exclude items as set out in the consolidated statement of profit and loss and below, with further details given in Notes 6, 7, 8, 12, 13 to the financial statements. In addition, the Group also measures and presents performance in relation to various other non GAAP measures, such as gross margin, annual recurring revenue and revenue growth. Adjusted results are not intended to replace statutory results. These have been presented to provide users with additional information and analysis of the Group’s performance, consistent with how the Board monitors results. Taxation There was no current year corporation tax charge due to accumulated losses combined with the overall current year. The tax credit in 2020 and 2019 both related to Research and Development expenditure credits. Cash Net cash at year end was £7.8 million (2019: net debt of £5.2 million) following the receipt of the proceeds of the IPO and the repayment of all shareholder debt. The Group’s current cash reserves provide sufficient capital to fund current planned product and software development, any international expansion and working capital as the business continues to grow. Adjusted EBITDA (being EBITDA prior to exceptional costs) is calculated as follows: £’m 2020 2019 Operating Loss 1.6 0.9 Add back: Depreciation & Amortisation 1.5 1.0 Share based Payment expense IPO and other exceptional items 0.5 0.6 - - Adjusted EBITDA 0.9 0.1 Capital expenditure Software and product development costs aside, the Group’s ongoing capital expenditure requirements are expected to be modest and focused on headcount growth. 26 27 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020Capitalised development costs The Group continues to invest in product and platform development resulting in ongoing improvements in its delivery platform. Costs are a combination of internal and external spend. Where such work is expected to result in future revenue, costs incurred that meet the definition of software development in accordance with IAS38, Intangible Assets, are capitalised in the statement of financial position. During the year the Group capitalised £1.5 million in respect of software development (2019: £0.9 million). In implementing its product development strategy following the IPO the Group anticipates capitalising software costs at a higher rate over the next few years during a period of accelerated product investment. Capital and Reserves Total equity for the year increased by £13.7 million to £10.9 million (2019: £(2.8) million), reflecting the issue of shares in September 2020, partly offset by the loss for the year. IFRS 16 adoption & right of use assets As a result of the transition to IFRS, the Group has adopted IFRS 16 from 1 January 2019. This has altered the treatment of the following elements of the Group’s operations, the future value of which are capitalised as Right of Use Assets and the annual costs of which are now treated as depreciation and interest: Costs associated with the leases of the Group’s offices in the UK which were previously included within administrative expenses under UK GAAP. Dividend policy The Group’s intention in the short to medium term is to invest in order to deliver capital growth for shareholders. The Board has not recommended a dividend in respect of the year ended 31 December 2020 and does not anticipate recommending a dividend within the next year but may do so in future years. Safeguarding incidents The Group is not a crisis service; however, given the nature of the Group’s activities, it is necessary to have significant procedures in place to mitigate potential reputational damage in the event of a serious safeguarding incident. COVID-19: The full scale of potential impact of the pandemic is still unknown and is dependent on the course of the disease. During 2020 and throughout the pandemic to date Kooth has provided vital support to UK citizens and our remote delivery model has enabled us to scale up to support the NHS. As the Group provides essential mental health services across the UK, the Directors remain confident that the Group will continue to operate and be successful in the new environment. Principal risks and uncertainties The Group is exposed to a variety of risks and actively manages them through risk management procedures. While risk cannot be eliminated altogether, actions are taken to mitigate risk wherever possible. Details of the Group’s financial risk management objectives and policies of the Group and exposure to foreign exchange risk, market risk, credit risk and liquidity risk are given in note 15 to the consolidated financial statements. The material business and operational risks that the Directors consider the Group to be exposed to include, but are not limited to, the following: Cyber security As a business that holds Service User data maintaining controls over this risk is imperative. The Group ensures all data and communication are encrypted and personal data is stored securely, and has considerable data breach policies in place. System outages The Group requires stable and robust systems and hosting services to enable the service to function. Any disruption to this could result in compromised Service User experience and/ or reputational damage. To prevent this the Group has regular testing on its systems in addition to active monitoring and a specific recovery plan. Sanjay Jawa Chief Financial Officer 13th April 2021 28 29 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020 Section 172 Statement Stakeholder Engagement The Board understands the views of the Group’s other key stakeholders and their interests, and the matters set out in Section 172 of the Company’s Act 2006 have been considered in board discussions and decision-making. The Directors must consider the following in meeting the requirements of Section 172 (1) of the Companies Act 2006: • The likely consequences of any decision in the long term • The interests of the company’s employees • The need to foster the company’s business relationships with suppliers, customers and others, • The impact of the company’s operations on the community and the environment, • The desirability of the company maintaining a reputation for high standards of business conduct • The need to act fairly as between members of the company. We have identified our key stakeholders as follows: Employees We understand that our employees are at the core of everything we do and maintain a focus on their interests and wellbeing. We appointed Steve Gilbert OBE to chair our Diversity and Inclusion council during 2020, and also established an Employee Voices Group to better understand and embrace diversity across the organisation. We now run an Employee Engagement Survey three times a year. The results are reviewed at the senior management level and feedback is used to inform employee development and policies. Following our IPO we were able to award long term incentive share options to all our employees. We also formed a rapid response to the COVID-19 pandemic to ensure the wellbeing of our employees was implemented. Customers Communication with our customers is fundamental to understanding how we can continue to add value through our digital mental health services. Our Admission to AIM has benefitted our customers through greater transparency facilitated by the increased scrutiny that comes with being a public company. During the year we have continued to support the NHS by increasing coverage of our existing Children and Young People contracts to meet increased demand, whilst also scaling up our other services. Investors The Board maintains strong relationships with investors and supports open channels of communication. Regular meetings are held between the Chief Executive Officer, Chief Financial Officer and institutional investors and analysts to ensure that the Company’s strategy, financials and business developments are communicated effectively. The Group’s investor relations website is updated on a regular and timely basis. More information on the Board’s relationships with investors is provided in the next section of the report. Communities The Group is committed to providing an accessible and diverse service to all. The Group is committed to providing an accessible and diverse service to all, including working with leading LGBTQ+ and Black and non-white influencers to provide appropriate content to our communities. By nature of being a digital service provider, the Group’s operations are deemed to have low environmental impact. Suppliers The relationship we have with our suppliers is crucial to ensuring the smooth-running of our business and its operations. The relationship we have with our suppliers is crucial to ensuring the smooth-running of our business and its operations. We encourage an honest dialogue with all suppliers. 30 31 Strategic ReportStrategic ReportKooth plc Annual Report 2020Kooth plc Annual Report 2020Corporate governance Chair’s introduction to governance Report of the Audit Committee Report of the Remuneration Committee Directors’ report Statement of Directors’ responsibilities 34 41 44 48 52 32 33 Strategic ReportKooth plc Annual Report 2020Corporate GovernanceKooth plc Annual Report 2020 Chair’s introduction to governance Dear shareholder, I am pleased to present the Corporate Governance Statement as Chair of the Board of Directors of Kooth plc (Kooth, or the Company/Group as the context requires). As Chair, it is my responsibility to ensure that Kooth has both sound corporate governance and an effective Board. Since the Company listed on AIM during the year, it has chosen to adopt the Quoted Companies Alliance’s Corporate Governance Code for Small and Mid-Size Quoted Companies (the “QCA Code”), to the extent it is appropriate having regard to the Company’s size, Board structure, stage of development and resources. The Board The Directors of Kooth recognise the value of good corporate governance in every part of the business. The Board considers that compliance with the QCA Code will enable us to serve the interests of all our key stakeholders, including our shareholders, and will promote the maintenance and creation of long-term value in the Company. This report describes our approach to governance, including information on relevant policies, practices and the operation of the Board and its Committees. The Board comprises the Independent Non-Executive Chair, two Non-Executive Directors and two Executive Directors. Short biographical details are set out on page 35. In carrying out its governance role, the main task of the Board is to drive the performance of the Group. The Board must also ensure that the Group complies with all its contractual, statutory and any other legal obligations, as well as the requirements of any regulatory body. The Board has the final responsibility for the successful operations of the Group, and meets monthly to set the overall direction and strategy of the Group, and such other times as necessary. Peter Whiting Independent Chair Joined May 2020 Twenty-five years’ experience as an investment analyst in equity markets, and experience over the past nine years as a non-executive director on the board of several public and private companies (currently including FDM Group plc, Aptitude Software plc and D4t4 Solutions plc). Peter has experience in a broad range of sectors, but focused particularly on technology, including software and engineering. Sue Bailey Independent Non- Executive Director Joined August 2020 Non-Executive Director at Manchester University NHS Foundation Trust and thirty years’ experience as a Child and Adolescent Psychiatrist. Simon Philips Non-Executive Director Joined October 2015 Managing Partner of ScaleUp Capital with experience of providing growth capital and expertise to businesses in the technology, digital, business services and information sectors. Tim Barker Executive Director / Chief Executive Officer Joined January 2020 Former CEO of DataSift, with over 30 years experience in technology and SaaS startups and scale-ups, including successful exits to Meltwater and Salesforce. Sanjay Jawa Executive Director / Chief Financial Officer Joined March 2020 Former Operating Partner and CFO at ScaleUp Capital, along with senior financial positions at a combination of public and private equity backed technology and services businesses including Qualitest, Barclays and FTI Consulting. Chartered Accountant and previously an audit manager at Price Waterhouse. 34 34 35 Corporate GovernanceCorporate GovernanceKooth plc Annual Report 2020Kooth plc Annual Report 2020Board meetings The Board meets on a regular basis throughout the financial year and as required on an ad hoc basis with a mandate to consider strategy, operational and financial performance and internal controls. In advance of each meeting, the Chair of the Board sets the agenda, with the assistance of the Company Secretary. Directors are provided with appropriate and timely information, including board papers distributed in advance of the meetings. Those papers include reports from the executive Board and committee attendance team and other operational heads. Richard Almond of Almond + Co is the Company Secretary and attends all Board meetings as well as advising on corporate governance matters. The Company Secretary produces full minutes of each meeting, including a log of actions to be taken. The Chair of the Board then follows up on each action at the next meeting, or before if appropriate. From the period since admission of the Company to AIM on 2 September 2020 to the year-end date of 31 December 2020, the attendance of the Board and the Committees is as follows: Matters reserved for the board Matters reserved for the decision of the Board include, but not limited to: • Approving the Group’s strategic aims and objectives; • Reviewing performance against the Group’s strategic aims, objectives and business plans; • Overseeing the Group’s operations; • Approving changes to the Group’s capital, corporate, management or control structures; • Approving results announcements and the annual report and financial statements; • Approving the dividend policy; • Declaring the interim dividend and recommending the final dividend and any special dividend; • Approving any significant changes in accounting policies; • Approving the treasury policy; • Approving the Group’s risk appetite and principal risk statements; • Reviewing the effectiveness of the Group’s risk and control processes; • Approving major capital projects and material contracts or arrangements; • Approving all circulars, prospectuses and admission documents; • Ensuring a satisfactory dialogue with shareholders; • Establishing Board committees and approving their terms of reference; • Approving delegated levels of authority; • Approving changes to the Board and its committees; Board attendance Director Postition Max Possible Attendance Meetings Attended • Determining the remuneration policy for the Directors and other senior executives; • Providing a robust review of the Group’s corporate governance arrangements; and Peter Whiting Dame Sue Bailey Simon Philips Tim Barker Sanjay Jawa Non-Executive Chair Non-Executive Director Non-Executive Director Chief Executive Officer Chief Financial Officer 3 3 3 3 3 3 3 3 3 3 Committee attendance Director Audit Remuneration Independence Peter Whiting Dame Sue Bailey Simon Philips 1 1 1 1 1 1 ✓ ✓ - • Approving all Board mandated policies. Audit Committee The Audit Committee comprises three Non-Executive Directors, two of whom are independent, namely; Peter Whiting (Committee Chair), Sue Bailey (INED) and Simon Philips (NED). The CFO may be invited to attend meetings of the Audit Committee at the discretion of the Committee Chair. The Audit Committee is responsible for the annual and half-yearly reports to shareholders, other public announcements of a financial nature, review of the likelihood of any fraud risks, review of the effectiveness of the Groups internal control and risk management system and overseeing the relationship with the external auditors. The Audit Committee will also review the appointment of the external auditor, their independence, the audit fee, and any questions of resignation or dismissal. The Audit Committee will meet at least three times per annum. 36 37 Corporate GovernanceCorporate GovernanceKooth plc Annual Report 2020Kooth plc Annual Report 2020Remuneration Committee The Remuneration Committee comprises Simon Philips (Chair), Sue Bailey and Peter Whiting. Only members of the committee have the right to attend meetings, however other individuals such as the CEO, the Head of Human Resources and external advisors may be invited to attend. No individual will be present for any discussion on their own remuneration. The role of the Remuneration Committee includes responsibility for all aspects of the remuneration of Executive Directors, including salary, annual bonus (where appropriate) and share-based payments and an awareness of remuneration within the wider workforce and the administration of all share-based remuneration plans within the organisation. The Remuneration Committee will meet at least three times per annum. Election and re-election of the Directors In accordance with the Company’s Articles of Association, each of the directors will retire and stand for re-election at the forthcoming AGM. Board Evaluation Since the Company’s admission to AIM on 2 September 2020, the Board is newly established comprising of two Executive Directors and three Non-Executive Directors, one of whom is the Non-Executive Chair. The Board has not yet conducted a formal evaluation of its operations and practices, whether by a formal internal process or with the support of external advisers due to the busy board calendar and short time since admission but will seek to conduct such evaluation in the current financial year. Relationships with stakeholders The Board is committed to open and ongoing engagement with the Company’s Shareholders. The Board will communicate with Shareholders through: • The annual report and accounts; • The interim and full-year results announcements • Trading updates (where required or appropriate) • The annual general meetings • The Company’s investor relations website (in particular, the “RNS News” and “AIM Rule 26” pages) The Chief Financial Officer is the primary contact for Shareholders and there is a dedicated email address (investorrelations@kooth.com) for shareholder questions and comments. Regular meetings are held between the Chief Executive Officer, Chief Financial Officer and institutional investors and analysts to ensure that the Company’s strategy, financials and business developments are communicated effectively. The Board intends to engage with Shareholders who do not vote in favour of resolutions at annual general meetings to understand their motivation. Risk management and internal controls The Board acknowledges its responsibility for establishing and maintaining the Group’s system of internal controls and will continue to ensure that management keeps these processes under regular review and improves them where appropriate. The Board’s financial risk management objectives involve safeguarding the Group’s Social responsibilities The Group takes its corporate social responsibilities very seriously and is focused on maintaining effective working relationships across a wide range of stakeholders including employees, existing and new customers, and most importantly, our service users. Our core purpose is to provide a welcoming service. By that we mean to build and deliver a product that preserves anonymity and removes the barrier of stigma and access. Accessibility is at the heart of our product design and clinical delivery. To provide an effective and personalised service maintaining the trust of service users and the market by ensuring outcomes and evidence for our interventions and to provide a service that can be commissioned for all. We build a service that puts diversity and inclusion at its heart - ensuring that we remove barriers to Culture assets by identifying, managing, monitoring and reporting the critical risks across the business. As part of the admission to AIM, the Group has set up a risk register which includes identifying, monitoring and reporting the critical risks of the business. The risk register covers commercial, financial, operational, competitive, IT/ technology and other risks, and the Board commits to continually review the risks and ensure that they are being addressed. great mental health services for all people regardless of race, age, gender, sexuality or socioeconomic situation. By nature, the Group’s regular operations are judged to have a low environmental impact and are not expected to give rise to any significant inherent environmental risks over the next 12 months. In line with our values and governance arrangements, we ensure we comply with laws and standards in relation to labour practices and human rights, including slavery and human trafficking legislation. We expect everyone at Kooth to understand and display our values to the highest standards. We continuously assess the risk of modern slavery occurring in our organisation, our service users and with our suppliers. The Group promotes a culture of integrity, honesty, trust and respect and all employees of the Group are expected to operate in an ethical manner in all of their internal and external dealings. In 2020 we launched our new company values across the organisation and these are embedded at the heart of everything we do. The staff handbook and policies promote this culture and include such matters as whistleblowing, social media, anti-bribery and corruption, communication and general conduct of employees. The Board takes responsibility for the promotion of ethical values and behaviours throughout the Group, and for ensuring that such values and behaviours guide the objectives and strategy of the Company. 38 39 Corporate GovernanceCorporate GovernanceKooth plc Annual Report 2020Kooth plc Annual Report 2020Diversity and inclusion Kooth provides a service that puts diversity and inclusion at its heart - ensuring that we remove barriers to great mental health services for all people regardless of race, age, gender, sexuality or socioeconomic situation. Traditionally both digital health and mental health services have struggled to provide truly inclusive services and Kooth sees our platform as a key differentiator in the market. Diversity and inclusion in our products We design and build our platform to meet the Web Accessibility Guidelines (WCAG) 2.1 level AA. Being careful not to exclude people takes diligence, and some specialised knowledge. Every new feature we’ve built in the last few months meets the WCAG 2.1 AA standard. Our participation team works with service users and potential service users of all backgrounds to ensure input into our design process. Diversity and inclusion in our marketing & promotion We are committed to a diverse marketing and promotion plan that links in with faith, political and racial groups on the ground to promote Kooth’s services. We work with leading LGBTQ+ and Black and non-white influencers to promote appropriate content to our communities. Diversity and inclusion in our leadership We established the Kooth Diversity and Inclusion Council in June 2020 and appointed Steve Gilbert OBE to chair the council. The purpose is to ensure we continue to do everything we can to reach Black and minority ethnic communities and to expand our Black and non-white workforce. Diversity Statistics 27% Of our users come from a Black or non-white background. 4% Of our users identify as ‘gender-fluid’ or ‘agender’ Report of the Audit Committee Committee Chair’s introduction As the recently appointed Chair of the Audit Committee of the Group (Committee), I present my first Committee Report for the year ended 31 December 2020, which has been prepared by the Committee and approved by the Board. Committee meetings and attendance The three members of the Committee are Dame Sue Bailey, Simon Philips and me. The Board considers that I have sufficient, relevant financial experience to chair the Committee given that I have over 25 years’ experience as an investment analyst and currently hold a number of other listed company Board and Audit Committee positions. From the period since admission of the Company to AIM on 2 September 2020 to the year-end date of 31 December 2020, the Committee met once and all members attended. The Committee is required by its Terms of Reference to meet as frequently as the Committee Chair shall require, and also at regular intervals to deal with routine matters and, in any event, at least three times in each financial year. Committee activities The Committee is responsible for reviewing and reporting to the Board on the Company’s financial performance, monitoring the integrity of the Company’s financial statements (including Annual and Interim Accounts and results announcements), reviewing internal control and risk management, and reviewing/monitoring the performance, independence and effectiveness of the Company’s external auditors. Since the Company’s admission to AIM in September 2020, the Committee’s primary activities comprised meeting with the external auditors, considering the audit approach, scope and timetable, and reviewing the key audit matters for the FY 2020 audit. In addition, the Committee reviewed the audit provided by Grant Thornton LLP, the Group’s external auditors. The Committee concluded that Grant Thornton LLP is delivering the necessary audit scrutiny. Accordingly, the Committee recommended to the Board that Grant Thornton LLP be re-appointed for the next financial year. 40 41 Corporate GovernanceCorporate GovernanceKooth plc Annual Report 2020Kooth plc Annual Report 2020Financial reporting At request of the Board, the Committee concluded that the Annual Report and Financial Statements, taken as whole, were fair, balanced and understandable and provided the information necessary for shareholders to assess the Group’s business model, strategy and performance. The Committee considered the budget for 2021 and concluded that the going concern basis is appropriate. The Committee also reviewed the Strategic Report and concluded that it presented a useful and fair, balanced and understandable review of the business. Peter Whiting Non-Executive Chair 13th April 2021 As part of the year end audit, the Committee: • Met with the external auditors to review and approve the annual audit plan and receive their findings and report on the annual audit • Considered the integrity of the published financial information and whether the Annual Report and Accounts taken as a whole are fair, balanced and understandable and provide the information necessary to assess the Group’s position and performance, business model and strategy • Considered significant issues and areas of judgement with the potential to have a material impact on the financial statements • Reviewed and approved the year end results and accounts In the coming year, in addition to the Committee’s ongoing duties, the Committee will: • Consider significant issues and areas of judgement with the potential to have a material impact on the financial statements • Keep the need for an internal audit function under review, having regard to the Company’s size, complexity, strategy and resources Committee objectives and responsibilities The Committee’s main responsibilities can be summarised as follows: • To report on and review the Company’s financial performance • To monitor the integrity of the Company’s financial statements and any formal announcements relating to the Group’s financial performance • To review the Company’s internal financial controls and risk management systems • To review any changes to accounting policies • To make recommendations to the Board in relation to the appointment of the external auditors • To make recommendations to the Board concerning the approval of the remuneration and terms of engagement of the external auditors • To review and monitor the external auditors’ independence and objectivity • To consider any matter specifically referred to the Committee by the Board The Terms of Reference are reviewed annually and are available on the Company’s website. 42 43 Corporate GovernanceCorporate GovernanceKooth plc Annual Report 2020Kooth plc Annual Report 2020 Report of the Remuneration Committee Committee objectives and responsibilities Committee Chair’s introduction As the Chair of the Remuneration Committee of the Company (Committee), I present my first Remuneration Committee Report for the year ended 31 December 2020, which has been prepared by the Committee and approved by the Board. Committee meetings and attendance The three members of the Committee are Simon Philips as Chair, Dame Sue Bailey and Peter Whiting. The Board considers that I have sufficient relevant experience to chair the Committee, given the numerous Board level positions currently (including the Remuneration Committee Chair of another listed company) and previously held. In the period from admission of the Company to AIM on 2 September 2020 to the year end on 31 December 2020 the inaugural meeting of the Committee took place and was attended by all Committee members, Tim Barker, Chief Executive and Sanjay Jawa, Chief Financial Officer. The Committee is required by its Terms of Reference to meet as frequently as the Committee Chair shall require and also at regular intervals to deal with routine matters and, in any event, at least three times in each financial year. Remuneration policy for the year ended 31 December 2020 Remuneration policy for the year ended 31 December 2020 The Remuneration Committee determines the Company’s policy on the structure of Executive Directors’ and if required, senior management’s remuneration. The objectives of this policy are to: • Reward Executive Directors and senior management in a manner that ensures that they are properly incentivised and motivated to perform in the best interests of shareholders • Provide a level of remuneration required to attract and motivate high- calibre Executive Directors and senior management of appropriate calibre • Encourage value creation through consistent and transparent alignment of incentive arrangements with the agreed company strategy over the long term • Ensure the total remuneration packages awarded to Executive Directors, comprising both performance-related and non-performance-related remuneration, is designed to motivate the individual, align interests with shareholders and comply with corporate governance best practice 44 The Committee’s main responsibilities can be summarised as follows: • To determine the framework or broad policy for the remuneration of the Chair, the Executive Directors, and such other senior executives as it is requested by the Board to consider. The remuneration of Non-Executive Directors shall be a matter for the Chair and the Executive Directors of the Board. No Director shall be involved in any decisions as to their own remuneration • To determine such remuneration policy, taking into account all factors which it deems necessary (including relevant legal and regulatory requirements) • To review the ongoing appropriateness and relevance of the remuneration policy, including policy comparisons Director’s remuneration: salary Salaries are normally reviewed annually with effect from 1 January taking into account inflation, salaries paid to directors of comparable companies, Group and personal performance. Salaries of Executive Directors are determined by the Remuneration Committee. The Board as a whole decides the remuneration of the Chair and Non-Executive Directors. Salaries and fees for directors effective from 1 January 2021 are as follows: with market competitors • To design and determine targets for any performance related pay schemes operated by the Company and approving any annual payments made under such schemes • To review the design of, and any changes to, all share incentive plans • To review the structure, size and composition of the Board, including the skills, knowledge and experience • To give consideration to succession planning • To recommend new Board appointments • To consider any matter specifically referred to the Committee by the Board Salaries Name Dame Sue Bailey Tim Barker Sanjay Jawa Simon Philips Peter Whiting £’000 35 250 175 50 80 45 Corporate GovernanceCorporate GovernanceKooth plc Annual Report 2020Kooth plc Annual Report 2020 Director’s remuneration: long term incentives (audited) Director’s remuneration: current year Shortly after the IPO, the Company adopted both a Long Term Incentive Plan with all employees of the Group eligible to receive awards under the share plans. The Company granted a total of 1,012,770 share options to Executive Directors, senior management and employees under the share plans. In line with the terms of the scheme, the awards granted to Directors are subject to performance criteria, with 50% being linked to ARR growth and 50% linked to comparative total shareholder return with both elements being measured over a three year period. The Remuneration Committee considers that the targets are appropriate and are aligned with shareholder interests. basis over the vesting period. The total amount to be expensed is determined by reference to the fair value of the options or shares determined at the date of grant. The fair value of the awards was the market value at the date of grant. Non- market based vesting conditions are included in assumptions about the number of options that are expected to become exercisable or the number of shares that the employee will ultimately receive. This estimate is revised at each balance sheet date to allow for options that are not expected to vest and the difference is credited to the Consolidated Statement of Comprehensive Income with a corresponding adjustment to reserves. The fair value of the employee services received in exchange for these grants is recognised as an expense on a straight-line A breakdown of the Directors’ current interests in the long term incentives awards is set out below. Director’s remuneration: interests Committee effectiveness According to the register of Directors’ interests maintained under the Companies Act, the following interests in shares of Group companies were held by the Directors in office at the year end: The Committee is due to perform a self-assessment of its effectiveness during 2021. Name No. of shares Dame Sue Bailey - Long term incentives Name No. of options Exercise price (p) Tim Barker Sanjay Jawa 801,603 320,648 Tim Barker 100,000 Sanjay Jawa 75,000 5p 5p Simon Philips* 16,609,873 Peter Whiting 40,000 * Simon Philips is one of the beneficial owners of the shares held by Root Capital Fund II. 46 Director remuneration for the years ended 31 December 2020 and 31 December 2019 was as follows. The gain on exercise of share options relate to the realisation of the Growth shares upon IPO. 2020: Name Tim Barker Sanjay Jawa Total 2019: Name Zoe Blake Judy Happe Total Base salary and fees Pension Gain on exercise of share options Total 000’s 000’s 000’s 000’s 234 159 393 6 3 9 94 38 132 377 217 534 Base salary and fees Pension Gain on exercise of share options Total 000’s 000’s 000’s 000’s 139 161 300 3 - 3 - - - 142 161 303 Remuneration policy for Non-Executive Directors Dame Sue Bailey, Peter Whiting and I each receive a fee for our services as Directors, which is approved by the Board, mindful of the time commitment and responsibilities of our roles and of current market rates for comparable organisations and appointments. Non-Executive Director fees for the year commencing 1 January 2021 are noted above. Simon Philips Chair of the Remuneration Committee 13th April 2021 47 Corporate GovernanceCorporate GovernanceKooth plc Annual Report 2020Kooth plc Annual Report 2020 Directors’ report The Directors present their report and the audited financial statements of Kooth plc for the year ended 31 December 2020. The principal activity of the Group is the provision of online counselling and support to children, young people, and adults in need. A description and review of the Group’s performance during the financial year and indications of future development are set out within the strategic report, and this also incorporates the requirements of the Companies Act 2006. Comparatives Directors The 2019 comparatives shown cover the year ended 31 December 2019 and have been restated in order to comply International Accounting Standards in conformity with the requirements of the Companies Act 2006 requirements. Refer to note 29 to the financial statements for more information. Dividends The Directors do not recommend the payment of a dividend (2019: £nil). The directors who held office during the year were as follows: • Sue Bailey, Non-executive director (appointed August 2020) • Tim Barker, Chief Executive (appointed January 2020) • Sanjay Jawa, Chief Financial Officer • Simon Philips, Non-executive director • Peter Whiting, Chair and Non-executive director (appointed March 2020) Disabled employees Political contributions Applications for employment by disabled persons are always fully considered, bearing in mind the 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 and the Company that the training, career development and promotion of disabled people should, as far as possible, be identical to that of other employees. The Group made no political donations or incurred any political expenditure during the year. Directors’ insurance The Group maintains appropriate insurance cover in respect of any legal action against its directors including in respect of the prospectus issued for the initial public offering. Research and Development Anti-bribery During the year the Group invested over £1.5 million in Research and Development. More information on this is provided in the Strategic Report and the notes to the financial statements. Going concern The Directors have a reasonable expectation that the Group as a whole has adequate resources to continue in operational existence for the foreseeable future. For this reason, the going concern basis continues to be adopted in the accounts. The company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 4 to 31. In addition, note 15 to the financial statements include the company’s objectives, policies and processes for managing its capital; its financial risk management objectives; and its exposures to credit risk and liquidity risk. During the 2020 financial year the Group generated a loss of £1.5 million (2019: £1.1 million). Adjusted EBITDA is £0.9 million (2019: £0.1 million). The Group is in a net asset position of £10.9 million (2019: (£2.8 million)). The Group raised £16 million of funds through the IPO in September 2020 resulting in a positive cash position. Additionally, the Group has no debt facilities in place as at 31 December 2020 after repaying all debt in full during the year. Management has performed a going concern assessment for a period up to 30 June 2022, which indicates that the Group will have sufficient funds to trade and settle its liabilities as they fall due. This It is our policy to conduct all our business in an honest and ethical manner. We take a zero-tolerance approach to bribery and corruption and are committed to acting professionally, fairly and with integrity in all our business dealings and relationships. assessment takes into account a number of sensitivities, including a downside scenario and a reverse stress test, which models the scenarios that would lead to a default by the Group. Both the downside scenario and reverse stress test reflect lower activity levels than both the Group forecast and 2020 actual results. The key assumption used in the assessment is revenue and Management has analysed the impact of reduced revenue on the Group’s performance. Whilst Management has concluded that the possibility of the downside scenario occurring is remote, the Group would still have adequate resources to be able to trade and settle its liabilities as they fall due in this scenario. As a result Management also deems the likelihood of the scenarios in the default model occurring to be remote. The Directors have considered the impact of COVID-19 and do not expect the pandemic to have a material adverse impact on the Group. Consequently, the directors believe that the company is well placed to manage its business risks successfully despite the current uncertain economic outlook. The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and as such continue to adopt the going concern basis of accounting in preparing the financial statements. 48 49 Corporate GovernanceCorporate GovernanceKooth plc Annual Report 2020Kooth plc Annual Report 2020Employee involvement The Group continues to attract and retain key talent and places considerable value on the involvement of employees. Employees are regularly consulted regarding matters affecting them through channels such as company-wide briefings and email announcements, and their interests are taken into account in making decisions that are likely to affect their interests. The Group is committed to providing equality of opportunity to all existing and prospective employees without discrimination through channels such as our Diversity and Inclusion Council (established in July 2020) and our Employee Voices Group. As a result of the IPO we are able to offer our staff long term incentives to reward their hard work, passion and impressive results. Capital structure The Company was incorporated in England and Wales on 19 March 2020 as a private company limited by shares under the Companies Act with the name Hamsard 3564 Limited and with registered number 12526594. On 24 August 2020, by a special resolution of the Company, the Company was re-registered as a public company limited by shares and the name of the Company was changed to Kooth plc. Kooth plc became the parent company of the Group via a share for share exchange agreement entered into between the Company and the shareholders of Kooth Group Limited (formerly Xenzone Group Limited). On completion of the reorganisation, the issued share capital comprised 25,055,776 ordinary shares of £0.05 each. Following Admission and the issue of 8 million shares, the Company’s issued share capital comprises 33,055,776 ordinary shares of £0.05 each as at 31 December 2020. Notice of Annual General Meeting Significant events after year end Disclosure of information to auditor Auditor Grant Thornton UK LLP was appointed as auditor in the year. A resolution to re-appoint Grant Thornton UK LLP as auditor and to authorise the directors to determine their remuneration will be proposed at the forthcoming AGM. Details of business to be conducted at this year’s AGM are contained in the Notice of the Annual General Meeting which will be communicated to shareholders separately. It is the opinion of the Directors that the passing of these resolutions are in the best interest of the shareholders. There have been no significant events after year end. Significant shareholders Name % of Issued Share Capital The Group has been notified of the following interests in 3% or more of the issued ordinary share capital of the Company. This is the position as at 31 December 2020. Root Capital Fund II LP Cannacord Genuity Group Inc 50.2% 8.5% LF Gresham House UK Micro Cap 7.9% Stancroft Trust Limited Premier Miton Investors 6.1% 4.9% Each of the persons who are Directors at the time when this Directors’ Report was approved has confirmed that: • So far as that each Director is aware, there is no relevant audit information of which the Company and the Group’s auditor is unaware • That director has taken all the steps that ought to have been taken as a director in order to be aware of any relevant audit information and to establish that the Company and Group’s auditor is aware of that information. The auditor, Grant Thornton LLP, will be proposed for reappointment in accordance with section 487 of the Companies Act 2006. Sanjay Jawa Chief Financial Officer 13th April 2021 50 51 Corporate GovernanceCorporate GovernanceKooth plc Annual Report 2020Kooth plc Annual Report 2020 Financial statements Independent auditor’s report Consolidated financial statements Notes to the consolidated financial statements Company financial statements Notes to the Company financial statements 55 68 73 105 107 Statement of Directors’ responsibilities In respect of the Annual Report and the financial statements The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company, and which enable them to ensure that the financial statements and the Directors’ remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They also have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and the Company, and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations. Under that law, the Directors are required to prepare the Group financial statements in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 101 ‘Reduced Disclosure Framework’ (UK Accounting Standards and applicable law). In preparing these 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 International Accounting Standards in conformity with the requirements of the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the Group and Parent Company financial statements respectively; • Prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Group and the Company will continue in business. 52 53 Strategic ReportKooth plc Annual Report 2020Corporate GovernanceKooth plc Annual Report 2020 Independent auditor’s report Our opinion on the financial statements is unmodified. We have audited the financial statements of Kooth plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2020 which comprise the Consolidated Statement of Profit and Loss and Other Comprehensive Loss, the Consolidated and Parent Company Statement of Financial Position, the Consolidated and Parent Company Statement of Changes in Equity, the Consolidated Cash Flow Statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Accounting Standards in conformity with the requirements of the Companies Act 2006. 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 Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). In our opinion: • • • • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2020 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Independent auditor’s report to the members of Kooth plc 13th April 2021 54 55 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020Independent auditor’s report Independent auditor’s report Independent auditor’s report 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 FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future events or conditions may cause the group or the parent company to cease to continue as a going concern. Our evaluation of the directors’ assessment of the group’s and the parent company’s ability to continue to adopt the going concern basis of accounting included challenging the key assumptions used within the cash flow scenarios modelled and the available sources of liquidity. We critically assessed both the impact of reverse stress testing and the availability of controllable mitigating future actions on the going concern assessment. We have also reviewed the disclosures contained within the Annual Report and consolidated financial statements in relation to the going concern basis of accounting and consider them to describe adequately the impact of Covid-19 on the group as at 31 December 2020. In our evaluation of the directors’ conclusions, we considered the inherent risks associated with the group’s and the parent company’s business model including effects arising from macro-economic uncertainties such as Brexit and Covid-19, we assessed and challenged the reasonableness of estimates made by the directors and the related disclosures and analysed how those risks might affect the group’s and the parent company’s financial resources or ability to continue operations over the going concern period. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. The responsibilities of the directors with respect to going concern are described in the ‘Responsibilities of directors for the financial statements’ section of this report. Our approach to the audit Overview of our audit approach Overall materiality: Group: £130,000, which represents approximately 1% of the group’s revenues. Parent company: £119,000, which represents approximately 1% of the parent company’s net assets, at the planning stage of the audit. Key audit matters were identified as revenue recognition, accounting for the IPO transaction and related costs, and accounting for capitalised internal development costs. We performed audits of the financial statements of the significant group components Kooth plc, Kooth Group Limited and Kooth Digital Health Limited using component materiality (full scope audits. We performed analytical procedures at group level on the financial information of all other components. 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 that 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. 56 57 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 Independent auditor’s report Independent auditor’s report Independent auditor’s report Key Audit Matter - Group How our scope addressed the matter - Group Relevant disclosures in the Annual Report and Accounts 2020 Our results The group’s accounting policy for revenue recognition is shown in note 2.3 to the consolidated financial statements and related disclosures are included in note 4. Based on procedures performed, we did not identify any evidence of material misstatement in the revenue recognised in the year. Accounting for the IPO transaction and related costs In responding to the key audit matter, our work included but was not restricted to: We identified the IPO transaction as one of the most significant assessed risks of material misstatement due to error. Kooth plc, previously Hamsard 3564 Limited was incorporated on 19 March 2020 and on 6 August 2020, it acquired the issued share capital of Kooth Group Limited, by way of a share for share exchange. On 2 September 2020, Kooth plc was admitted to AIM. The company incurred significant costs in relation to the IPO. There is a risk of error in the accounting for this one off transaction due to the level of judgement involved. This includes: • The accounting treatment adopted for the insertion of Kooth plc as the new parent company for the group through the share for share exchange. • The treatment of costs incurred in relation to the IPO and how they are split between Income Statement expenses and a reduction in Share Premium • Evaluating management’s assessment of the applicability of IFRS 3 Business Combinations to the transaction as well as its selection of an accounting policy and disclosure for the insertion of the new parent company. • Confirming that the difference between the cost of investment and the nominal value of the share capital issued has been correctly recognised within reserves. • Performing a test of details of costs incurred as part of the IPO by agreeing the share issue costs of £1.4 million to relevant supporting documentation to ensure that the costs have been correctly deducted against share premium and should not be expensed through the Consolidated statement of profit and loss and other comprehensive loss. • Performing a test of details of other IPO related costs (£0.4 million) to confirm that they had been correctly expensed. Key Audit Matter - Group How our scope addressed the matter - Group Revenue recognition We identified revenue recognition as one of the most significant assessed risks of material misstatement due to fraud risk as revenue forms the basis for certain of the group’s key performance indicators, both in external communications and for management incentives. We identified the specific risk of fraud and error in respect of inappropriate timing of revenue recognition, including completeness of deferred revenues given the nature of the group’s services. In responding to the key audit matter, our work included but was not restricted to: • Evaluating management’s determination of whether the nature of the group’s services results in the provision of a service at a point in time or over a contractual term, by checking a sample of customer contracts against the requirements of IFRS 15 Revenue from Contracts with Customers. This included the assessment of new or one-off transactions, by comparing the accounting treatment adopted by management to the group accounting policy and IFRS 15. • Assessing the design effectiveness of controls through walkthrough procedures in respect of revenue recognition and checks performed to ensure revenue is recognised correctly in line with IFRS 15. • Utilising data analytics techniques to identify revenue postings to unusual account codes and investigating those transactions. • Testing a sample of transactions to determine that the amount of revenue recognised in the year and the amount deferred at the balance sheet date were accurately calculated based on progress of the contract. 58 59 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 Independent auditor’s report Independent auditor’s report Independent auditor’s report Relevant disclosures in the Annual Report and Accounts 2020 Our results The Group’s basis of consolidation is detailed in note 2.2. The Group’s significant accounting judgements, estimates and assumptions for accounting for the IPO transaction and related costs is shown in note 3 to the consolidated financial statements, and related disclosures are included in note 21. Our testing did not identify any material misstatements in the accounting for the IPO transaction and related costs. Our application of materiality We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report. Materiality was determined as follows: Accounting for capitalised internal development costs In responding to the key audit matter, our work included but was not restricted to: Materiality measure Group Parent company We identified accounting for capitalised internal development costs as one of the most significant assessed risks of material misstatement due to the risk of error. The group capitalises costs associated with development of their online platform which is being developed internally. The costs associated with the time spent on this development of the online platform are capitalised onto the Statement of financial position at the year end and represent the time spent by the dedicated team who work on the development of the online platform. Costs must be capitalised when they meet the requirements of IAS 38 Intangible Assets. This includes management judgement in determining the distinction between research and development costs. • Assessing the accounting policy and disclosure for compliance with IAS 38. • Assessing the design effectiveness of controls through walkthrough procedures in respect of accounting for these transactions and checks performed to ensure the correct costs are capitalised. • Obtaining and assessing management’s judgement on the level of employee costs to be capitalised across the year. • Performing a test of details on these costs, agreeing amounts to underlying support. • For a sample of capitalised costs, making enquiries with employees in the development team to gain an understanding of the nature of the work they had performed which had been capitalised. This included assessing whether the nature of the costs capitalised met the criteria as set out in IAS 38. Relevant disclosures in the Annual Report and Accounts 2020 Our results The group’s accounting policy for accounting for capitalised internal development costs and significant accounting judgement is shown in note 2.3 and note 3, respectively to the consolidated financial statements and related disclosures are included in note 12. 60 Our testing did not identify any material misstatements in the accounting for the capitalised internal development costs. Materiality for financial statements as a whole We define materiality as the magnitude of misstatement in the financial statements that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of these financial statements. We use materiality in determining the nature, timing and extent of our audit work. Materiality threshold £130,000 which is approximately 1% of revenue. £119,000 which is approximately 1% of net assets, at the planning stage of the audit. Significant judgements made by auditor in determining the materiality In arriving at this judgement, we considered the financial measures which we believed to be most relevant to the shareholders in assessing the performance of the group. Profit before tax is a generally accepted benchmark for a profit-orientated business. However, due to substantial IPO costs incurred in the year, there has been a degree of volatility in this measure. We concluded that, in isolation, this metric did not appropriately reflect the scale of the group’s ongoing operations or its underlying performance. As a result, revenue was considered the most appropriate metric. 1% of revenues has been selected as it is in the middle of our acceptable range to reflect that this is our first year as auditors of the group and parent company. 1% of net assets has been selected as it is in the middle of our acceptable range to reflect that this is our first year as auditors of the group and parent company. Continued overleaf 61 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 Independent auditor’s report Independent auditor’s report Independent auditor’s report Materiality measure Group Parent company Performance materiality used to drive the extent of our testing We set performance materiality at an amount less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality threshold £91,000 which is 70% of financial statement materiality. £83,600 which is 70% of financial statement materiality. Significant judgements made by auditor in determining the performance materiality In determining performance materiality, we made the following significant judgements: • Whether there were changes to the business in their operations and in their business strategy • Whether there were any changes in senior management during the period • Whether there were changes to our risk assessment, including our assessment of the group and parent company’s overall control environment We concluded that an amount at the upper end of our normal range was appropriate. Communication of misstatements to the audit committee We determine a threshold for reporting unadjusted differences to the audit committee. Threshold for communication £6,500 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £6,000 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. An overview of the scope of our audit Our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment and risk profile and in particular included: Evaluation by the group audit team of identified components to assess the significance of that component and to determine the planned audit response based on a measure of materiality, considering the relative size of each component as a percentage of total group revenues, net assets, and losses before tax. Kooth plc, Kooth Group Limited and Kooth Digital Health Limited were significant components for which we performed full scope audit procedures using the respective entity materiality. For significant components requiring a full scope approach, we evaluated the design and implementation of controls over the financial reporting systems identified as part of our risk assessment and addressed critical accounting matters such as those related to the key audit matter as identified above. With respect to revenue recognition, we evaluated the design effectiveness of controls and performed data analytics and substantive procedures. A fully substantive approach was used for all other areas. For smaller components of the group, Beam ABA Services Limited and Xenzone Alliance CIC, we performed analytical procedures. 62 63 Full-scope audit Analytical procedures 3 2 98% 2% 100% -% 100% -% Performance of our audit Audit approach No. of components revenue %coverage %coverage %coverage total assets LBT Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 Independent auditor’s report Independent auditor’s report Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified 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. Matter on which we are required to report under the Companies Act 2006 In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or • • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of directors for the financial statements As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements 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. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: • We obtained an understanding of the legal and regulatory frameworks applicable to the parent company, the group and industry in which they operate. We determined that the following laws and regulations were most significant: International Accounting Standards, United Kingdom Generally Accepted Accounting Practice, Companies Act 2006, Quoted Companies Alliance’s Corporate Governance Code for Small and Mid- Size Quoted Companies and UK tax compliance regulations which is the principal jurisdiction in which the group operates. In addition, we concluded that there are 64 65 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020Independent auditor’s report Independent auditor’s report certain significant laws and regulations that may have an effect on the determination of the amounts and disclosures in the financial statements and those laws and regulations relate to employee matters; • We understood how the parent company and the group is complying with applicable laws and regulations through discussions with the Audit Committee and performed audit procedures on these areas as considered necessary. We corroborated our understanding through our review of board minutes, and papers provided to the Audit Committee; • We assessed the susceptibility of the parent company’s and group’s financial statements to material misstatement, including how fraud might occur. Audit procedures performed by the group engagement team included: – considering performance targets and their potential influence on revenue recognition; – identifying and assessing the design effectiveness of controls management has in place to prevent and detect fraud; • In assessing the potential risks of material misstatement, we obtained an understanding of: – the parent company’s and the group’s operations, including the nature of its revenue sources, products and services and of its objectives and strategies to understand the classes of transactions, account balances, expected financial statement disclosures – – and business risks that may result in risks of material misstatement; and the parent company’s and the group’s control environment, including: the policies and procedures implemented to comply with financial reporting requirements, including the adequacy of the training to inform staff of financial reporting changes; and – the adequacy of procedures for authorisation of transactions and internal review procedures over the parent company and the group’s transactions. – assessing whether assumptions and judgements in making its significant Use of our report accounting estimates are indicative of a potential bias; – identifying and testing journal entries, in particular any journal entries posted with unusual account combinations; and – assessing the extent of compliance with the relevant laws and regulations as part of our procedures on the related financial statement item. • These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud or error. However, detecting irregularities that result from fraud is inherently more difficult than detecting those that result from error, as those irregularities that result from fraud may involve collusion, deliberate concealment, forgery or intentional misrepresentations. • The assessment of the appropriateness of the collective competence and capabilities of the engagement team included consideration of the engagement team’s: – understanding of, and practical experience with, audit engagements of a similar nature and complexity through appropriate training and participation; and – knowledge of the industry in which the client operates. 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. Anthony Thomas Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London, UK • The engagement team collectively had the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations . 13th April 2021 66 67 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020Consolidated financial statements Consolidated statement of profit and loss and other comprehensive income For the year ended 31 December 2020 Note 4 5 25 2020 £'000 13,012 (5,091) 2019 £'000 8,659 (4,197) 7,921 4,462 (10,049) 497 (5,683) 319 (1,631) (902) 12, 13, 14 8 6 20 934 (1,498) (580) (507) 20 (1,631) 7 (314) 137 (1,039) - - - (902) (387) (1,945) (1,289) 24 467 (1,478) 1 369 (920) (161) (1,477) (1,081) (0.06) (0.06) 0.00 (0.06) (0.06) 0.00 (0.05) (0.05) (0.01) (0.05) (0.04) (0.01) Continuing operations Revenue Cost of sales Gross profit Administrative expenses Other operating income Operating loss Analysed as: Adjusted EBITDA Depreciation & amortisation Exceptional items Share based payment expense Gain on disposal of subsidiary Operating Loss Interest paid Loss before tax Tax 20 10 Loss after tax from continuing operations Profit/(Loss) after tax from discontinued operations Total comprehensive loss for the year Loss per share - basic (£) On continuing operations On discontinued operations Loss per share - diluted (£) On continuing operations On discontinued operations 68 Consolidated statement of financial position As at 31 December 2020 31 December 31 December 01 January Assets Non-current assets Goodwill Development costs Right of use asset Property, plant and equipment Deferred tax Total non-current assets Current assets Trade & other receivables Contract assets Cash & cash equivalents Assets of disposal group classified as held for sale 11 12 14 13 17 18 19 Note 2020 £'000 511 2,615 14 157 133 2019 £'000 511 2,402 98 146 - 2019 £'000 511 2,342 60 82 - 3,430 3,157 2,995 2,097 107 7,823 - 1,922 106 154 292 1,039 136 389 274 Total current assets 10,027 2,474 1,838 Total assets Liabilities Current liabilities Trade payables Contract liabilities Government grants Borrowings Lease liability Accruals and other creditors Deferred tax Tax liabilities Liabilities of disposal group classified as held for sale Total current liabilities Net current assets Net Assets / (Liabilities) Equity Share capital Share premium Account P&L reserve Share-based payment reserve Capital redemption reserve Merger reserve Total equity 13,457 5,631 4,833 22 23 25 16, 22 14 22 17 22 (275) (619) - - (17) (866) - (827) - (433) (603) (257) (5,379) (95) (996) (31) (546) (127) (373) (257) - (4,496) (60) (789) (136) (350) (129) (2,604) (8,467) (6,590) 7,423 (5,993) (4,752) 10,853 (2,836) (1,757) 21 21 21 21 21 21 1,653 14,229 (1,569) 529 115 (4,104) - 2 (2,838) - - - - - (1,757) - - - 10,853 (2,836) (1,757) 69 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 The financial statements of Kooth plc (Company registration number 12526594) were approved by the Board of Directors and authorised for issue on 13 April 2021. They were signed on its behalf by: Consolidated statement of changes in equity For the year ended 31 December 2020 Share Based Capital Share Share Payment P&L Redemption Merger Total Capital Premium Reserve Reserve Reserve Reserve Equity Sanjay Jawa Chief Financial Officer 13 April 2021 The notes on pages 73 to 104 form part of the financial statements. Balance at 1 January 2019 Issue of share capital Total comprehensive income for the year As at 31 December 2019 Balance at 1 January 2020 Issue of share capital Share for share exchange Capital reduction Share based payments Deferred tax Total comprehensive income for the year - - - - - - - 2 - 2 2 400 3,989 (2,736) - - - 14,227 - - - - - - - - - - - - - 529 - - (1,757) - (1,081) (2,838) (2,838) - - 2,736 - 10 (1,477) - - - - (1,757) 2 (1,081) (2,836) - (2,836) - - - - - - 115 (4,104) - - - - - - - - 14,627 - - 529 10 (1,477) As at 31 December 2020 1,653 14,229 529 (1,569) 115 (4,104) 10,853 The notes on pages 73 to 104 form part of the financial statements. 70 71 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 Consolidated cashflow statement For the year ended 31 December 2020 Notes to the consolidated financial statements Cash flows from operating activities Loss for the year from continuing operations Profit/(Loss) for the year from discontinued operations 20 Note 2020 £'000 (1,478) 1 Adjustments: Depreciation & amortisation Loss on disposal of property, plant and equipment Income tax received Share based payment expense Interest expense Tax income recognised Gain on disposal Movements in working capital: (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Net cashflow from operating activity Cash flows from investing activities Purchase of property, plant and equipment Disposal of property, plant and equipment Additions to intangible assets Net cash used in investing activities Cash flows from financing activities Proceeds from issue of capital Cost incurred on issue of capital Receipt/(Repayment) of borrowings Interest paid Lease payments Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 12, 13, 14 1,498 13 6 7 20 18 22 13 13 12 21 21 16 16 14 19 19 - 268 507 314 (466) (20) 132 (396) 360 (107) - (1,505) (1,612) 16,000 (1,378) (4,249) (1,444) (81) 8,848 7,596 227 7,823 The notes on pages 73 to 104 form part of the financial statements. 2019 £'000 (920) (161) 1,026 15 354 - 387 (369) - (891) 919 360 (153) 29 (874) (998) - 500 - (151) 349 (289) 516 227 1) Corporate information Kooth plc is a company incorporated in England and Wales. The address of the registered office is The Epworth, 25 City Road, London, England, EC1Y 1AA. 2) Significant accounting policies 2.1 Basis of preparation The consolidated financial statements of Kooth plc and its subsidiaries (collectively, the Group) for the year ended 31 December 2020 have been prepared and approved by the directors in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006. Transition to adopted IFRS The Group is preparing its financial statements in accordance with adopted IFRS for the first time and consequently has applied IFRS 1. See note 29. Measurement convention The financial statements are prepared on the historical cost basis with the exception of certain items which are measured at fair value as disclosed in the accounting policies set out below. These policies have been consistently applied to all years presented unless otherwise stated. All values are presented in Sterling and rounded to the nearest thousand pounds (£’000) except when otherwise indicated. Going concern The Directors have a reasonable expectation that the Group as a whole has adequate resources to continue in operational existence for the foreseeable future. For this reason, the going concern basis continues to be adopted in the accounts. The company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic report on pages 4 to 31. In addition, note 15 to the financial statements include the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; and its exposures to credit risk and liquidity risk. During the 2020 financial year the Group generated a loss of £1.5 million (2019: £1.1 million). Adjusted EBITDA is £0.9 million (2019: £0.1 million). The Group is in a net asset position of £10.9 million (2019: £(2.8 million)). The Group raised £16m of funds through the IPO in September 2020 resulting in a positive cash position. Additionally, the Group has no debt facilities in place as at 31 December 2020 after repaying all debt in full during the year. Management has performed a going concern assessment for a period up to 30 June 2022, which indicates that the Group will have sufficient funds to trade and settle its liabilities as they fall due. This assessment takes into account a number of sensitivities, including a downside scenario and a reverse stress test, which models the scenarios that would lead to a default by the Group. Both the downside scenario and reverse stress test reflect lower activity levels than both the Group forecast and 2020 actual results. The key assumption used in the assessment is revenue and Management has analysed the impact of reduced revenue on the Group’s performance. Whilst Management has concluded that the possibility of the downside scenario occurring is remote, the Group would still have adequate resources to be able to trade and settle its liabilities as they fall due in this scenario. As a result 72 73 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 Management also deems the likelihood of the scenarios in the default model occurring to be remote. 2.3) Summary of significant accounting policies The Directors have considered the impact of COVID-19 and do not expect the pandemic to have a material adverse impact on the Group. Consequently, the directors believe that the company is well placed to manage its business risks successfully despite the current uncertain economic outlook. The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and as such continue to adopt the going concern basis of accounting in preparing the financial statements. 2.2) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2020, with the comparatives presented for the previous 12 months being the Group’s combined activities for the 12 months ended 31 December 2019. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has: • Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee) • Exposure, or rights, to variable returns from its involvement with the investee • The ability to use its power over the investee to affect its returns Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement(s) with the other vote holders of the investee • • Rights arising from other contractual arrangements The Group’s voting rights and potential voting rights • The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non- controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value. Segmental reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the executive directors that make strategic decisions. As Kooth plc’s operations are all in one location within the United Kingdom, the Directors are of the opinion that the Group has only one reportable operating segment, this is in line with internal reporting provided to the executive directors. The following are the significant accounting policies applied by the Group in preparing its consolidated financial statements: Revenue from contracts with customers Revenue arises from the provision of counselling services and mental health support services under fixed price contracts. Contracts are typically for a 12 month period and are fixed price based on an expected number of hours of counselling provided. To determine whether to recognise revenue, the Group follows the 5 step process as set out within IFRS 15. Identifying the contract with a customer Identifying the performance obligations 1. 2. 3. Determining the transaction price 4. Allocating the transaction price to the performance obligations 5. Recognising revenue when/as performance obligation(s) are satisfied. Contracts with customers take the form of signed agreements from customers. There is one distinct performance obligation, being the provision of counselling services, to which all the transaction price is allocated. Revenue from counselling services is recognised in the accounting period in which the services are rendered. The contracts are satisfied monthly over the contract term for an agreed level of support hours. Revenue is recognised over-time, on a systematic basis over the period of the contract, as this best represents the stage of completion. In certain circumstances the number of hours of counselling provided may surpass the expected number of hours within the contract. In this circumstance, Management does not recognise additional revenue during the period, as contractually the Group has no right to demand payment for additional hours. In some instances, the Group has recovered additional fees post year end for the additional hours incurred; this additional revenue is recognised at a point in time when the Group has agreed an additional fee and has a right to invoice. At each reporting date there was no significant overprovision of hours noted. In instances where the number of counselling hours provided is less than the contracted number of hours, the full fixed fee is still payable by the customer. The Group typically receives cash from customers 42 days after invoicing a customer. Contract assets Contract assets are recognised for revenue earned not yet invoiced, for customers who are invoiced on a quarterly basis. Upon invoicing, the amount recognised as a contract asset is reclassified to trade receivables. The Group have reviewed the expected credit losses for the year and note no material expected credit losses. Contract liabilities A contract liability is recognised if a payment is received or a payment is due (whichever is earlier) from a customer before the Group transfers the related services. Contract liabilities are recognised as revenue when the Group performs under the contract (i.e., transfers control of the related services to the customer). Other operating income - government grants Government grants are recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which grants are intended to compensate. Grants are classified as relating either to revenue or to assets. Grants relating to revenue are recognised in income over the period in which the related costs are recognised. Grants relating to assets are recognised over the expected useful life of the asset. Where part of a grant relating to an asset is deferred, it is recognised as deferred income. 74 75 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020Tax Current tax Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current tax relating to items recognised directly in equity is recognised in equity and not in the statement of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, except: • When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. • Deferred tax assets are recognised for deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except: • When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available, against which the temporary differences can be utilised • The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognised in profit or loss. The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. Sales tax Expenses and assets are recognised net of the amount of sales tax, except: • When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable • When receivables and payables are stated with the amount of sales tax included The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Research and development tax claims Where Kooth plc has made Research and Development tax claims under the Small and Medium Enterprise scheme and tax losses have been surrendered for a repayable tax credit, a current tax credit is reflected in the income statement. Property, plant and equipment Property, plant and equipment is stated in the statement of financial position at cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The cost of property, plant and equipment includes directly attributable incremental costs incurred in its acquisition and installation. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, as follows: Leasehold improvements Fixtures, fittings and equipment 33.33% straight line 33.33% – 50% straight line Goodwill and intangibles Goodwill Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method 76 77 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. An intangible asset is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss. Expenditure on internally developed software products and substantial enhancements to existing software product is recognised as intangible assets only when the following criteria are met: The technical feasibility of completing the intangible asset so that the asset will be available for use or sale Its intention to complete and its ability and intention to use or sell the asset • • • How the asset will generate future economic benefits The availability of resources to complete the asset • The ability to measure reliably the expenditure during development • Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in the Statement of Profit and Loss. During the period of development, the asset is assessed for impairment annually. Amortisation is charged on a straight line basis over the estimated useful life of 3 years. Expenditure on research activities as defined in IFRS is recognised in the income statement as an expense is incurred. initially at the transaction price. The Group holds the trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. The carrying amounts of the trade receivables include receivables which are subject to an invoice discounting arrangement. Under this arrangement, the Group has transferred the relevant receivables to the factor in exchange for cash and is prevented from selling or pledging the receivables. However, the Group has retained late payment and credit risk. The Group therefore continues to recognise the transferred assets in their entirety in its balance sheet. The amount repayable under the invoice discounting agreement is presented as accruals and other creditors. The Group considers that the held to collect business model remains appropriate for these receivables and hence continues measuring them at amortised cost. The Group assess each receivable on a customer by customer basis for the expected lifetime credit loss, which is based on an unbiased weighted average probability of default both at initial recognition and subsequent reporting dates. Where an expected credit loss is identified a provision is made against the receivable. Significant financial difficulties of the customer, probability that the customer will enter bankruptcy or financial reorganisation default or delinquency in payments, and the unavailability of credit insurance at commercial rates are considered indicators that the receivable may be impaired. When these factors are confirmed for a trade receivable it is considered uncollectible and a default event is triggered. At this point it is written off against the credit loss provision account. Subsequent recoveries of amounts previously written off are credited against administrative expenses in the income statement. Loans Loans are measured initially at fair value, net of transaction cost and are measured subsequently at amortised cost using the effective interest method, other than those categorised as fair value through profit or loss. Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if the company does not have an unconditional right, at the end of the reporting period, to defer settlement of the creditor for at least twelve months after the reporting date. If there is an unconditional right to defer settlement for at least twelve months after the reporting date, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and all are repayable within one year and hence are included at the undiscounted amount of cash expected to be paid. Impairment testing of intangible assets and property, plant and equipment Cash and cash equivalents For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately independent cash inflows (CGU). Those intangible assets including goodwill and those under development are tested for impairment at least annually. All other individual assets or CGUs are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment charge is recognised for the amount by which the asset or CGUs 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. All assets, with the exception of goodwill, are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Financial instruments The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the underlying contractual arrangement. Financial instruments are recognised on the date when the Group becomes a party to the contractual provisions of the instrument. Financial instruments are initially recognised at fair value except for trade receivables which are initially accounted for at the transaction price. Financial instruments cease to be recognised at the date when the Group ceases to be party to the contractual provisions of the instrument. Financial assets are included on the balance sheet as trade and other receivables or cash and cash equivalents. Trade receivables Trade receivables are amounts due from customers for services performed in the ordinary course of business. They are generally due for settlement within 30 days and are therefore all classified as current. Trade receivables are recognised Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that have a maturity date of 3 months or less, are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Leases Short term leases or leases of low value are recognised as an expense on a straight-line basis over the term of the lease. The Group recognises right-of-use assets under lease agreements in which it is the lessee. The underlying assets mainly include property and office equipment and are used in the normal course of business. The right-of-use assets comprise the initial measurement of the corresponding lease liability payments made at or before the commencement day as well as any initial direct costs and an estimate of costs to be incurred in dismantling the asset. Lease incentives are deducted from the cost of the right-of-use asset. The corresponding lease liability is included in the consolidated statement of financial position as a lease liability. The right-of-use asset is depreciated over the lease-term and if necessary impaired in accordance with applicable standards. The lease liability shall initially be measured at the present value of the lease payments that are not paid at that date, discounted using the rate implicit in the lease. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (application of the effective interest method) and by reducing the carrying amount to reflect the lease payments made. No lease modification or reassessment changes have been made during the reporting period from changes in any lease terms or rent charges. 78 79 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020Employee benefit plans Exceptional items Defined Contribution Plans The Group operates a defined contribution pension plan. Payments to defined contribution pension plans are recognised as an expense when employees have rendered services entitling them to the contributions. Share-based payment Benefits to employees are provided in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity settled transactions’). The fair value of the employee services rendered is measured by reference to the fair value of the shares awarded or rights granted, which takes into account market conditions and non-vesting conditions. This cost is charged to the income statement over the vesting period, with a corresponding increase in the share based payment reserve. The cumulative expense recognised at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the company’s best estimate of the number of shares that will ultimately vest. The charge or credit to the income statement for a period represents the movement in the cumulative expense recognised at the beginning and end of that period and is recognised in share based payment expense. Assets and liabilities classified as held for sale and discontinued operations Assets classified as held for sale are presented separately and measured at the lower of their carrying amounts immediately prior to their classification as held for sale and their fair value less costs to sell. However, some held for sale assets such as financial assets or deferred tax assets, continue to be measured in accordance with the Group’s relevant accounting policy for those assets. Once classified as held for sale, the assets are not subject to depreciation or amortisation. Financial liabilities continue to be measured in accordance with the Group’s relevant accounting policy for those items. Any profit or loss arising from the sale or remeasurement of discontinued operations is presented as part of a single line item. Assets and liabilities of disposal groups are presented separately in the statement of financial position. Discontinued operations A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and: • Represents a separate major line of business or geographical area of operations • Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations Is a subsidiary acquired exclusively with a view to resale • Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of profit or loss. Additional disclosures are provided in Note 20. All other notes to the financial statements include amounts for continuing operations, unless indicated otherwise. Alternative performance measures Adjusted results are prepared to provide a more comparable indication of the Group’s core business performance by removing the impact of certain items including exceptional items, and other, non-trading, items that are reported separately. Exceptional items are analysed as costs that are not in the ordinary operating costs of the Group. Group restructure The Company was incorporated as Hamsard 3564 Limited on 19 March 2020 as a private limited company. The Group developed an appropriate accounting policy to restructure in line with IAS 8 as follows. On 6 August 2020, the Company acquired all of the issued share capital of Kooth Group Limited (formerly Xenzone Group Limited), by way of a share for share exchange with the shareholders of Kooth Group Limited. On 24 August 2020, by a special resolution of the Company, the Company was re-registered as a public company limited by shares and the name of the Company was changed to Kooth plc. This was undertaken in anticipation of the IPO to establish Kooth plc as the parent company of the Group. The structure of the Group by nature remains the same as prior to the restructure and as such the transaction falls out of the scope of IFRS 3 3) Significant accounting judgements, estimates and assumptions In the application of the Group’s accounting policies, management is required to make judgements, estimates and assumptions about the carrying value of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions 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 revision and future periods if the revision affects both current and future periods. The estimates which have the most significant impact on the amounts recognised in the financial statements are as follows: Useful economic lives of development costs and property, plant and equipment Property, plant and equipment is depreciated over the economic useful lives of the assets. Useful lives are based on management’s estimates of the period that the assets will generate revenue, which are reviewed annually for continued appropriateness. The useful economic lives applied are set out in the accounting policies. Development costs are amortised on a straight-line basis over the useful life of the related asset which management estimate to be three years, which is industry standard. Share-based payments Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option or appreciation right, volatility and dividend yield and making assumptions about them. The basis for these key inputs and assumptions are described in Note 6. Judgements The areas of judgement which have the most significant impact on the amounts recognised in the financial statements are as follows: The Group believes that EBITDA before separately disclosed items (“adjusted EBITDA”) is the most significant indicator of operating performance and allows a better understanding of the underlying profitability of the Group. The Group defines adjusted EBITDA as operating profit/loss before interest, tax, depreciation, amortisation, exceptional items and share based payments. Impairment of intangible assets (including goodwill) and property, plant and equipment The Group tests goodwill at least annually for impairment, and whenever there is an indication that the asset may be impaired. All other intangible assets and property, plant and equipment are tested for impairment when indicators of impairment exist. The Group also measures and presents performance in relation to various other non-GAAP measures, such as gross margin, annual recurring revenue and revenue growth. Adjusted results are not intended to replace statutory results. These have been presented to provide users with additional information and analysis of the Group’s performance, consistent with how the Board monitors results. An impairment charge is recognised for the amount by which the asset or CGUs 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. All assets, with the exception of goodwill, are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. 80 81 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020The total turnover of Kooth plc has been derived from its principal activity wholly undertaken in the United Kingdom. Deferred tax 4) Revenue The extent to which deferred tax assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and tax loss carry-forwards can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties. Capitalisation of development costs Distinguishing the research and development phases of a new customised project and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. Capitalised development expenditure is analysed further in Note 12. Provision of online counselling Development costs largely relate to amounts paid to external developers, consultancy costs and the direct payroll costs of the internal development teams. Capitalised development expenditure is reviewed at the end of each accounting period for indicators of impairment. 5) Administrative expenses Treatment of costs incurred on the equity raise The decision of how to split the costs incurred on an equity raise via IPO requires judgement given that, whilst costs incurred on an equity raise should be recognised against equity in share premium, costs that relate to a stock market listing should be recognised as an expense in the Statement of Comprehensive Income. Costs incurred on Admission were split as follows: Share premium Exceptionals Group reorganisation £'000 1,378 391 1,769 Employee costs Rent and rates IT hosting and software Professional fees Marketing Depreciation & amortisation Exceptional items Share based payment expense Other overheads Total administrative expenses There is judgement on the changes made to the Group structure prior to the insertion of Kooth plc as the new parent company, specifically on the share for share exchange transactions. See Accounting Policies for disclosure. 6) Employee remuneration Salaries Pensions Social security & other staff benefits Share based payment expense Government grant Total 82 2020 £'000 13,012 2019 £'000 8,659 2020 £'000 4,710 347 756 498 611 1,498 580 507 542 10,049 2020 £'000 7,811 213 728 507 148 9,407 2019 £'000 2,924 86 506 244 289 1,039 - - 595 5,683 2019 £'000 5,429 131 416 - 82 6,058 83 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 Employee numbers Employee numbers Direct Direct Indirect Indirect Developers Developers 2020 2020 203 203 57 57 20 20 280 280 Employee numbers disclosed represents the average monthly number of employees for the year. Long term incentive awards Growth shares 2020 £'000 191 316 507 2019 2019 160 160 36 36 10 10 206 206 2019 £'000 - - - Long Term Incentive Awards Long term incentive awards have been issued to all staff. The fair value of the awards has been calculated at £2 which is equal to the market price of the underlying shares on the date of grant. Performance conditions are attached to the incentive awards of Executives, with 50% linked to ARR growth and 50% linked to comparative total shareholder return. Vesting conditions require that all staff remain employed by the business for 3 years. The shares vest over a 3 year period with a maximum term of 10 years. Outstanding at the beginning of the year Granted Forfeited Exercised Outstanding at the end of the year Exercise Exercise Number of price per Number of price per Options 2020 - 1,012,770 (13,089) - 999,681 share 2020 £0.05 £0.05 £0.05 Options 2019 share 2019 - - - - - - - - - - Growth Shares Growth shares were issued to Executive team members during 2019 and 2020. The fair value of growth shares was calculated using the Black Scholes Model at the grant date. The key assumptions used in the calculation were: Risk free rate Annualised volatility 1% 60% All shares were realised and equity-settled upon Admission during the year ended 31 December 2020. The weighted average share prices of options exercised in the year was £2. Outstanding at the beginning of the year Granted Forfeited Exercised Outstanding at the end of the year 7) Interest Interest on loans Interest on lease liability Exercise Exercise Number of price per Number of price per Options 2020 65,604 203,153 - (268,757) - share 2020 £0.01 £0.01 £0.01 Options 2019 - 164,776 (99,172) - 65,604 share 2019 £0.01 £0.01 £0.01 2020 £'000 312 2 314 2019 £'000 383 4 387 Interest on loans relates to the loan with Root Capital that was repaid in full during the year ended 31 December 2020. 84 8) Exceptional items IPO fees Other exceptional items 2020 £'000 391 189 580 2019 £'000 - - - 85 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 9) Auditor remuneration 11) Goodwill Fees payable to the auditor for the audit of the Company and Consolidated financial statements Fees payable to the auditor and its associates for other services: Other audit related services 2020 £'000 50 139 2019 £'000 - - In 2019, the Group’s auditor was Hazlewoods LLP. Audit fees of £25,000 and tax fees of £4,000 were paid to Hazlewoods LLP in 2019. 10) Earnings per share Earnings used in calculation of earnings per share: On total losses attributable to equity holders of the parent On continuing operations On discontinued operations Weighted average no. of shares (Basic) Weighted average no. of shares (Diluted) Shares in issue B shares in issue Ordinary shares in issue Share options Loss per share (basic, £) On total profits attributable to equity holders of the parent On continuing operations On discontinued operations Loss per share (diluted, £) On total profits attributable to equity holders of the parent On continuing operations On discontinued operations 86 2020 £'000 (1,477) (1,478) 1 2020 24,351,925 24,685,152 - 33,055,776 999,681 (0.06) (0.06) 0.00 (0.06) (0.06) 0.00 2019 £'000 (1,081) (920) (161) 2019 22,229,026 - 2,674,831 20,000,000 (0.05) (0.05) (0.01) (0.05) (0.04) (0.01) Goodwill as at 1 January Movement during the year Goodwill as at 31 December 2020 £'000 511 - 511 2019 £'000 511 - 511 Management has established counselling services as the one CGU during the relevant periods. All goodwill is attributable to this CGU. The Group tests annually for impairment or more frequently if there are indications that it might be impaired. There were no indicators of impairment noted during the periods presented. The Group tests goodwill for impairment by reviewing the carrying amount against the recoverable amount of the investment. Management has calculated the value in use using the following assumptions: Discount rate Growth rate 8% 2% Using alternative discount and growth rates as sensitised assumptions does not result in any impairment. The Group prepares forecasts based on the most recent financial budgets approved by the Board. The forecasts have been used in the value in use calculation along with the assumptions stated above. The forecasts used are consistent with those used in the going concern review and discussed in note 2. There were no impairments in the years ended 31 December 2020 and 31 December 2019. 12) Development costs Cost Balance as at 1 January Additions Balance as at 31 December Amortisation Balance as at 1 January Amortisation Balance as at 31 December Carrying amount 31 December 2020 £'000 3,297 1,531 4,828 (895) (1,318) (2,213) 2,615 2019 £'000 2,423 874 3,297 (81) (814) (895) 2,402 87 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 13) Property, plant and equipment The consolidated statement of cash flows includes the following amounts relating to leases within scope of IFRS 16: Cost Balance as at 1 January Additions Disposals Balance as at 31 December Depreciation Balance as at 1 January Depreciation Disposals Balance as at 31 December Carrying amount 31 December 2020 £'000 281 107 - 388 (135) (96) - (231) 157 Property, plant and equipment refers to computer and office equipment. 14) Leases Kooth plc leases properties. With the exception of short-term leases and leases of low value underlying assets, each lease is reflected on the balance sheet as a right-of-use asset and a lease liability. Amounts recognised in the Consolidated Statement of Financial Position relating to leases are: 2020 £'000 98 - (84) 14 95 - 2 (80) 17 Right of use asset As at 1 January Additions Depreciation As at 31 December Lease liability As at 1 January Additions Interest charge Cash payment As at 31 December 88 2019 £'000 165 145 (29) 281 (83) (67) 15 (135) 146 2019 £'000 60 183 (145) 98 60 183 4 (152) 95 Cash outflows 2020 £'000 81 2019 £'000 151 Total cash outflows for both short term leases and those within scope of IFRS 16 was £427k (2019: £380k). All lease contracts relate to the lease of office buildings. As at 31 December 2020 all remaining lease liabilities are short term and due within one year. An incremental borrowing rate of 5% has been used to calculate the present value of the remaining lease payments. 15) Financial assets and liabilities Financial assets Trade and other receivables Cash and cash equivalents Financial liabilities Trade and other payables 2020 £'000 1,782 7,823 2019 £'000 1,654 154 1,985 7,450 Management has assessed that the fair values of cash, trade receivables, trade payables, and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. 15.1) Financial instruments risk management objectives and policies The Group’s principal financial liabilities comprise trade and other payables. The Group has no debt facility as at 31 December 2020 (2019: £5,379k). The main purpose of these financial liabilities is to finance the Group’s operations. The Group’s principal financial assets include trade receivables and cash that derive directly from its operations. The Group is exposed to market risk, credit risk and liquidity risk. The Group’s senior management oversees the management of these risks. The Group’s senior management is supported by the Board of Directors who advise on financial risks and the appropriate financial risk governance framework for the Group. The Board provides assurance to the Group’s senior management that the Group’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Group’s policies and risk objectives. 89 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below. 17) Deferred tax assets and liabilities Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Fixed asset Fixed asset Other Other temporary temporary temporary temporary Market risk is deemed to be immaterial to the Group given that: • the Group has no debt facilities in place at the year ended 31 December 2020 (£2019: £5,379k) that would cause interest rate risk, and the Group’s activities are solely domestic therefore eliminating foreign currency risk. • 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 credit risk associated with trade receivables is also limited as customers are primarily government backed organisations such as the NHS or local councils. Credit losses historically incurred have been negligible. Liquidity risk The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs by closely managing its cash balance. As at the year ended 31 December 2020 the Group is solely funded by equity and as a result liquidity risk is deemed to be immaterial. The Group monitors its risk of a shortage of funds through both review and forecasting procedures. At 1 January 2019 - asset/(liability) Movement - (charge)/credit At 1 January 2020 - asset/(liability) Movement - (charge)/credit (364) (24) (388) (93) (364) 124 (24) 69 124 104 69 60 (388) 193 (93) (114) 193 164 (114) 371 104 (136) 60 105 164 (31) 371 164 differences differences differences differences Tax losses Tax losses Total Total (136) 105 (31) 164 At 31 December 2020 - asset/(liability) (481) (481) 79 79 535 535 133 133 Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. 18) Trade and other receivables Trade receivables Prepayments and other receivables Total trade and other receivables 2020 £'000 1,430 667 2,097 2019 £'000 1,403 519 1,922 16) Borrowings Borrowings 2020 £'000 - 2019 £'000 5,379 All amounts shown above are short term. The net carrying value of trade receivables is considered a reasonable approximation of fair value. All debt was repaid during the year ended 31 December 2020. Borrowings in place at the year ended 31 December 2019 was a loan from Root Capital LLP, denominated in GBP with an interest rate of 8% per annum. The loan was secured by a fixed charge over all properties acquired, all present and future licenses, intellectual property, investments, book debts, bank balances and other unsecured assets, and was repayable upon demand. In 2019, trade receivables were pledged as security for invoice discounting facility advances of £816,599. The Group retained the credit risk in respect of all receivables discounted under the facility. In 2020, the invoice discounting facility was closed with the balance now nil. 90 91 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 19) Cash and cash equivalents 20) Disposal groups classified as discontinued operations Cash and cash equivalents 2020 £'000 7,823 2019 £'000 154 In December 2017, the directors announced that the Group intended to dispose of Beam ABA Services Limited. The disposal was expected to be completed within 12 months, but no proceedable offers were received until April 2019. Beam ABA Services Limited represents a separate line of business and there was a single co-ordinated plan to dispose of this area. It was therefore treated as held for sale from December 2017 until the point at which it was sold. Revenue and expenses, gains and losses relating to the discontinuation of this subgroup have been eliminated from profit or loss from the Group’s continuing operations and are shown as a single line item in the statement of profit or loss. For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 31 December 2020 and 31 December 2019 and 1 January 2019: On the 3rd of April 2020, Beam ABA Services Limited was sold to Root Capital LLP for £1. 31 December 2020 31 December 2020 31 December 2020 31 December 2020 31 December 2019 31 December 2019 31 December 2019 31 December 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 Cash at banks Cash at banks Cash at banks Cash at banks Cash at banks recognised within assets held for sale Cash at banks recognised within assets held for sale Cash at banks recognised within assets held for sale Cash at banks recognised within assets held for sale £'000 £'000 £'000 7,823 7,823 7,823 - - - 7,823 7,823 7,823 £'000 £'000 £'000 £'000 7,823 154 154 154 - 73 73 73 7,823 227 227 227 £'000 £'000 £'000 £'000 £'000 154 389 389 389 127 73 127 127 227 516 516 516 Revenue 389 Expenses 127 Profit/(Loss) after tax from discontinued operations 516 The discontinued operations results contributed the following to the cash flow: Net cash inflows /(outflows) from operating activities Net cash inflows/(outflows) from investing activities Net cash inflows/(outflows) from financing activities Net cash inflows/(outflows) arising on disposal Reconciliation of disposal Cash consideration received Carrying amount of net assets sold Gain on disposal The carrying amounts of assets and liabilities as at the date of sale (3 April 2020) were: Tangible assets Trade and other receivables Cash and cash equivalents Total assets classified as held for sale Trade and other payables Total liabilities classified as held for sale Net liabilities of disposal group 92 2020 £'000 273 (272) 1 2020 £'000 27 - - 27 - (20) 20 8 225 103 336 (356) (356) (20) 2019 £'000 1,070 (1,231) (161) 2019 £'000 (43) (8) - (51) - - - 93 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 21) Equity Share Capital Ordinary A shares Ordinary B shares 2020 £'000 1,653 - 1,653 2019 £'000 - - - The 2019 comparatives are not presented due to rounding. The share capital of Kooth plc consists of fully paid ordinary shares with a nominal value of £0.05 per share. The A ordinary shares have attached to them full voting, dividend and capital distribution rights (including on winding up). They do not confer any right of redemption. B ordinary shares have attached to them no voting, dividend or capital distribution rights (including on winding up). They do not confer any rights of redemption. Number of Shares Number of shares Ordinary A Shares Ordinary B Shares 2020 33,055,776 - 2019 1,000,000 164,776 During the year ended 31 December 2020, 203,152 £0.0001 B shares in Kooth Group Limited (formerly Xenzone Group Limited) were issued to Executive team members bringing the total number of B shares to 367,928. These shares were accounted for as a share based payment transaction under IFRS 2, with the nominal value of these shares held in share capital and the fair value expense recognised in the share based payment reserve. See note 6. Upon incorporation of Kooth plc, the Company entered into a share for share exchange agreement whereby 1,000,000 A ordinary and 367,928 B ordinary £3 shares were issued in the capital of Kooth plc. The Company then undertook a reduction of capital whereby the total aggregate nominal amount of share capital was reduced from £4,104,000 to £1,368,000 by reducing the nominal value of each share from £3 to £1. Subsequent to this, and prior to the listing on AIM, the Company undertook a reorganisation whereby 1,000,000 A ordinary shares and 367,928 B ordinary shares £1 shares were sub-divided into 20,000,000 A ordinary shares and 7,358,560 B ordinary shares of £0.05. These shares were reclassified into 25,055,776 ordinary shares and 2,302,784 deferred shares of £0.05. The deferred shares were subsequently bought back and cancelled by the Company. On 2 September 2020, Kooth plc issued 8 million new ordinary A shares of 200p each via an Initial Public Offering and admission to AIM. This brought the total shares in issues to 33,055,776. Upon Admission, the B shares converted into Ordinary A shares. Share Premium 2020 £'000 14,229 2019 £'000 2 Share premium represents the funds received in exchange for shares over and above the nominal value, offset by £1,378k of costs incurred on the raise of equity. Share based payment reserve 2020 £'000 529 The share based payment reserve represents amounts accruing for equity settled share options granted plus the fair value of Executive growth shares realised upon IPO. Merger reserve Capital redemption reserve 2020 2020 £'000 £'000 (4,104) 115 2019 £'000 - 2019 2019 £'000 £'000 - The merger reserve was created a result of the share for share exchange. The accounting policy developed in line with IAS 8 was that the assets and liabilities of the subsidiaries were consolidated at book value in the Group financial statements and the consolidated reserves of the Group were adjusted to reflect the statutory share capital, share premium and other reserves of the Company as if it had always existed, with the difference presented as the merger reserve. Capital redemption reserve 2020 £'000 115 2019 £'000 - The capital redemption reserve was established as a result of the deferred share buyback. 94 95 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 22) Trade and other payables 24) Tax expense Trade payables Accruals and other creditors Tax liabilities Borrowings Total 2020 £'000 275 866 827 - 1,968 2019 £'000 433 996 546 5,379 7,354 Borrowings relates to a loan advanced from Root Capital Fund II LP, which is denominated in GBP and bears interest at a rate of 8% per annum. The loan is repayable upon demand and has been disclosed within creditors falling due within one year. The capital along with the interest on the loan was fully repaid in 2020. Included within accruals and other creditors in 2019 is £816,599 in relation to an invoice discounting facility. This balance was secured by way of a fixed and floating charge of the assets of the group. In 2020, the invoice discounting facility was closed with the balance now nil. Current tax UK corporation tax Total current tax charge/(credit) Deferred tax (P&L) Origination and reversal of timing differences Effect of tax rate change on opening balance Total deferred tax charge / (credit) (P&L) Tax charge / (credit) on profit on ordinary activities Reconciliation of tax charge 2020 £'000 (315) (315) (156) 4 (152) (467) 2019 £'000 (263) (263) (106) - (106) (369) Profit /(loss) on ordinary activities before tax (1,945) (1,289) 23) Contract liabilities Contract liabilities - current 2020 £'000 619 2019 £'000 603 Expected tax charge on profit on ordinary activities at standard CT rate Effects of: Expenses not deductible for tax purposes Effect of tax rate changing on opening balance Income not taxable R&D additional deduction Group relief Surrender of tax losses for R&D tax credit refund R&D expenditure credits 25) Other operating income At 1 January Received during the year Released to the statement of profit and loss At 31 December (370) 632 3 (487) (348) - 98 5 (467) 2020 £'000 257 240 (497) - Government grants have been received from the Small Business Research Initiative for a project to add functionality to the Kooth platform to explore how users could benefit from peer-to-peer support. There are no fulfilled conditions or contingencies attached to these grants. 96 (245) 20 11 - (195) (42) 82 - (369) 2019 £'000 - 576 (319) 257 97 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 26) Related party transactions 27) Capital management policies and procedures Note 28 provides information about the Group’s structure, including details of the subsidiaries and the holding company. The Group has taken advantage of the exemption available under IAS 24 Related Party Disclosures not to disclose transactions between Group undertakings which are eliminated on consolidation. The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year. Loans from related parties - Root Capital Fund II LP Rent - Root Capital LLP Monitoring fees - Root Capital LLP 2020 £'000 - - 91 91 2019 £'000 5,379 45 225 5,649 Outstanding balances arising from sales/purchases of goods and services The following balances are outstanding at the end of the reporting period in relation to transactions with related parties: The Group’s capital management objectives are: • • to ensure the Group’s ability to continue as a going concern to provide an adequate return to shareholders by pricing products and services in a way that reflects the level of risk involved in providing those goods and services. The Group monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as presented in the statement of financial position. The Group has no debt facilities in place as at 31 December 2020 (2019: £5,379,000). Management assesses the Group’s capital requirements in order to maintain an efficient overall financing structure while avoiding excessive leverage. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. The amounts managed as capital by the Group for the reporting periods under review are summarised as follows: Total equity Cash and cash equivalents Capital Total equity Lease liability Financing 2020 £'000 10,853 7,823 18,676 10,853 17 10,870 2019 £'000 (2,836) 154 (2,682) (2,836) 95 (2,741) Current payables Root Capital LLP 2020 £'000 - 2019 £'000 26 28) Subsidiaries and associated companies On the 3rd of April 2020, Beam ABA Services Limited was sold to Root Capital LLP for £1. Key management personnel are the executive members of the Board of Directors of the Group and their remuneration is disclosed below and in the Remuneration Committee report. During the year ended 31 December 2019, 99,172 B shares were repurchased from key management personnel who left their positions. Base salary and fees Pension Gain on exercise of share options Total 98 2020 £'000 393 9 132 534 2019 £'000 300 3 - 303 Name Country of Incorporation Proportion Held Activity Registered Address Kooth Group Limited UK 100% Platform development The Epworth 25 City Road 2nd Floor, London, England, EC1Y 1AA Kooth Digital Health Limited UK 100% Provision of online counselling and support to children, young people and adults in need. The Epworth 25 City Road 2nd Floor, London, England, EC1Y 1AA XenZone Alliance CIC UK 100% Dormant The Epworth 25 City Road 2nd Floor, London, England, EC1Y 1AA 99 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 29) First time adoption of IFRS Group reconciliation of equity as at 31 December 2019 These financial statements, for the year ended 31 December 2020, are the first the Group has prepared in accordance with IFRS. For periods up to and including the year ended 31 December 2019, the Group prepared its financial statements in accordance with local generally accepted accounting principles (FRS 102). Accordingly, the Group has prepared financial statements that comply with IFRS applicable as at 31 December 2020, together with the comparative period data for the year ended 31 December 2019, as described in the summary of significant accounting policies. In preparing the financial statements, the Group’s opening statement of financial position was prepared as at 1 January 2019, the Group’s date of transition to IFRS. This note explains the principal adjustments made by the Group in restating its FRS 102 financial statements, including the statement of financial position as at 1 January 2019 and the financial statements as of, and for, the year ended 31 December 2019. Group reconciliation of equity as at 1 January 2019 (date of transition to IFRS) FRS 102 as at 1 Reclassification & IFRS as at 1 January 2019 Remeasurements January 2019 £'000 £'000 £'000 Non current assets Goodwill Intangible assets Right of use asset Property, plant and equipment Current assets Trade & other receivables Contract assets Cash & cash equivalents Held for sale assets Total assets Liabilities Current liabilities Trade payables Contract liabilities Government grants Borrowings Lease liability Accruals and other creditors Deferred tax Tax liabilities Held for sale liabilities Total current liabilities Net Assets / (Liabilities) Equity Share capital Share premium account P&L reserve Share-based payment reserve Capital redemption Reserve Merger reserve Total equity 100 511 2,358 - 86 1,166 136 516 - 4,773 (502) (257) - (4,496) - (789) (136) (350) - (6,530) (1,757) - - (1,757) - - - (1,757) - (15) 60 (4) (128) - (127) 274 60 129 - - - (60) - - - (129) (60) - - - - - - - - 511 2,343 60 82 1,038 136 389 274 4,833 (373) (257) - (4,496) (60) (789) (136) (350) (129) (6,590) (1,757) - - (1,757) - - - (1,757) Non current assets Goodwill Intangible assets Right of use asset Property, plant and equipment Current assets Trade & other receivables Contract assets Cash & cash equivalents Held for sale assets Total assets Liabilities Current liabilities Trade payables Contract liabilities Government grants Borrowings Lease liability Accruals and other creditors Deferred tax Tax liabilities Held for sale liabilities Total current liabilities Net Assets / (Liabilities) Equity Share capital Share premium account P&L reserve Share-based payment reserve Capital redemption Reserve Merger reserve Total equity FRS 102 as at 31 Reclassification and IFRS as at 31 December 2019 Remeasurements December 2019 £'000 219 2,402 - 155 2,129 106 230 - 5,241 (559) (603) (257) (5,379) - (996) (31) (546) - (8,371) (3,130) - 2 (3,132) - - - (3,130) £'000 292 - 98 (9) (208) - (76) 292 389 127 - - - (95) - - - (127) (95) 294 - - 294 - - - 294 £'000 511 2,402 98 146 1,922 106 154 292 5,631 (433) (603) (257) (5,379) (95) (996) (31) (546) (127) (8,467) (2,836) - 2 (2,838) - - - (2,836) 101 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 Group Reconciliation of Total Comprehensive Income for the year ended 31 December 2019 FRS 102 as at 31 Reclassification and IFRS as at 31 December 2019 Remeasurements December 2019 Revenue Cost of sales Gross profit Administrative expenses Other operating income Operating profit Tax Loss after tax from continuing operations Profit/(Loss) after tax from discontinued operations Total comprehensive loss for the year Loss per share - basic (£) On continuing operations On discontinued operations Loss per share - diluted (£) On continuing operations On discontinued operations £'000 9,729 (5,079) 4,650 (6,713) 319 (1,744) 369 (1,375) - (1,375) (0.05) (0.05) (0.01) (0.05) (0.04) (0.01) £'000 (1,070) 882 (188) 643 - 455 - 455 (161) 294 £'000 8,659 (4,197) 4,462 (6,070) 319 (1,289) 369 (920) (161) (1,081) (0.05) (0.05) (0.01) (0.05) (0.04) (0.01) date of transition to IFRS. Right-of-use assets were measured at the amount equal to the lease liabilities adjusted by the amount of any prepaid or accrued lease payments. The transition to IFRS resulted in an adjustment to the Right of Use asset and lease liability opening balances at 1 January 2019 of £60k. The net impact to retained earnings for 2019 was £3k. The resulting adjustments to the Right of Use asset and lease liability as at 31 December 2019 was £98k and £95k respectively. b) Assets held for sale Under FRS 102 there is no separate classification for assets held for sale and as such balances are consolidated in the statement of financial position. IFRS requires separate presentation of disposal groups and so, upon transition to IFRS, the Group has reclassified net assets attributable to Beam ABA Services Limited as assets held for sale. The decision was made to put the Company up for sale in December 2017, and the directors announced their intention to sell. As a result the reclassification of net assets as held for sale has been applied to all prior periods presented. Under FRS 102 discontinued operations are only presented upon sale. As a result items of revenue and costs have been reclassified to loss from discontinued operations for 2019 at a net impact of £161k. c) Goodwill IFRS 1 requires that the FRS 102 carrying amount of goodwill must be used in the opening IFRS statement of financial position. The impact on the accounts is to reverse the annual amortisation recognised under FRS 102 of £292k in 2019. d) Cash flows There have been no material adjustments made to the statement of cash flows as a result of the transition to IFRS. 30) Standards issued but not yet effective The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective. Amendments to IFRS 3: Definition of a Business In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. New illustrative examples were provided along with the amendments. Notes to the reconciliation of equity as at 1 January 2019 and 31 December 2019 and total com- prehensive income for the year ended 31 December 2019. Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application, the Group will not be affected by these amendments on the date of transition. a) Leases Under FRS 102, a lease is classified as a finance lease or an operating lease. Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term. Under IFRS, a lessee applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets and recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. At the date of transition to IFRS, the Group applied the transitional provision and measured lease liabilities at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the Amendments to IAS 1 and IAS 8: Definition of Material In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.’ 102 103 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020The amendments to the definition of material are not expected to have a significant impact on the Group’s consolidated financial statements. The new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 January 2020, and which have a minimal impact on the financial statements are: Prepayment Features with Negative Compensation (Amendments to IFRS 9) Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) IFRIC 23 Uncertainty over Income Tax Treatments • • • • Annual Improvements to IFRS 2015–2017 Cycle (Amendments to IAS 12, IAS 23, IFRS 3 and IFRS 11) • Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) 31) Ultimate controlling party Kooth plc is controlled by Root Capital LLP trading as ScaleUp Capital, incorporated in the United Kingdom. 32) Events after the reporting date There have been no material events. 33) Capital commitments The Group’s capital commitments at 31 December 2020 are £nil (FY19: £nil). Company financial statements Parent company statement of financial position Note 31 December 2020 Assets Non-current assets Investments Current assets Trade & other receivables Deferred tax Intercompany receivables Cash & cash equivalents Total current assets Total assets Liabilities Current liabilities Trade payables Intercompany payables Total current liabilities Net current assets Non-current liabilities Net Assets / (Liabilities) Equity Share capital Share premium account P&L reserve Share-based payment reserve Capital redemption reserve Merger reserve Total equity 34 38 39 35 36 40 35 41 41 41 41 41 £'000 4,414 114 15 6,734 6,674 13,537 17,951 (23) (2,891) (2,914) 10,623 - 15,037 1,653 14,222 2,622 529 115 (4,104) 15,037 The notes on pages 107 to 110 form part of the financial statements. As permitted by section 408 of the Companies Act 2006, the income statement of the parent company is not presented as part of the financial statements. The parent company’s loss for the financial period was £115,067. The financial statements of Kooth plc (Company registration number 12526594) were approved by the Board of Directors and authorised for issue on 13 April 2021. They were signed on its behalf by: Sanjay Jawa Chief Financial Officer 13th April 2021 104 105 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 Parent company statement of changes in equity Notes to the Company financial statements Share Based Capital Share Share Payment P&L Redemption Merger Total Capital Premium Reserve Reserve Reserve Reserve Equity Basis of Preparation Balance at 19 March 2020 - - Issue of share capital Share for share exchange Capital reduction Share based payments Total comprehensive income for the year As at 31 December 2020 400 3,989 (2,736) - - 14,222 - - - - 1,653 14,222 - - - - 529 - 529 - - - 2,736 - (114) 2,622 - - - - 14,622 115 (4,104) - - - - - - - - 529 (114) 115 (4,104) 15,037 The notes on pages 107 to 110 form part of the financial statements. 106 The financial statements are presented for the first time since incorporation. The Financial Statements are presented in pound sterling, rounded to the nearest thousand, unless otherwise stated. They are prepared under the historical cost basis, except that derivative financial instruments are stated at their fair value, and in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and the Companies Act 2006. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based payments, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation of a cash flow statement, standards not yet effective, impairment of assets and certain related party transactions. Where required, equivalent disclosures are given in the Consolidated Financial Statements. As permitted by section 408(4) of the Companies Act 2006, a separate income statement and statement of comprehensive income for the Company has not been included in these Financial Statements. The principal accounting policies adopted are described below. They have all been applied consistently to all years presented. Amounts receivable by the Company’s auditor and its associates in respect of services to the Company and its associates, other than the audit of the Company’s Financial Statements, have not been disclosed as the information is required instead to be disclosed on a consolidated basis in the Consolidated Financial Statements. The following are key accounting policies for the Company: • Basis of Preparation • Going concern • • Trade receivables and payables Cash and cash equivalents These policies of the company are consistent with those adopted by the Group and disclosed in note 2 to the consolidated financial statements. The following are additional accounting policies that relate to the Company. Investments Investments are stated at their cost less impairment losses. Intercompany Intercompany balances are intercompany loans, and comprise of amounts owed to/owing from subsidiaries. IFRS 9 expected credit losses have been assessed as immaterial in relation to these balances. Any key judgements or estimates are consistent with those adopted by the Group. 34) Investments Investment in subsidiary 2020 £'000 4,414 107 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 35) Intercompany 39) Deferred tax assets Intercompany receivable balances Kooth Group Limited Intercompany payable balances Kooth Digital Health Limited 36) Cash and cash equivalents Cash and cash equivalents 37) Related parties 2020 £'000 6,734 (2,891) 2020 £'000 6,674 Key management personnel are the executive members of the Board of Directors. Remuneration applicable to the Company is disclosed below, with further information disclosed in the Remuneration Committee report. Salaries Social security costs Pension costs Total remuneration 38) Trade Receivables Prepayments and other receivables VAT receivable 2020 £'000 157 21 3 181 2020 £'000 38 76 114 At 1 January 2020 - asset/(liability) Movement - (charge)/credit At 31 December 2020 - asset/(liability) 40) Trade payables Trade payables 41) Equity Ordinary A shares Ordinary B shares Number of shares Ordinary A Shares Tax losses - 15 15 2020 £'000 23 2020 £'000 1,653 - 1,653 2020 33,055,776 The share capital of Kooth plc consists of fully paid ordinary shares with a nominal value of £0.05 per share. The A ordinary shares have attached to them full voting, dividend and capital distribution rights (including on winding up). They do not confer any right of redemption. B ordinary shares have attached to them no voting, dividend or capital distribution rights (including on winding up). They do not confer any rights of redemption. Upon incorporation of Kooth plc, the Company entered into a share for share exchange agreement whereby 1,000,000 A ordinary and 367,928 B ordinary £3 shares were issued in the capital of Kooth plc. The Company then undertook a reduction of capital whereby the total aggregate nominal amount of share capital was reduced from £4,104,000 to £1,368,000 by reducing the nominal value of each share from £3 to £1. Subsequent to this, and prior to the listing on AIM, the Company undertook a reorganisation whereby 1,000,000 A ordinary shares and 367,928 B ordinary shares £1 shares were sub-divided into 20,000,000 A ordinary shares and 7,358,560 B ordinary shares of £0.05. 108 109 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 These shares were reclassified into 25,055,776 ordinary A shares and 2,302,784 deferred shares of £0.05. The deferred shares were subsequently bought back and cancelled by the Company. On 2 September 2020, Kooth plc issued 8m new ordinary A shares of 200p each via an Initial Public Offering and admission to AIM. This brought the total shares in issues to 33,055,776. Upon Admission, the B shares converted into Ordinary A shares. Share Premium 2020 £'000 14,222 Share premium represents the funds received in exchange for shares over and above the nominal value, offset by £1,378k of costs incurred on the raise of equity. Share based payment reserve 2020 £'000 529 The share based payment reserve represents amounts accruing for equity settled share options granted plus the fair value of Executive growth shares realised upon IPO. Merger reserve 2020 £'000 (4,104) The merger reserve was created a result of the share for share exchange. The accounting policy developed in line with IAS 8 was that the assets and liabilities of the subsidiaries were consolidated at book value in the Group financial statements and the consolidated reserves of the Group were adjusted to reflect the statutory share capital, share premium and other reserves of the Company as if it had always existed, with the difference presented as the merger reserve. Capital redemption reserve 2020 £'000 115 The capital redemption reserve was established as a result of the deferred share buyback. Nominated Adviser and Broker Auditors PR Advisers to the Company Panmure Gordon (UK) Limited One New Change London EC4M 9AF Grant Thornton (UK) LLP 30 Finsbury Square London EC2A 1AG FTI Consulting LLP 200 Aldersgate, Aldersgate Street London EC1A 4HD Registrars Equiniti Limited Aspect House, Spencer Road Lancing, West Sussex BN99 6DA Company Secretary Richard Almond The Epworth, 25 City Road London EC1Y 1AA Legal Advisers Square Patton Boggs (UK) LLP 7 Devonshire Square London EC2M 4YH 110 111 Financial StatementsFinancial StatementsKooth plc Annual Report 2020Kooth plc Annual Report 2020 Company Registered Office Kooth plc The Epworth 25 City Road, London EC1Y 1AA investors.kooth.com 112 investorrelations@kooth.com Financial StatementsKooth plc Annual Report 2020

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