ANNUAL REPORT & ACCOUNTS 2022 LoopUp Group plc | Annual Report & Accounts 2022 Reinventing multinational telephony STRATEGIC REPORT 2 Financial Highlights 4 Cloud Telephony 8 Co-Chief Executive Officers’ Statement 10 Strategic Priorities 12 Our People and Culture 14 Corporate Social Responsibility 15 Streamlined Energy and Carbon Reporting (SECR) 16 Chief Financial Officer’s Review 18 Principal Risks and Uncertainties 20 Section 172 Statement GOVERNANCE 22 Board of Directors 24 Chairman’s Statement 25 Corporate Governance Report 34 Audit Committee Report 35 Nomination Committee Report 36 Remuneration Committee and Remuneration Report 39 Directors’ Report 41 Directors’ Responsibilities Statement FINANCIAL STATEMENTS 42 Independent Auditor’s Report 50 Consolidated Statement of Comprehensive Income 51 Consolidated Statement of Financial Position 52 Company Statement of Financial Position 53 Consolidated Statement of Changes in Equity 54 Company Statement of Changes in Equity 55 Consolidated Statement of Cash Flows 56 Company Statement of Cash Flows 57 Notes to the Financial Statements 88 Company Information and Corporate Advisers LoopUp Group plc | Annual Report & Accounts 2022 1 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 2 2018 2018 2018 2018 2022 34.2 7.7 23.9 4.5 (8.0) 2019 2019 2019 2019 42.5 6.4 28.2 1.2 2020 2020 2020 2020 50.2 15.3 35.6 9.0 2021 2022 2021 2022 2021 2022 2021 19.5 16.5 1.2 (0.9) 13.5 11.4 (6.1) £M £M £M £M FINANCIAL HIGHLIGHTS Revenue £16.5m Gross profit £11.4m Adjusted EBITDA1 £(0.9)m Cash at 31 December 2022 £1.7m Adjusted operating loss1 £(8.0)m Continued strategic transition for the Group with focus now on multinational Cloud Telephony Notes: 1. Adjusted EBITDA and operating loss exclude exceptional reorganisation costs, non-recurring transaction costs, amortisation of acquired intangibles and share-based payments charges. (2021: £5.5m) LoopUp Group plc | Annual Report & Accounts 2022 3 Strategic Report Governance Financial Statements 0 1 2 3 4 5 6 7 8 Q1-22 Q2-22 Q3-22 Q4-22 0 20 40 60 80 100 120 140 180 160 Contracts Customers 3.5 29 3.1 2.7 7.2 78 51 227% 169% 167 Significant uplift in Q4 – 2022 revenue run-rate 2022 quarterly revenue (£m) Strong commercial traction in Cloud Telephony Customers and contracts Chart key: At 1 January 2022 At 31 December 2022 LoopUp Group plc | Annual Report & Accounts 2022 4 Reinventing multinational telephony CLOUD TELEPHONY Microsoft Teams is a prime example where video has led to more engaged calls and meetings for teams, delivered on a globally consistent basis for multinationals. One-to-one telephony may no longer dominate everyday communications, but it remains business critical to be reachable via a business phone number, wherever you may be. At LoopUp, we believe next generation telephony will be integrated into the dominant Microsoft Teams experience. We also believe there are clear benefits for multinational businesses to manage telephony on a similarly global basis to Teams itself. The status quo of multiple contracts with multiple regional carriers using multiple administration tools and support processes is unnecessarily complex and inefficient. Great communication is at the heart of all successful organisations. Business leaders are constantly seeking new ways to drive quality, simplicity and efficiency into their communications choices. Cloud Telephony LoopUp exists to help multinational businesses streamline and simplify next generation telephony, globally. We understand that consolidated vendor supply represents a change from local fragmented purchasing. We have a 20-year heritage providing premium quality voice communications with a high duty of care to some of the most demanding multinational organisations. We offer regulated and compliant service provision globally, and work with our customers as partners. PROVIDER MANAGEMENT PORTAL TARIFF NETWORK OF VOICE CARRIERS SUPPORT TEAM ONE GLOBAL: LoopUp Group plc | Annual Report & Accounts 2022 5 Strategic Report Governance Financial Statements End Q1-21 End Q2-21 End Q3-21 End Q4-21 End Q1-22 End Q2-22 End Q3-22 End Q4-22 End Q1-23 Current 2,500 2,000 1,500 1,000 500 0 Strong growth in booked ARR (Annual Recurring Revenue) Win cohorts: Q2TD-23 Q1-23 Q4-22 Q3-22 Q2-22 Q1-22 Q4-21 Q3-21 Q2-21 Q1-21 Booked ARR (£'000) Progressive growth in all win cohorts Zero customer churn LoopUp Group plc | Annual Report & Accounts 2022 6 CLOUD TELEPHONY LoopUp Cloud Telephony Global Coverage Operator Connect & Direct Routing Direct Routing Bring your own carrier (via SBC) N/A LoopUp Group plc | Annual Report & Accounts 2022 7 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 8 Meetings platform, and a 167% increase in Q4-22 revenue over Q3-22 as a result. While our now materially larger Meetings business will inevitably continue to decline over time in the face of customers switching to broader UC platforms such as Microsoft Teams, our Meetings business nevertheless represents a valuable source of cash generation to fund the growth of our relatively young, but fast-growing and exciting Cloud Telephony business that we launched in September 2020. We achieved strong commercial progress in Cloud Telephony during FY-22 with triple digit growth in both customer numbers and booked Annual Recurring Revenue (ARR). Furthermore, Microsoft has since certified our product onto its Operator Connect partner program with differentiated country coverage of regulated/licensed service provision. LoopUp now has the broadest coverage of the c.65 certified telecommunications partners globally. This has enhanced our proposition to multinational target market customers and we have seen accelerating ARR growth during FY-23 to date. Strong commercial momentum in Cloud Telephony The Group’s flagship Cloud Telephony solution is integrated into Microsoft Teams and enables users to make phone calls to external phone numbers and receive phone calls to their own work phone numbers, all seamlessly via their Teams- enabled devices. Our platform targets multinational mid-market and enterprise organisations with the value proposition of consolidating their global telephony procurement with one vendor partner – LoopUp – rather than from multiple geographic-specific carriers. Cloud Telephony now sits squarely at the heart of the Group’s forward-looking growth strategy, and we achieved strong operational progress and commercial traction during FY-22. Customer numbers grew by 169%, a growth of 49 customers from the 29 at the end of FY-21 to 78 at the end of FY-22. Given the geographic rollouts generally associated with multinational customer deployments, customer wins often comprise multiple individual contracts over time. In FY-22, individual contract numbers grew from the 51 contracts with the Group’s 29 customers at the end of FY-21 to 167 with the Group’s 79 customers at the end of FY-22, a growth of 116 contracts or 227%. Commercially, the Group turned a corner during FY-22, following a challenging transition period since the COVID-19 pandemic. We made strong commercial progress in our primary Cloud Telephony business and benefitted from a material injection of new business into our otherwise generally declining Meetings business. On the surface, Group revenue of £16.5 million marked a 15% reduction from £19.5 million in FY-21. However, we saw a material improvement in the second half of the year with £9.9 million revenue in H2-22 compared to £6.6 million revenue in H1-22 (£8.0 million in H2-21). More precisely, the change in run-rate hit in October 2022 following the ‘Revenue Sharing and Customer Transfer Agreement’ with PGi Connect. This saw more than 7,000 customers transition from PGi Connect onto the LoopUp Strong commercial traction in Cloud Telephony We believe the combination of our technology assets built over 20 years, together with our team's expertise transcending software, telecommunications, and unified communications, positions the Group with material differentiation and barriers to entry for our multinational Cloud Telephony strategy.” Steve Flavell and Michael Hughes CO-CHIEF EXECUTIVE OFFICERS' STATEMENT 9 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 Booked ARR from these 78 customers stood at £1.65 million at the end of FY-22, a 188% increase from £0.57 million at the end of FY-21. This represents the minimum contractually guaranteed level of won ARR, and the Group realistically expects the ARR from these 78 customers to progress to c.£3.2 million as rollouts progress, materially above the minimum contracted level. Nearly all of the Group’s Cloud Telephony customers are on 3-year initial term licence contracts. To date, the Group is proud to have experienced zero gross customer churn since entering the market and very strong Net Revenue Retention (NRR). NRR was 159% in FY-22, this being the ratio of booked ARR at the end of FY-22 to booked ARR at the end of FY-21 from the cohort of 29 customers in place at the end of FY-21. Late stage sales cycles in Cloud Telephony often involve a Proof of Concept (POC), which enables prospective customers to test our technology in their own IT environment. At the end of FY-22, our success rate in POCs stood at 95%, with 19 out of 20 POC projects completed by the Group having successfully converted into customer wins. The Group maintains a strong pipeline of future Cloud Telephony sales opportunities (c.£100 million ARR). We are confident in our continued Cloud Telephony growth prospects and are excited by the traction and potential of our differentiated multinational solution in this large Cloud Telephony market, which is forecast to grow from £21.2 billion in 2022 to £31.4 billion by 2027. Meetings and PGi Connect transaction The Group’s Meetings business remains structurally in decline, primarily due to customers switching to Microsoft Teams meetings as part of a broader unified communications strategy on that platform. However, our Meetings business received a substantial boost in September 2022, when the Group announced a ‘Revenue Sharing and Customer Transfer Agreement’ with PGi Connect. The agreement gave LoopUp the rights to onboard materially all of PGi Connect’s conferencing services customers. While no initial or fixed consideration was payable, the Group agreed to pay PGi Connect a share of invoiced and received revenue from successfully transferred customers for a period of three years. Since October 2022, LoopUp has transitioned approximately 7,000 former PGi Connect customers onto its Meetings platform. This led to Meetings revenue increasing from c.£2.7 million in Q3-22 to c.£7.2 million in Q4-22, an increase of c.167%. While this transitioned Meetings business is expected to decline over time, it is nevertheless highly cash generative, with a gross margin of 65-70% (after LoopUp COGS and PGi Connect revenue share) and just c.£0.3 million in incremental quarterly staff and overheads costs. Hybridium Following the acquisition of SyncRTC Inc. in October 2021, the Group has since rebranded this line of business to Hybridium (www.hybridium.com) as a hybrid events business. The solution is focused on relatively large-scale corporate events that have a mix of in-room and remote guests and/or a mix of in-room and remote hosts/presenters, such as management onsites, departmental kick-offs, capital markets days and thought leadership seminars. Events with Hybridium’s video wall technology benefit from ultra-low latency at ultra-high resolution, with full video wall layout flexibility facilitating any content on any section of the wall. In April 2022, Hybridium signed a landmark deal with Telefónica, which has deployed the solution at its ‘Universitas’ global innovation and talent hub, located at its Madrid headquarters in Distrito Telefónica. The majority of 2022 product development time has been spent materially reworking the platform from its legacy education focus to a next generation version for large scale hybrid corporate training and events. The Group is currently reviewing its go-to-market strategy with a view to the scalable growth potential of this differentiated technology, and will make further market announcements in due course. Outlook While the Directors expect the Group’s Meetings business to continue to decline over time, this is now from a materially larger base following the transition of former PGi Connect customers. Combined with the fast and accelerating growth in its primary forward-looking Cloud Telephony business, the Directors are confident in the Group’s ability to meet FY-23 market expectations. Steve Flavell Michael Hughes Co-CEO Co-CEO 29 June 2023 LoopUp Group plc | Annual Report & Accounts 2022 10 Growing our multinational Cloud Telephony business PRIORITY EXPLANATION Building scalable and efficient routes to market Developing sustainable competitive advantage in multinational Cloud Telephony 1. CLOUD TELEPHONY COMMERCIAL GROWTH 2. DIFFERENTIATED MULTINATIONAL TELEPHONY VALUE PROPOSITION STRATEGIC PRIORITIES LoopUp Group plc | Annual Report & Accounts 2022 11 Strategic Report Governance Financial Statements ACHIEVEMENTS OUTLOOK Closed 49 customers in 2022 Closed 116 contracts in 2022 Achieved zero customer churn Increased pipeline size to c.£100 million Developed new billing engine Increased licensed country coverage Launched global administration portal Continue strong direct sales traction Add indirect channel distribution Gain certification on Microsoft's Operator Connect program Top 5 geographic coverage on Operator Connect Develop channel partner portal LoopUp Group plc | Annual Report & Accounts 2022 12 OUR PEOPLE AND CULTURE Our focus has switched to multinational Cloud Telephony, but our commitment to teamwork remains steadfast.” Steve Flavell Co-CEO We have a team of incredibly motivated individuals who really believe in our approach and as a result, are able to provide connected and best-in-class services to our customers. We are constantly challenging ourselves as a team and as a business to think better and do better. Teamwork has been, and always will be, at the heart of LoopUp’s culture. Even with the shift towards remote working and the continued broad global presence of employees it is important that all of LoopUp’s employees are focussed, motivated, suitably rewarded and understand the aims of the company. It is this deep-rooted team culture that differentiates our products and service to customers in our markets. 2022 has perhaps seen the biggest need for that teamwork and LoopUp’s employees have risen to the challenge – adopting new efficient and highly collaborative methods of working and delivering under great pressure. The successes of the company is hugely due to this hard work, loyalty and excellence. Our 5 pillars Our 5 key pillars which support our culture and values remain as: 1. Reward and recognition – rewarding individuals and teams for demonstrating our values 2. Learning and Development – encouraging the development and sharing of skills amongst employees, and supporting those driven to be industrious, ambitious, innovative and curious 3. Wellbeing – looking after our employees, ensuring equity, respect, opportunity and wellbeing 4. Corporate Social Responsibility – acting with integrity for our employees, shareholders, stakeholders and the wider community 5. Social – ensuring we have fun along the way. Female employees 40% Employees (at year end) 158 Excluding recent hires as a result of the PGi transaction – employees currently with over 2 years’ service 87% KEY STATS LoopUp Group plc | Annual Report & Accounts 2022 13 Strategic Report Governance Financial Statements ACTING WITH PROFESSIONALISM Being accountable and reliable Displaying professionalism Acting with integrity DEMONSTRATING A ‘ONE TEAM’ ATTITUDE Treating others with trust and respect Being collaborative, helpful and supportive Making the job fun DISPLAYING A PASSION FOR RESULTS Being industrious, determined and ambitious Taking ownership and being a self-starter Being innovative, curious and agile Focusing on business outcomes and taking a lean approach Our values Equity incentive schemes As part of this focus we aim to develop, motivate and reward our employees. In July 2021, we launched the LoopUp Employee Share Incentive Scheme (ESIS), whereby employees can choose to sacrifice a percentage of their base salary in return for equity in LoopUp. The scheme has been highly successful with approximately 80 employees taking part. That success has continued throughout 2022 – showing signs that our employees also believe in the LoopUp story. In addition, the company has continued to use the approved share options schemes to incentivise and retain key employees. The directors consider these schemes as a great way to reward employees, while aligning their interest with the company and all shareholders. New ways of working We have continued our highly successful method of empowering individuals on how they work – whether that is in the office or remotely. Staff are well equipped and able to work efficiently remotely, making the most of the technology available. This approach sees choices being driven by the needs of each team to drive productivity, the specific situation and preferences of individuals, and the company’s need to retain effective communications and guiding culture. Regular communications from our co-CEOs, Executive Leadership Team and senior management team have served to reassure, support and connect colleagues while remote working continues. LoopUp Group plc | Annual Report & Accounts 2022 14 CORPORATE SOCIAL RESPONSIBILITY Respecting our environment, our communities and our future At LoopUp, we consider Corporate Social Responsibility (CSR) as an intrinsic part of our business. We are committed to: promoting equality and social mobility; reducing the impact of our activities on the environment; and supporting entrepreneurial activities. We contribute through a combination of charitable giving, volunteering and mentorship, and we collaborate with charities, not-for-profit organisations and community groups. Silicon Valley Internship Programme (SVIP)) The Silicon Valley Internship Programme (SVIP) was founded by LoopUp’s co-CEO, Michael Hughes, in 2013. Michael works with a group of volunteers who want to give back to the entrepreneurial community with a view to spreading innovation, diversity, and entrepreneurship around the world. The program gives newly graduating software engineering students (and related disciplines) the unique experience of working with tech companies in the San Francisco Bay Area through a one-year paid internship. The aim is that through this experience, SVIP interns will pick up and bring back a little bit of the Silicon Valley culture to the entrepreneurial community in their home countries. Successful applicants are matched with a tech company in the Bay Area and will work as an integral part of that engineering team. SVIP arranges for US work visas, provides flights to and from San Francisco, and organises the first month’s accommodation. During the programme, SVIP hosts regular ‘Meet the Entrepreneur’ and ‘Hackathon’ events, which take the participants through the company formation process from idea to revenue. SVIP places into small to medium sized high growth software companies, ranging from enterprise software to consumer offerings, and even tools for developers. SVIP interns gain hands-on experience of day-to-day Silicon Valley life, and that can sometimes mean shoes in the office being optional or high-level meetings conducted over a game of ping pong. We recognise that we have a responsibility to our employees, to the communities in which we work, and to our planet. LoopUp Group plc | Annual Report & Accounts 2022 15 Strategic Report Governance Financial Statements Environmental impact This year LoopUp has signed up to a target of achieving Net Zero emissions by 2040. Group usage of energy varies by office location and is a combination of: being metered and paid for by the Group as consumed; and being pooled across all building tenants and paid for by the Group as part of a service. Energy consumption across the Group has been estimated by calculating electricity usage per employee where data is available for energy directly consumed or recommended estimated figures for remote workers. This usage per employee figure has then been applied to all employees in the Group. The greenhouse gas emissions have been calculated using a conversion factor of 0.191 tCO2e per MWh for electricity and 0.032 for homeworking (office equipment). These are the greenhouse gas conversion factors recommended by the UK Government for company reporting purposes. The Group has no significant energy consumption which falls into scope 1. LoopUp energy consumption data, 2022 UK International Total Energy consumption (MWh) 106 71 177 Scope 2: (tCO2e) 22.5 15.0 37.5 Employees 121 81 202 tCO2e per employee 0.19 0.19 0.19 In 2022, the Group continued its actions to reduce energy consumption and greenhouse gas emissions. Travel for in-person meetings, especially for overseas travel, is only encouraged where required or beneficial. LoopUp Group plc | Annual Report & Accounts 2022 16 CHIEF FINANCIAL OFFICER’S REVIEW A year of consolidation The highly unusual PGi transaction solidified the cash generation of the meetings and events businesses, as the growth in the Cloud Telephony business continues on plan.” Simon Sacerdoti During 2022, the Group has continued to make good progress in its strategic transition towards hybrid communications and collaboration. The PGi Connect agreement, which took effect from 1 October 2022, has significantly bolstered the Group’s financial position and returned the Group to a positive EBITDA run-rate. Operating results The Group’s primary segment is LoopUp Platform Capabilities (LPC), which includes Meetings, Virtual Events and Cloud Telephony. The structural decline in the Meetings business that began in lockdown continued throughout FY-22. The PGi Connect agreement brought a significant boost to Meetings and Virtual Events revenue in Q4. In addition, the Cloud Telephony business grew 62% to £1.2 million (FY-21: £0.74 million). As a whole, LPC revenue fell by 12% to £13.0 million (FY-21: £14.8 million)., reflecting the historically stronger Meetings business and the fact that the PGi Connect agreement only came into effect in Q3-22. The Group’s revenue from Hybridium in the year was £0.6 million (2021 post acquisition revenue: £0.2 million). Revenue from low margin third party resale services declined by 32% to £3.0 million (FY-21: £4.4 million). The Group’s overall gross profit decreased by 15% to £11.4 million (FY-21: £13.5 million), which reflects the reduction in revenue as gross margin increased to 69.3% (FY-21: 69.0%). This slight improvement in margin represents a significant shift in revenue mix away from the low margin resale services, towards the higher margin Meetings and Cloud Telephony business. The gross profit on LPC business fell by 16% to £9.8 million (FY-21: £11.7 million), at a lower gross margin of 75.9% (FY-21: 79.1%). The reduction in margin is a result of the revenue share payable on PGi Connect transitioned business (around 13% on amounts invoiced and paid by customers). LoopUp Group plc | Annual Report & Accounts 2022 17 Strategic Report Governance Financial Statements The administrative costs of the Group in 2022 were stable at £12.3 million (FY-21: £12.3 million). This results from management’s focus on cost control as the nature of the Group’s business continues to change. The modest increase in staffing and overhead levels necessitated by the increased volume of Meetings and Virtual Events activity arising from the PGi Connect agreement has been successfully accommodated without increasing the overall cost-base of the Group. Assets and Cash Flow The Group had an operating cash outflow after capital expenditure of £6.0 million (FY-21: £11.1 million). This was partly offset by the proceeds of a placing in October 2022, which raised £3.1 million net of costs. Net debt (i.e. total debt, less cash balances) has risen to £5.8 million as at 31 December 2022 (2021: £2.4 million). In 2018, the Company entered into a term loan with Bank of Ireland for £17.0 million, which has since reduced to £6.8 million as at 31 December 2022 (balance at 31 December 2021: £6.8 million). During the year, the Group successfully renegotiated and amended this senior debt with Bank of Ireland to reflect the Group’s ongoing strategic transition plan. Key elements of the amended arrangements include: A holiday on planned principal repayments through to June 2023, representing £1.7 million in aggregate deferred payments; A margin increase of 2.0 percent, taking the total interest rate to 4.5 percent above the Sterling Overnight Index Average (SONIA); An extension of the term through to September 2023; A revised set of financial covenants which are more concerned with sufficient ongoing cash liquidity, EBITDA, and the growth objectives for Cloud Telephony; The Group's undrawn revolving credit facility of £1.5 million, which was drawn in the year, was repaid, and terminated. Since the year-end, the term of this loan has been extended so that it now matures at the end of September 2024, at which point it will need to be repaid or refinanced. The key commercial characteristics of the loan remain unchanged during this extended term. Key performance indicators As the Group is in a state of strategic transition, the key performance indicators (KPIs) used by management to monitor the business continue to be developed in line with the transition. The financial indicators currently being used by management to monitor performance align closely with the performance highlights set out on page 2, and pages 3 and 5 set out some of the more granular KPIs that management tracks in respect of the Cloud Telephony business. Simon Sacerdoti CFO 29 June 2023 Adjusted EBITDA £(0.9)m Revenue £16.5m FY2021: £19.5m LoopUp Group plc | Annual Report & Accounts 2022 18 PRINCIPAL RISKS AND UNCERTAINTIES As with any business, the Group is subject to a number of risks and uncertainties, some of which are outside of our control. The Board confirms that there are ongoing processes for identifying, evaluating and mitigating the significant risks facing the Group. The processes are consistent, so far as appropriate given the size and nature of the business, with the guidance issued by the Financial Reporting Council. Below, we have identified the principal risks and uncertainties which could have an adverse material impact on the Group. This list is not exhaustive and it should be noted that additional risks, which the Group does not consider material, or of which it is not aware, could have an adverse impact on the Group. PRINCIPAL RISK OR UNCERTAINTY IMPACT MITIGATION COMPETITION AND TECHNOLOGICAL CHANGE The Group operates in dynamic software technology and telecommunications markets, which may be subject to material change in terms of customer demand and substitutional technology. The Group’s primary competitors are, in many cases, significantly larger enterprises with greater financial and marketing resources. There can be no guarantee that the Group’s current competitors or new entrants to the market will not bring new or superior technologies, products or services at similar or lower prices. While certain products in the Group’s portfolio may experience threat and decline due to competition and technological change from time to time, the Group maintains a policy of active product development and, if appropriate, technology acquisition that can promote long term business sustainability. PEOPLE Difficulties encountered in retaining senior staff and recruiting appropriate employees, and the failure to do so, or a change in market conditions that renders current incentivisation structures lacking, may hinder the Group’s ability to grow. The Group always seeks to ensure that it has appropriate incentivisation structures in place to attract and retain the calibre of employees necessary to ensure the efficient management, operation and growth of the business. KEY SYSTEM FAILURE OR DISRUPTION Any malfunctioning of the Group’s technology and systems, or those of key third parties, even for a short period of time, could result in a lack of confidence in the Group’s services, with a consequential material adverse effect on operations and results. The Group regularly reviews the appropriate redundancy and resiliency in its network operations, is ISO 27001 certified across its global operations, and has implemented a sophisticated Service Event Response Team (SERT) with detailed processes and procedures for responding to any size or type of service outage or disruption. Members of the SERT are located around the world, enabling 24x365 coverage. LoopUp Group plc | Annual Report & Accounts 2022 19 Strategic Report Governance Financial Statements Key Increased Decreased Unchanged PRINCIPAL RISK OR UNCERTAINTY IMPACT MITIGATION PRODUCT DEVELOPMENT New capabilities and enhancements introduced into the Group’s products may contain undetected defects that fail to meet customers’ performance expectations or satisfy contract specifications, and this may impact the Group’s results and reputation. All product releases are put through rigorous quality assurance cycles, followed by internal user acceptance testing before release to customers in a considered and organised rollout strategy. Care is also taken to be able to ‘roll back’ to previous versions of the product whenever practically possible. INTELLECTUAL PROPERTY Challenges to the Group’s intellectual property or alleged infringements of others’ intellectual property, by either competitors or other third parties, could result in costs, liabilities and operational uncertainties for the Group and there can be no guarantee as to the outcome of any such challenge or associated litigation. The Group also licenses software from third parties and the Group’s continuing rights to do so cannot be guaranteed. The Group is aware neither of any challenges to its intellectual property, including its granted patents, nor of any infringements to others’ intellectual property. We maintain an active policy regarding patents and trademarks as appropriate. The Group strives to maintain robust contracts with any key software licensed from third parties, and is aware of and informed about alternative sources of supply as necessary. FOREIGN EXCHANGE Given the Group’s material US sales and operations, fluctuations in foreign currency exchange rates could have a material effect on the Group’s revenue and profitability, and there can be no guarantee that the Group would be able to compensate or hedge against such effects. The Group’s costs and revenues in US Dollars are broadly aligned, providing a natural hedge. This position is monitored continually by management. LoopUp Group plc | Annual Report & Accounts 2022 20 SECTION 172 STATEMENT The Board identifies the following as its key stakeholders, and it is committed to effective engagement with them to promote the success of the company for the benefit of each group: Shareholders Our aim is to promote long term value and growth to our shareholders. Through our AGMs, investor meetings, announcements and other discussions with our shareholders, we are able to communicate effectively with this group to help shape our commercial strategy. Please see our Corporate Governance Report on pages 25 to 33 for further information. Employees We are committed to investing in our people and creating an environment where every employee can reach their full potential. We regularly communicate with our employees via face-to-face meetings, employee surveys as well as team and company-wide meetings. Such communication drives the process on how we can support our employees reaching their potential. Please see the section on Our People and Culture on pages 12 and 13 and our Corporate Governance Report on pages 25 to 33 for further information. Customers We pride ourselves on providing a reliable, secure and productive service to customers for business-critical communications. As well as the day-to-day contact from our Account Managers with customers we also seek feedback at the end of each call via LoopUp and host product advisory sessions. This information shapes how we innovate and develop our services. Please see pages 4 to 7 and our Corporate Governance Report on pages 25 to 33 for further information. Community We believe in making a commitment to the communities we live and work in, to our planet and to society more broadly. Please see our Corporate Social Responsibility section on pages 14 and 15 for further information. Relevant information obtained from our key stakeholders is provided to the Board through reports sent in advance of each Board meeting and through in-person presentations. As a result of these activities, the Board has an overview of engagement with stakeholders, and other relevant factors, which enables the Directors to comply with their legal duty under section 172 of the Companies Act 2006. This strategic report was approved by the Board of Directors and authorised for issue on 29 June 2023. It was signed on their behalf by: Steve Flavell Co-CEO 29 June 2023 We believe that proactively engaging with, and acting on the needs of, our key stakeholders is critical to a culture and strategy that achieves long-term sustainable success LoopUp Group plc | Annual Report & Accounts 2022 21 Strategic Report Governance Financial Statements We are committed to the personal and professional development of our staff, and promote teamwork and initiative throughout the organisation.” Steve Flavell and Michael Hughes 22 LoopUp Group plc | Annual Report & Accounts 2022 Mike Reynolds Independent Non-Executive Director and Non-Executive Chairman Non-Executives Mike most recently held the position of EVP at Syniverse Technologies, before which he served as CEO of 2degrees Mobile. Prior to 2degrees Mobile, Mike spent more than seven years in a variety of senior positions, including President at Singapore listed network operator, StarHub. As President, he was responsible for the day-to-day operations of 2,800 employees and US$1.4bn of revenue. Previously, Mike spent 24 years at BellSouth, which included appointments as President of BellSouth China and CEO of BellSouth International Wireless Services. Mike has BBA and MBA degrees, both from the University of Georgia. A R N Keith Taylor Independent Non-Executive Director Keith has extensive experience in finance having operated in the industry for over 30 years. He worked for Barclays for over 20 years, most recently as a Managing Director within the Corporate & Investment Bank. He has also served as a Vice Chairman and Board Member of the Loan Market Association. Additional Board experience includes several years as a Trustee Director of the Barclays UK Retirement Fund (one of the largest UK pension funds). Keith has a first-class honours degree from Cambridge University and an MBA with distinction from Bayes Business School. A R N Nico Goulet Non-Executive Director Nico is a managing partner at Adara Ventures where he has managed venture capital funds for the last 20 years. Nico has been actively involved with more than 40 early-stage ventures and served on the boards of 30 companies. Prior to Adara, Nico was a partner at Monitor Company. Nico has a BSc degree in Aerospace Engineering from the École Centrale de Paris, an MSc in Aeronautics & Astronautics from MIT, and an MBA from INSEAD. A R BOARD OF DIRECTORS 23 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 Executives Steve Flavell Co-CEO Steve co-founded LoopUp alongside Co-CEO Michael Hughes. Based in London, Steve oversees global commercial and investor relations activities, and is accountable for setting and delivering the Group’s financial plan. Prior to LoopUp, Steve was EVP and main board Director at GoIndustry, an online industrial auctioneering platform, where as part of its founding team, Steve was involved in the company’s organic growth and several acquisitions. Previously, Steve spent time at Monitor Company, Mars & Co, and Mobil Oil. Steve has an MBA from Stanford and an MEng/BA Hons from St. John’s College, Cambridge. N Michael Hughes MBE Co-CEO Michael co-founded LoopUp alongside Co-CEO Steve Flavell. Based in San Francisco, Michael oversees the Group’s product development, engineering and network operations worldwide. Prior to LoopUp, Michael was a founding member and CEO of Pagoo, a pioneering VoIP company, overseeing the company’s expansion into Europe and Asia. Prior to Pagoo, Michael was a strategy consultant with Monitor. Michael has an MEng from Imperial College, an MBA from Stanford as an Arjay Miller Scholar, and was awarded a Sainsbury Management Fellowship by the Royal Academy of Engineering. Michael was made a Member of the Order of the British Empire (MBE) in Her Majesty’s 2017 New Year’s Honours List for services to graduate development via the Silicon Valley Internship Programme. Audit Remuneration Nomination A R N 24 LoopUp Group plc | Annual Report & Accounts 2022 Our focus is on accelerating the strong Cloud Telephony growth In my Chairman’s Statement last year, I spoke of the Group’s continued strategic transition from a single capability remote meeting business into a broader cloud-platform based, hybrid communications solutions company, and in particular our primary focus on Cloud Telephony. I also noted that 2022 would bring “significant challenges but also great opportunities”, and that indeed proved to be the case! In the second half of the year, we successfully navigated three interconnected challenges – closure of a material commercial agreement with PGi Connect, a market equity raise, and the renegotiation of our senior debt arrangements with Bank of Ireland. The successful navigation of these challenges in September 2022 has underpinned the Group’s cash funding of our primary forward-looking strategic growth opportunity in multinational Cloud Telephony. The PGi Connect agreement was a fundamental facilitator in navigating these challenges given the material cash generation for the Group that came with it. In October 2022, we transitioned more than 7,000 former PGi Connect customers over to LoopUp’s Meetings platform, leading to a 167% increase in Group revenue run- rate in Q4 2022 over Q3 2022. The team continues to execute well on our primary growth strategy in multinational Cloud Telephony. During 2022, the Group achieved triple-digit growth in all of following aspects of Cloud Telephony – customers, contracts, Booked Annual Recurring Revenue, and revenue – and I am delighted to see further acceleration to the business during the first part of 2023. The Cloud Telephony market value is forecast to be £32 billion by 2026 (source: Gartner 2022) and the combination of our technology assets built over the last 20 years, combined with the team’s expertise across software and telecommunications, positions us well to succeed. In 2023 we are laser-focused on accelerating the already strong growth of Cloud Telephony and are excited about that potential. I continue to count on the support of the strong and committed members of our management team and Board of Directors, and I look forward to connecting with shareholders at the Group’s 2023 AGM. Mike Reynolds Chairman 29 June 2023 CHAIRMAN’S STATEMENT In 2023 we are laser- focused on accelerating the already strong growth of Cloud Telephony.” Mike Reynolds 25 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 Committed to high standards of corporate governance A note on corporate governance The Board recognises the importance of, and remains committed to, the maintenance of high standards of corporate governance. Through these high standards, it is the Board’s aim to deliver growth, maintain a dynamic management framework and build trust – such matters being key ingredients to delivering long-term sustainable performance. After due consideration, the Board continues to report against the Quoted Companies Alliance Corporate Governance Code (“QCA Code”). The following Statement of Compliance sets out in broad terms how we comply at this point in time against the ten principles set out in the QCA Code. The Board will review and update this Statement of Compliance periodically as the business progresses. The composition of the Board was considered carefully prior to the Group’s admission to AIM in 2016 to ensure an appropriate mix of skills and experience and again in light of the acquisition of MeetingZone in 2018, the acquisition of SyncRTC in 2021, the PGi transaction in 2022 and various Board changes. The Board holds its strategic decision- making meetings remotely or in various Group offices, taking the opportunity to meet with members of both the Executive Team and wider senior management team, building their knowledge of the business. We remain of the opinion that LoopUp creates significant value for its customers by delivering a premium cloud platform with differentiated and specialist communications capabilities, which we continue to innovate and improve. CORPORATE GOVERNANCE REPORT 26 LoopUp Group plc | Annual Report & Accounts 2022 Principle Application Compliance 1. Establish a strategy and business model which promote long-term value for shareholders. The Board must be able to express a shared view of the Group’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the Group intends to deliver shareholder value in the medium to long-term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the Group from unnecessary risk and securing its long term future. The Group’s strategy is focused on commercialising the value created through its cloud platform for specialist enterprise communications. Platform capabilities are carefully selected on the basis of being differentiated from and complementary to those found in foundational unified communications platforms, such as Microsoft Teams. Critical platform capabilities currently comprise: Cloud Telephony: primarily focused on relatively international and fully-managed implementations for larger sized enterprises Remote Meetings: primarily focused on business- critical, external client meetings for Professional Services firms Managed Events and Webcasts: primarily focused on a premium end-to-end experience for hosts and coordinators of important virtual corporate events which has been significantly enhanced following the acquisition of SyncRTC in 2021 and subsequent rebrand and launch of Hybridium Details of the Group’s strategic priorities are set out on pages 10 and 11. The principal risks and uncertainties to the Group (including how they are mitigated) are detailed on pages 18 and 19. 2. Seek to understand and meet shareholder needs and expectations. Directors must develop a good understanding of the needs and expectations of all elements of the Group’s shareholder base. The Board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions. The Board aims to respond promptly and suitably to shareholder enquiries and comments. The Board periodically meets with the Group’s major shareholders and takes on feedback from such meetings. Shareholders are invited to participate at the Group’s AGMs and are encouraged to continue any discussion of the Group’s activities following the conclusion of the formal AGM agenda. All queries should be directed to the Company Secretary. QCA Code Statement of Compliance CORPORATE GOVERNANCE REPORT CONTINUED Delivering growth 27 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 Principle Application Compliance 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success. Long-term success relies upon good relations with a range of stakeholder groups both internal (workforce) and external (suppliers, customers, partners, regulators and others). The Board needs to identify the Group’s stakeholders and understand their needs, interests and expectations. Where matters that relate to the Group’s impact on society, the communities within which it operates or the environment have the potential to affect the Group’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the Group’s strategy and business model. Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups. The Group endeavours to keep in regular contact with its customers, partners and key suppliers. LoopUp constantly monitors functionality of its cloud communications platform and prides itself on one of the best service levels in relation to uptime of services in the comparable market. In addition, there is an ability to rate every LoopUp remote meeting call, enabling us to review and improve our services. Additionally, we have dedicated Service Delivery managers to provide clarity and assistance wherever required by our customers. The Group is active, both financially and in terms of participation, in wider areas of corporate responsibility, such as promoting equality in both its workplace and the communities in which it operates. The Board is well advised by its Nomad and maintains regular contact with other key stakeholders, which enables the Group to evaluate and mitigate risks or act on opportunities when they arise. 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation. The Board needs to ensure that the Group’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; the Group needs to consider its extended business, including the Group’s supply chain, from key suppliers to end-customer. Setting strategy includes determining the extent of exposure to the identified risks that the Group is able to bear and willing to take (risk tolerance and risk appetite). The Board considers risk and uncertainties at each Board meeting. The Board meets at least quarterly, however in practice will meet much more frequently. Such meetings are typically held remotely. The Board, together with the Executive Leadership Team and senior management, is responsible for reviewing and evaluating risks. Additionally, the Information Security Management Team (ISMT) meets quarterly and assesses risks relating to information security. A sub- committee of the ISMT also meets every month to review and update the information security risk register. The Group is ISO 27001 accredited. The principal risks and uncertainties to the Group (including how they are mitigated) are detailed on pages 18 and 19 of this Report. 28 LoopUp Group plc | Annual Report & Accounts 2022 Maintaining a dynamic management framework Principle Application Compliance 5. Maintain the Board as a well- functioning, balanced team led by the chair. The Board members have a collective responsibility and legal obligation to promote the interests of the Group, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the Board. The Board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight. The Board should have an appropriate balance between the executive and Non-Executive Directors and should have at least two independent Non- Executive Directors. Independence is a Board judgment. The Board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively. Directors must commit the time necessary to fulfil their roles. The Board is responsible for the long-term success of the Group. It sets strategic objectives and oversees implementation within a framework of prudent and effective controls, ensuring that only acceptable risks are taken. It provides leadership and direction and is responsible for the corporate governance and overall financial performance of the Group. The Board comprises two Executive Directors and three Non-Executive Directors (including the Chairman). Two of the Non-Executive Directors are considered by the Board to be independent and are free to exercise independence of judgement. The Chair leads the Board and chairs all meetings of the Board. He is responsible for ensuring that the Group maintains appropriate corporate governance. Each of the Audit Committee and Remuneration Committee comprises three Non-Executive Directors, of which two are deemed independent. Membership of the Nomination Committee comprises two independent Non-Executive Directors and one executive director. The Board and each of its committees receive regular and timely reports on the Group’s operational and financial performance. Board packs are circulated in advance of each Board meeting and minutes reviewed and approved following each meeting. The Board has direct access to the advice and services of the Company Secretary and General Counsel, and is able to take independent advice, if required. The Board considers that each Director has suitable knowledge and experience to guide the Group in its strategic aims. Details of Board and committee composition, together with attendance records, are set out on page 32 onwards. CORPORATE GOVERNANCE REPORT CONTINUED 29 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 Principle Application Compliance 6. Ensure that between them the Directors have the necessary up- to-date experience, skills and capabilities. The Board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The Board should understand and challenge its own diversity, including gender balance, as part of its composition. The Board should not be dominated by one person or group of people. Strong personal bonds can be important but also divide a board. As companies evolve, the mix of skills and experience required on the Board will change, and Board composition will need to evolve to reflect this change. The primary purpose of the Nomination Committee is to lead the process for Board appointments and to make recommendations to the Board to achieve the optimal composition. The Board believes it is important to reach the correct balance of skills, experience, independence and knowledge of the Board. All Board appointments are made on merit and with the aim of achieving a correct balance. The Group has formal policies in place to promote equality of opportunity across the whole organisation, and training is provided to assist with this and to increase awareness. The Board operates in a highly collaborative manner, and having two Co-CEOs helps to provide balanced executive input. Further details about each of the directors can be found on the investor page of the LoopUp website, and on pages 22 and 23 of this report. 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement. The Board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual Directors. The Board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual Directors or the wider senior management team. It is healthy for membership of the Board to be periodically refreshed. Succession planning is a vital task for boards. No member of the Board should become indispensable. The performance of the Board is evaluated on an ongoing basis with reference to all aspects of its operation including, but not limited to: the appropriateness of its skill level; the way its meetings are conducted and administered (including the content of those meetings); the effectiveness of the various committees; whether corporate governance issues are handled satisfactorily; and whether there is a clear strategy and objectives. The Co-CEOs’ performance is appraised by the Chairman. The Chairman is appraised by the other Non-Executive Directors, and the other Non-Executive Directors are appraised by the Chairman. 30 LoopUp Group plc | Annual Report & Accounts 2022 Principle Application Compliance 8. Promote a corporate culture that is based on ethical values and behaviours. The Board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage. The policy set by the Board should be visible in the actions and decisions of the chief executives and the rest of the management team. Corporate values should guide the objectives and strategy of the Group. The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the Group. The corporate culture should be recognizable throughout the disclosures in the annual report, website and any other statements issued by the Group. The Board reviews the Group’s statement that embodies its culture and values, and means of communicating and instilling these values broadly across the organisation. The Group’s key cultural values include: Teamwork and being collaborative, helpful and supportive; Treating others with respect; Acting with integrity, honesty and openness; Displaying professionalism; and Taking ownership and being reliable and accountable. Further details about our people, culture and corporate social responsibility strategy are set out from page 12. 9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board. The Group should maintain governance structures and processes in line with its corporate culture and appropriate to its: (i) size and complexity; and (ii) capacity, appetite and tolerance for risk. The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the Group. Details of the governance structures of the Group are set out from page 32 onwards. CORPORATE GOVERNANCE REPORT CONTINUED Maintaining a dynamic management framework continued 31 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 Principle Application Compliance 10. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders. A healthy dialogue should exist between the Board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the Group. In particular, appropriate communication and reporting structures should exist between the Board and all constituent parts of its shareholder base. This will assist: (i) the communication of shareholders’ views to the Board; and (ii) the shareholders’ understanding of the unique circumstances and constraints faced by the Group. It should be clear where these communications practices are described (annual report or website). The Board aims to respond promptly and suitably to all shareholder enquiries and comments. The Board periodically meets with the Group’s major shareholders and takes on any feedback from such meetings. All shareholders are invited to participate at the Group’s AGMs and encouraged to continue any discussion of the Group’s activities following the conclusion of the formal AGM agenda. Reports from the Audit Committee, Nominations Committee and Remuneration Committee are set out from page 34 onwards. Building trust 32 LoopUp Group plc | Annual Report & Accounts 2022 Steve Flavell and Michael Hughes were co-founders of the Group in 2003, and have both served on the Board since that time. Board meetings and attendance The Board meets at least quarterly, with meetings generally being held remotely. The table below shows the attendance at Board meetings during the year. Board meetings Possible Attended Non-Executive Directors Mike Reynolds 9 9 Nico Goulet 9 9 Keith Taylor 9 9 Executive Directors Steve Flavell 9 9 Michael Hughes 9 8 Committee meetings Audit Remuneration Nomination Possible Attended Possible Attended Possible Attended Mike Reynolds 3 3 2 2 1 1 Nico Goulet 3 3 2 2 – – Keith Taylor 3 3 2 2 1 1 Steve Flavell 3 3* 2 2* 1 1 Michael Hughes – – 2 2* – – * Not a Committee member, but attended by invitation. Board responsibilities The Board is comprised of a Non-Executive Chair, two Executive Directors and two Non-Executive Directors. The Directors have a balance and depth of skills, experience, independence and knowledge of the Group, and the industries and environment in which it operates which enables them to discharge their respective duties and responsibilities effectively. The Board is responsible for the long-term success of the Group. It sets strategic objectives and oversees implementation within a framework of prudent and effective controls, ensuring that only acceptable risks are taken. It provides leadership and direction and is also responsible for corporate governance and the overall financial performance of the Group. The Board has agreed the schedule of matters reserved for its decision, which includes ensuring that the necessary financial and human resources are in place to meet obligations to shareholders and others. It also approves any acquisitions and disposals, major capital expenditure, annual budgets and dividend policy. CORPORATE GOVERNANCE REPORT CONTINUED Board papers are circulated before Board meetings in sufficient time to enable their review and consideration in advance of meetings. Board effectiveness The performance of the Board is evaluated on an ongoing basis with reference to all aspects of its operation including, but not limited to: the appropriateness of its skill level; the way its meetings are conducted and administered (including the content of those meetings); the effectiveness of the various Committees; whether corporate governance issues are handled satisfactorily; and whether there is a clear strategy and objectives. The Co-CEOs’ performance is appraised by the Chairman. The Chairman is appraised by the other Non-Executive Directors, and the other Non-Executive Directors are appraised by the Chairman. Board composition The Board currently comprises two Executive and three Non-Executive Directors (including the Chairman). Mike Reynolds and Nico Goulet remained in place from the pre-IPO Ring2 Communications Board, with the former being considered independent. Keith Taylor was appointed as an Independent Non-Executive Director in 2019. 33 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 Directors’ independence Two of the Non-Executive Directors are considered by the Board to be independent and are free to exercise independence of judgement. They have never been employed by the Group nor do they participate in the Group bonus scheme. They receive no remuneration apart from their fees and, in some cases, limited options which were issued prior to IPO, all of which are fully vested. Board appointments On appointment, a new Director is briefed on the activities of the Group. Ongoing training is provided as needed. Directors are updated on a regular basis regarding the Group’s business. Directors are subject to re-election at the Annual General Meeting following their appointment. In addition, at each AGM, one-third (or the nearest whole number) of the Directors retire by rotation. Access to independent advice and support In the furtherance of his or her duties or in relation to acts carried out by the Board or the Group, each Director is aware that he or she is entitled to seek independent professional advice at the expense of the Group. The Group maintains appropriate Directors’ and Officers’ insurance in the event of legal action being taken against any Director. Each Director has access to the advice and services of the Company Secretary, if required, who is responsible for ensuring that Board procedures are properly followed and that applicable rules and regulations are complied with. Internal controls and risk management The Board is responsible for the Group’s system of internal controls and for reviewing its effectiveness. Such a system is designed to mitigate against and manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board confirms that there are ongoing processes for identifying, evaluating and mitigating the significant risks facing the Group. The processes are considered to be appropriate given the size and nature of the business. The Group’s internal financial control and monitoring procedures include: Clear responsibility for the maintenance of good financial controls and the production of accurate and timely financial information; The control of key financial risks through appropriate authorisation levels and senior management oversight; Detailed monthly reporting of trading results and financial position, including variances against budget; Reporting of any non-compliance with internal financial controls; and Review of reports issued by external auditors. The Audit Committee, on behalf of the Board, reviews reports from the external auditor together with management’s response. In this matter, it has reviewed the effectiveness of the system of internal controls for the period. Shareholder communications Executive Directors periodically meet with institutional shareholders to foster a mutual understanding of objectives. In particular, an extensive programme of meetings with analysts and institutional shareholders typically is held following the interim and preliminary results announcements. Feedback from these meetings is presented to the Board. All Directors encourage the participation of all shareholders, including private investors, at the AGM. As a matter of policy, the level of proxy votes lodged on each resolution is declared at the meeting and published by announcement to the London Stock Exchange and on the Group’s website. The Group’s Annual Report and Accounts are published on the Group’s website and can be accessed by shareholders. 34 LoopUp Group plc | Annual Report & Accounts 2022 Committee composition The Audit Committee was established in August 2016, and a similar committee operated under Ring2 Communications Limited prior to the establishment of the Group as it currently stands. Mike Reynolds is Chair of the Audit Committee and the other members are Keith Taylor and Nico Goulet. The Board considers the members to have relevant and recent financial experience, given their biographies as set out on pages 22 and 23. Committee responsibilities The Committee is appointed by and responsible to the Board. It has written terms of reference. Its main responsibilities are: Monitoring its satisfaction with the truth and fairness of the Group’s financial statements before submission to the Board for approval, ensuring their compliance with appropriate accounting standards, the law and AIM rules; Monitoring and reviewing the effectiveness of the Group’s systems of internal control; Making recommendations to the Board in relation to the appointment and remuneration of the external auditor, and reviewing the auditor’s objectivity and independence on an ongoing basis; and Implementing a policy relating to any non-audit services performed by the external auditor. The Committee is authorised by the Board to seek and obtain information from any officer or employee of the Group and obtain external advice as it deems necessary. Committee meetings The Committee aims to meet at least three times per year either in person or remotely. These meetings are scheduled to coincide with the review of the interim statement, the scope and planning of the external audit and, finally, the results and observations upon completion of the external audit. Three meetings were held during the year. These meetings were attended by the external auditor, one Co-CEO and the CFO, as well as the three committee members. The Committee also has the opportunity to meet with the external auditor without any Executive Directors present if it wishes to do so. The Committee carried out a full review of the year-end results and of the audit, using as a basis the reports to the Committee prepared by the CFO and the external auditor. Questions were asked of senior management around any significant or unusual transactions where the accounting treatment could be open to different interpretations. AUDIT COMMITTEE REPORT The Committee received from the external auditor a report of matters arising during the audit which the auditor deemed to be of significance. Significant matters considered by the Committee in relation to the financial statements and areas of judgement routinely considered and challenged were as follows: Revenue recognition; Capitalisation of development costs; Impairment of intangible fixed assets; and Going concern. The Committee is satisfied that the judgements made by management are reasonable and that appropriate disclosures in relation to key judgements and estimates have been included in the financial statements. In reaching this conclusion, the Committee has considered reports and analysis prepared by management and has also constructively challenged assumptions. The Committee has also considered reports prepared by the external auditor. Committee performance The Committee regularly reviews its own performance and has concluded that it is performing as expected. External auditor The Group reappointed Moore Kingston Smith LLP as external auditor, for its second year. To ensure the independence of the external auditor, the Group has used KPMG LLP to advise on global tax compliance. The Board monitors the performance and independence of its external auditor, in order to identify the appropriate time to seek to retender the position. As required, the external auditor provided the Committee with information for review about policies and processes for maintaining its independence and compliance regarding the rotation of audit partners and staff. The Committee considered all relationships between the external auditor and the Group and was satisfied that they did not compromise the auditor’s judgement or independence, particularly around the provision of non-audit services. Management reviewed the effectiveness of the external audit process and were satisfied with the external auditor’s knowledge of the business and that the scope of the audit was appropriate and the audit process effective. Internal audit function Given the size and nature of the Group, the Board did not consider it necessary to have an internal audit function during the year, though this need will be reviewed regularly. 35 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 Committee composition The Nomination Committee was established in August 2016. Mike Reynolds is Chair of the Nomination Committee and the other members are Keith Taylor and Steve Flavell. Committee responsibilities The primary purpose of the Committee is to lead the process for Board appointments and to make recommendations to the Board to achieve the optimal composition of the Board, having regard to: Its size and composition; The extent to which required skills, experience or attributes are represented; The need to maintain the highest appropriate standard of corporate governance; and Ensuring that it consists of individuals who are best able to discharge the responsibilities of Directors. It has written terms of reference. NOMINATION COMMITTEE REPORT Committee meetings The Committee met once during 2022. The Board has considered diversity in broader terms than gender and believes it is also important to reach the correct balance of skills, experience, independence and knowledge on the Board. All Board appointments will be made on merit and with the aim of achieving a correct balance. The Group has formal policies in place to promote equality of opportunity across the whole organisation, and training is provided to assist this. 36 LoopUp Group plc | Annual Report & Accounts 2022 The Remuneration Committee The Remuneration Committee was established in August 2016. The Committee’s primary purpose is to assist the Board in determining the Company’s remuneration policies and, in so doing, agree the framework for Executive Directors’ remuneration with the Board. It has written terms of reference. The Committee met twice during 2022, with other Board members in attendance as appropriate. Remuneration Committee report As an AIM-quoted company, LoopUp Group plc is not required to comply with Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. The content of this report is unaudited unless stated otherwise. Membership of the Remuneration Committee The Remuneration Committee comprises three Non- Executive Directors, namely Mike Reynolds as Chair, Nico Goulet and Keith Taylor. The Remuneration Committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to remuneration, terms of service, granting of share options and other equity incentives. Directors’ remuneration policy The objectives of the remuneration policy are to ensure that the overall remuneration of Executive Directors is aligned with the performance of the Group and preserves an appropriate balance of income and shareholder value. Non-Executive Directors Remuneration of Non-Executive Directors is negotiated by the Executive Directors and agreed by the Board. Non- Executive Directors are not permitted to participate in pensions, annual bonuses or employee benefits. They are entitled to participate in share option agreements relating to the Company’s shares. Each of the Non-Executive Directors has a letter of appointment stating his or her annual fee. Their appointment may be terminated with three months’ written notice at any time. Directors’ remuneration The normal remuneration arrangements for Executive Directors consist of basic salary, annual performance- related bonuses, participation in share option and incentive schemes, and private healthcare benefits. UK Executives participate in a company contributory pension scheme, and US executives have access to a corporate 401k plan, which attracted no employer contribution in 2022 or 2021. Annual bonuses The 2022 annual bonus plan comprised a target bonus of 50% of salary for the executive directors. Executive Directors are rewarded based on the performance of the Group versus predefined targets as well as the achievement of personal objectives. The Group’s performance in 2022 resulted in the declaration of a payout of 75% of the target bonus, and it will be paid later in 2023. Similar bonus principles will be adopted for future years. Performance targets around revenue, gross margin and EBITDA have been set by the Board. Meeting these targets and achieving personal objectives will result in payout percentages in line with those outlined above. Payouts can exceed these amounts should performance exceed these targets, and are capped. REMUNERATION COMMITTEE AND REMUNERATION REPORT 37 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 Total Directors’ Remuneration (audited) The table below sets out the total remuneration payable to the Directors: Salary and fees £000 Annual bonus £000 Healthcare and pension £000 2022 total £000 2021 total £000 Executive Steve Flavell 219 – 7 226 223 Michael Hughes 283 57 7 347 242 Simon Healey (until 17 December 2021) – – – – 151 Non-Executive Mike Reynolds 24 – – 24 22 Nico Goulet – – – – – Keith Taylor 23 – – 23 23 Shares held by Directors (unaudited) The beneficial interests of the Directors in the share capital of the Company at 31 December 2022 and 31 December 2021 were as follows: 31 December 2022 31 December 2021 Number of shares % of issued ordinary share capital Number of shares % of issued ordinary share capital Executive: Steve Flavell 2,771,602 1.6% 2,660,250 2.7% Michael Hughes 3,518,801 2.0% 2,657,183 2.7% Non-Executive: Mike Reynolds 75,000 0.0% 75,000 0.1% Nico Goulet (as Managing Partner of shareholder, Adara Ventures SICAR) 6,964,548 4.0% 6,964,548 7.2% Keith Taylor 133,500 0.1% 133,500 0.1% 38 LoopUp Group plc | Annual Report & Accounts 2022 Directors’ share options (unaudited) Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Group granted to or held by the Directors. Details of option holdings for Directors who served during the year are as follows: Number of options at 31 December 2022 Exercise price Executive: Steve Flavell 1,599,500 £0.0525 575,000 £0.00 Michael Hughes 2,271,500 £0.0525 651,769 £0.00 Non-Executive: Mike Reynolds 75,000 £0.75 Nico Goulet – – Keith Taylor – – During 2022, Steve Flavell and Michael Hughes each participated in the company’s Employee Share Incentive Scheme whereby each Director sacrificed a proportion of their salary and instead were allocated shares in the Company pursuant to the scheme rules. By order of the Board Mike Reynolds Chairman of the Remuneration Committee 29 June 2023 REMUNERATION COMMITTEE AND REMUNERATION REPORT CONTINUED 39 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 The Directors present their report and the audited financial statements for the year ended 31 December 2022. Principal activity The principal activity of the Group is the provision of a premium cloud communications platform for business-critical external and specialist communications. Business review and future developments A review of the Group’s operations including strategy and markets, and future developments is covered in the Strategic Report section of the Annual Report and Accounts on pages 2 to 21. In accordance with section 414C(11) of the Companies Act 2006, the Directors have chosen to include information about the future developments and principal risks and uncertainties in the Strategic Report. Details of the Group’s financial results are set out in the consolidated statement of comprehensive income, other statements and related notes on pages 42 to 87. Corporate status LoopUp Group plc (the ‘Company’ or ‘Group’) is a public limited company domiciled in the United Kingdom and was incorporated in England and Wales with company number 09980752 on 1 February 2016. The company has its registered office at 9 Appold Street, London EC2A 2AP. The principal places of business of the Group are its offices in London and San Francisco, and it also operates a number of other offices in the United States and United Kingdom, as well as Germany, Spain, Sweden, Australia, Hong Kong and Barbados. Directors The following served as Directors during the year: Steve Flavell, Michael Hughes, Mike Reynolds, Nico Goulet, Keith Taylor. The current members of the Group’s Board and Committees are set out on pages 22 to 23. One-third of the Directors are required to retire at the AGM and can offer themselves for re-election. The Company has agreed to indemnify the Directors against third party claims which may be brought against them and has put in place a Directors’ and Officers’ insurance policy. Shares, dividends and significant shareholders The middle market price of the Company’s shares on 31 December 2022 was 4.08 pence and the range during the year was 4.00 pence to 20.50 pence with an average of 7.75 pence. The Directors do not recommend the payment of a dividend (2021: £nil). The Company is informed that, at 31 December 2022, individual registered shareholdings of more than 3% of the Company’s issued share capital were as follows: Number of shares % of issued ordinary share capital Andrew Scott(1) 51,555,754 29.3% Credit Suisse 16,231,600 9.2% Jarvis Investment Management 13,759,877 7.8% Hargreaves Lansdown Asset Management 10,305,952 5.9% Schroder Investment Management 8,289,913 4.7% Interactive Investor 7,186,345 4.1% Adara Ventures SICAR 6,964,548 4.0% Herald Investment Management 6,600,000 3.8% 1. This includes shares registered in the name of his wife, Rhonda Scott and SFT Capital Limited. DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2022 40 LoopUp Group plc | Annual Report & Accounts 2022 Going concern After making enquiries, the Directors believe that the Group has adequate resources and prospects to continue in operational existence for the foreseeable future. Following the reporting date, the Group extended the term of its banking facilities with Bank of Ireland so that the facilities now mature at the end of September 2024, with covenants extended through the extended term on the same basis as previously, and no changes to key commercial terms. Management have prepared detailed stress tested forecasts which indicate the Group’s ability to continue to trade with sufficient cash resources and within the extended covenant tests agreed with Bank of Ireland for the Group’s debt facility. For this reason, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. This is described in more detail in note 1.03. Research and development Details of the Group’s policy for the recognition of expenditure on research and development of its core platform are set out in note 2.03 of the consolidated financial statements. Risk management objectives and policies Details of the Group’s financial risk management and policies are set out in note 19 of the consolidated financial statements. The key non-financial risks faced by the Group are set out in the Strategic Report on pages 18 and 19. Related party transactions Details of the Group’s transactions and balances with related parties are set out in note 21 of the consolidated financial statements. Employee involvement It is the Group’s policy to involve employees in its progress, development and performance. This has been communicated through both formal and informal meetings at all levels throughout the Group. During such meetings, employees are encouraged to provide a free flow of information and ideas. Applications for employment by disabled persons are fully considered, bearing in mind the respective aptitudes and abilities of the applicants concerned. The Group is a committed equal opportunities employer and has engaged employees with broad backgrounds and skills. It is the policy of the Group that the training, career development and promotion of a disabled person should, as far as possible, be identical to that of a person who does not have a disability. In the event of members of staff becoming disabled, every effort is made to ensure that their employment within the Group continues. Political and charitable donations The Group does not make political donations. No charitable donations were made during the year (2021: £nil). Supplier payment policy and practice The Group does not operate a standard code in respect of payments to suppliers. The Group agrees terms of payment with each supplier at the start of business and makes payments in accordance with these terms. The number of creditor days outstanding at 31 December 2022 was 104 days (2021: 68 days). Statement as to disclosure of information to the auditor The Directors who were in office on the date of the approval of these financial statements have confirmed that: so far as each director is aware, there is no relevant audit information of which the company’s auditor is unaware; and the directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the company’s auditor is aware of that information. DIRECTORS’ REPORT CONTINUED 41 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 The Directors are responsible for preparing the Strategic Report and Directors’ Report and the financial statements in accordance with applicable law and regulations. The consolidated financial statements of the Group have been prepared in accordance with UK adopted International Accounting Standards (“IFRS”) and IFRS Interpretations Committee (formerly IFRIC) interpretations in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The consolidated financial statements have been prepared under the historical cost basis. Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. 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 applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and Prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By order of the Board Mike Reynolds Chairman 29 June 2023 DIRECTORS’ RESPONSIBILITIES STATEMENT 42 LoopUp Group plc | Annual Report & Accounts 2022 We have audited the financial statements of LoopUp Group plc (the ‘parent company’) and its subsidiaries (‘the group’) for the year ended 31 December 2022 which comprises the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Company Statement of Financial Position, the Consolidated Statement of Cash Flows, the Company Statement of Cash Flows, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and UK adopted International Accounting Standards and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2022 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with UK adopted International Accounting Standards; the parent company financial statements have been properly prepared in accordance with UK adopted International Accounting Standards and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs(UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the audit of the financial statements section of our report. We are independent of the group and 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. 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 Our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment and risk profile. We conducted substantive audit procedures and evaluated the group’s internal control environment. The components of the group were evaluated by the group audit team based on a measure of materiality, considering each component as a percentage of the group’s total assets, revenue and loss before tax, which allowed the group audit team to assess the significance of each component and determine the planned audit response. For those components that were evaluated as significant components, either a full scope audit or specified audit approach was determined based on their relative materiality to the group and our assessment of the level of audit risk. For significant components requiring a full scope approach, we evaluated the controls in place at those components by performing walkthroughs over the financial reporting systems identified as part of our risk assessment. We also reviewed the accounts production process and addressed critical accounting matters. We then undertook substantive testing on significant classes of transactions and material account balances. In order to address the audit risks identified during our planning procedures, we performed a full scope audit of the financial statements of the parent company and of the financial information of LoopUp Limited, MeetingZone Limited, Pimco 2711 Limited, Warwick Holdco Limited, Warwick Debtco Limited and Warwick Bidco Limited. We performed specified audit procedures over the other components in the UK and overseas. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF LOOPUP GROUP PLC 43 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 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) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter – Group How the matter was addressed in the audit – Group Revenue recognition Revenue is a significant item in the consolidated Statement of Comprehensive Income and impacts a number of management’s key judgements, performance indicators and key strategic indicators. Under ISA 240 (UK) there is a presumed risk that revenue may be misstated due to the improper recognition of revenue due to fraud or error. There is a risk of incorrect revenue recognition due to fraud or error, arising from: recognition of revenue in the wrong period; revenue not being recognised in accordance with IFRS 15 ‘Revenue from Contracts with Customers’; and manipulation of revenues around the year-end through management override. We therefore identified incorrect revenue recognition as a significant risk. The Group’s accounting policy on revenue recognition is shown in note 2.09 to the financial statements and related disclosures are included in note 6. Our audit work included, but was not restricted to: Evaluating the Group’s revenue recognition accounting policy to check compliance with IFRS 15 and to ensure consistency of application; Engaging our IT specialists who assessed the design and operating effectiveness of the underlying systems on the LoopUp platform and tested key IT application controls over the revenue recognition process; Performing substantive testing on a sample of individual revenue transactions throughout the year across the significant revenue streams; Agreeing revenue transactions selected for testing through to supporting evidence including sales invoice, contracts and cash receipts; Performing sales cut off tests to ensure revenue had been recognised in the correct period; and Performing credit note testing to ensure revenue had been recognised in the correct period. In addition, we reviewed the adequacy of the disclosures under IFRS15. Key observations Based on our audit testing we are satisfied that revenue is not materially misstated. We consider the disclosures in accordance with IFRS 15 in the notes to the consolidated financial statements to be acceptable. 44 LoopUp Group plc | Annual Report & Accounts 2022 Key Audit Matter – Group How the matter was addressed in the audit – Group Impairment of the carrying value of goodwill and other intangible assets The Group has material goodwill and other intangible assets balances comprising of goodwill of £25.654m (2021: £35.425m) and other intangibles assets of £nil (2021: £5.638m) respectively at 31 December 2022. The other intangible assets balance includes customer relationships of £nil (2021: £4.134m) and brand & trademarks of £nil (2021: £1.504m). The directors are required to make an assessment to determine whether there are impairment indicators relating to the group’s intangible assets. The process for assessing whether impairment exists as set out in International Accounting Standard (IAS) 36 ‘Impairment of Assets’ is complex. The process of determining the value in use, through forecasting cash flows related to each asset and the determination of the appropriate discount rate and other assumptions to be applied, can be highly judgemental and can significantly impact the results of the impairment review. Based on the judgemental nature of an impairment review and significant impairment adjustments in prior periods, we identified impairment of the carrying value of goodwill and other intangible assets to be a significant risk. The group’s accounting for goodwill and other intangible assets are shown in notes 2.04 and 2.05 to the financial statements and related disclosures are included in note 14. Our audit work included, but was not restricted to: Reviewing the design and implementation of controls relevant to the impairment reviews for goodwill and other intangible assets; Critically assessing management’s assessment of impairment including critically assessing the discounted cash flow model and the judgements and estimates applied in the model; Critically assessing and challenging the assumptions underlying the discounted cash flow model including growth rate and discount rate; Performing sensitivity analysis on the discounted cash flow model taking into consideration management’s base and downside scenarios; Evaluating the accounting policy and detailed disclosures included in the financial statements to determine whether the information provided in the financial statements complies with the requirements of IAS 36 and is consistent with the results of the impairment review; and Considering the appropriateness of the amortisation policy for other intangible assets. Key observations Based on our audit testing we identified a material impairment of £13.560m in respect of the goodwill, customer relationships and brand & trademarks balances initially recognised on the acquisition of MeetingZone. This impairment has now been recognised in the consolidated financial statements. We consider the disclosures in the consolidated financial statements in respect of impairment of goodwill and other intangible assets to be acceptable. INDEPENDENT AUDITOR’S REPORT CONTINUED 45 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 Key Audit Matter – Group How the matter was addressed in the audit – Group Capitalisation of development costs The Group capitalises development costs within intangible assets. The amount capitalised in the year was £5.895m (2021: £6.919m). The carrying value at 31 December 2022 was £13.126m (2021: £12.726m). The Group has been developing and enhancing its remote meetings platform in recent years and continues to enhance the platform in the prior and current year to integrate the Group’s Cloud Telephony business. The development relates primarily to the payroll costs of the developers who work on the development projects. The Group’s accounting for development costs is shown in note 5.03 to the financial statements and related disclosures are included in note 14. Our audit work included, but was not restricted to: Evaluating the development costs capitalised in the year to ensure that the costs can be recognised as an asset in accordance with the requirements of IAS 38 Intangible Assets; Performing substantive testing on a sample of development costs capitalised including reviewing the employee contracts of employees whose salaries were capitalised; Challenging management’s key assumptions to determine that the capitalisation of development costs meet the technical and feasibility criteria stated in IAS 38; and Evaluating the accounting policy and detailed disclosures included in the financial statements to confirm whether information provided in the consolidated financial statements is compliant with the requirements of IFRS. Key observations Based on our audit testing we did not identify any material misstatements of development costs. We consider the disclosures in the consolidated financial statements to be acceptable. Going concern Revenue for the year ended 31 December 2022 has declined from £19.526m to £16.480m and the Group incurred an operating loss of £25.102 (2021:£30.554m) including a £13.560m (2021: £19.597m) non-cash exceptional impairment charge. The Group has outstanding borrowings of £7.458m at 31 December 2022 (2021: £7.881m) and cash funds of £1.661m (2021: £5.465m). The Group’s loan facility with Bank of Ireland of £6.772m at 31 December 2022 is due for final repayment in September 2024. Given the trading performance in the year, including the decrease in revenue and cash funds, and the repayment date of the loan facility, going concern was considered to be a key audit risk area. Our audit work and conclusion in respect of going concern has been detailed in the Material uncertainty related to going concern section of our audit report. 46 LoopUp Group plc | Annual Report & Accounts 2022 Key Audit Matter – Company How the matter was addressed in the audit – Company Recoverability of amounts owed by subsidiary undertakings The total amounts owed by subsidiary undertakings recognised in the parent company Statement of Financial Position at 31 December 2022 was £35.749m (2021: £68.492m). The directors are required to make an assessment to determine whether the amounts owed by subsidiary undertakings are materially recoverable. Due to the size of the amounts in question in the context of the parent company Statement of Financial Position, the recoverability of these amounts was considered to be a key risk area for the audit of the parent company. The company’s disclosures in respect of amounts owed by subsidiary undertakings are shown in note 15 to the financial statements. Our audit work included, but was not restricted to: Critically assessing management’s intercompany matrix to confirm that all intercompany balances have been included and materially reconciled at 31 December 2022; Critically assessing the discounted cash flow model and the judgements and estimates applied in the model which support the ability of the subsidiaries to generate sufficient profits and cash flows to enable them to repay the amounts owed to the parent company; Critically assessing the assumptions underlying the discounted cash flow model including growth rate and discount rate; Performing sensitivity analysis on the discounted cash flow model taking into consideration management’s base and downside scenarios; Challenging key assumptions as to why the management consider the amounts owed by subsidiary undertakings to be materially recoverable; Critically assessing post year end trading and the liquidity position of subsidiaries; and Evaluating the detailed disclosures included in the financial statements to confirm whether information provided in the financial statements is compliant with the requirements of IFRS. Key observations Based on our audit procedures performed we identified a material impairment of £35.823m in respect of amounts owed by subsidiary undertakings. This impairment has now been recognised in the company financial statements. We consider the disclosures in the financial statements to be acceptable. INDEPENDENT AUDITOR’S REPORT CONTINUED 47 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 Our application of materiality The scope and focus of our audit was influenced by our assessment and application of materiality. We define materiality as the magnitude of misstatement that could reasonably be expected to influence the readers and the economic decisions of the users of the financial statements. We use materiality to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole. This year, we re-evaluated the way in which we determined materiality, and due to declining revenue and the nature of the Group operations and performance we considered loss before tax to be more appropriate benchmark and focus for the users of the financial statements, accordingly this consideration influenced our judgement of materiality. Based on our professional judgement, we determined overall materiality for the Group to be £590,000 based on a percentage of loss before tax (2.3%). Based on our professional judgement, we determined overall materiality for the Parent Company to be £150,000 based on a percentage of gross assets (0.3%). On the basis of our risk assessment, together with our assessment of the overall control environment, our judgement was that performance materiality (i.e. our tolerance for misstatement in an individual account or balance) for the Group and Parent was 50% of overall materiality, namely £295,000 and £75,000 respectively. We agreed to report to the Audit Committee all audit differences in respect of the Group and Parent in excess of £29,500 and £7,500 respectively and, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also reported to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. Material uncertainty related to going concern We draw attention to note 1.03 to the financial statements, which indicates that the Group may need to raise debt or equity funding in order to repay or refinance the Bank of Ireland debt facilities at term in September 2024 and therefore to continue in business and meet its liabilities as they fall due after that point. The Group incurred an operating loss of £25.102m (2021:£30.554m) for the year ended 31 December 2022 including a £13.560m (2021: £19.597m) non-cash exceptional impairment charge. Subsequent to the reporting date the Group successfully renegotiated and amended its debt facilities with the Bank of Ireland as detailed in note 1.03 to the consolidated financial statements. However the facilities are due for repayment at term in September 2024. Although the directors are confident that the Group will be able to repay or refinance the debt facilities at term there can be no certainty in this respect and a failure to repay at term or refinance would be material to the Group. These events or conditions indicate that a material uncertainty exists that may cast doubt on the Group’s and Parent Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. In auditing the financial statements, we have concluded that the use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the entity’s ability to continue to adopt the going concern basis of accounting included a critical assessment of the detailed cash flow projections prepared to 31 December 2026 by the directors, which are based on their current expectations of trading prospects, and obtaining an understanding of all relevant uncertainties including the amended Bank of Ireland debt facility repayments. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 48 LoopUp Group plc | Annual Report & Accounts 2022 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. Opinions on other matters prescribed by the Companies Act 2006 In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 41, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities is available on the FRC’s website at https://www.frc.org.uk/auditors/audit- assurance-ethics/auditors-responsibilities-for-the-audit#description-of-the-auditors-responsibilities This description forms part of our auditor’s report. INDEPENDENT AUDITOR’S REPORT CONTINUED 49 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 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. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. The objectives of our audit in respect of fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses to those assessed risks; and to respond appropriately to instances of fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both management and those charged with governance of the group and the parent company. Our approach was as follows: We obtained an understanding of the legal and regulatory requirements applicable to the group and the parent company and considered that the most significant are the Companies Act 2006, UK adopted International Accounting Standards, the rules of the Alternative Investment Market and UK taxation legislation. We obtained an understanding of how the group and the parent company complies with these requirements by discussions with management and those charged with governance. We assessed the risk of material misstatement of the financial statements, including the risk of material misstatement due to fraud and how it might occur, by holding discussions with management and those charged with governance. We inquired of management and those charged with governance as to any known instances of non-compliance or suspected non-compliance with laws and regulations. Based on this understanding, we designed specific appropriate audit procedures to identify instances of non-compliance with laws and regulations. This included making enquiries of management and those charged with governance and obtaining additional corroborative evidence as required. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken for no purpose other than to draw to the attention of the company’s members those matters which we are required to include in an auditor’s report addressed to them. To the fullest extent permitted by law, we do not accept or assume responsibility to any party other than the company and company’s members as a body, for our work, for this report, or for the opinions we have formed. Matthew Banton (Senior Statutory Auditor) for and on behalf of Moore Kingston Smith LLP Chartered Accountants 9 Appold Street Statutory Auditor London 29 June 2023 EC2A 2AP 50 LoopUp Group plc | Annual Report & Accounts 2022 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022 Note 2022 £000 2021 £000 Revenue 6 16,480 19,526 Cost of sales (5,060) (6,058) Gross profit 11,420 13,468 Adjusted operating expenses(i) 7 (12,287) (12,272) Adjusted EBITDA(ii) (867) 1,196 Depreciation 7 (1,556) (1,760) Amortisation of development costs 7 (5,495) (5,582) Adjusted operating loss(iii) (7,918) (6,146) Exceptional reorganisation costs and tax charge 7 (633) (392) Exceptional impairment charge 7 (13,560) (19,597) Amortisation of acquired intangibles 7 (1,849) (2,211) Share-based payment charges 20.06 (1,142) (2,208) Operating loss (25,102) (30,554) Finance costs 10 (766) (465) Loss before income tax (25,868) (31,019) Income tax 11 4,066 6,052 Loss for the year (21,802) (24,967) Currency translation gain/(loss) 209 (340) Total comprehensive loss for the year attributable to the equity holders of the parent (21,593) (25,307) Loss per share from continuing and total operations (pence): 12 Basic (18.1) (39.0) Diluted (18.1) (39.0) (i) Total administrative expenses excluding depreciation, amortisation of development costs and acquired intangibles, exceptional reorganisation and tax charge, exceptional impairment charges and share-based payment charges. (ii) Adjusted EBITDA is operating loss stated before depreciation, amortisation of development costs and acquired intangibles, exceptional reorganisation and tax charge, exceptional impairment charges and share-based payment charges. (iii) Before amortisation of acquired intangibles, exceptional reorganisation and tax charge, exceptional impairment charges and share-based payment charges. 51 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2022 Note 2022 £000 2021 £000 Assets Property, plant and equipment 13 1,626 2,368 Right of use assets 13 780 2,130 Development costs 14 13,126 12,726 Other intangible assets 14 – 5,638 Goodwill 14 25,654 35,425 Deferred tax asset 25 1,974 – Total non-current assets 43,160 58,287 Trade and other receivables 15 8,173 3,608 Cash and cash equivalents 16 1,661 5,465 Current tax 15 825 1,862 Total current assets 10,659 10,935 Total assets 53,819 69,222 Liabilities Trade and other payables 17 (6,313) (3,384) Accruals and deferred income 17 (3,914) (2,036) Lease liabilities 13 (819) (956) Borrowings 18 (6,772) (1,700) Total current liabilities (17,818) (8,076) Net current (liabilities)/assets (7,159) 2,859 Non-current liabilities Borrowings 18 (686) (6,181) Lease liabilities 13 (897) (1,463) Deferred tax 25 – (1,721) Provisions 26 (178) (172) Total non-current liabilities (1,761) (9,537) Total liabilities (19,579) (17,613) Net assets 34,240 51,609 Equity Share capital 20 881 485 Share premium 20 74,055 70,860 Other reserve 12,691 12,691 Foreign currency translation reserve (2,540) (2,749) Share-based payment reserve 4,028 3,395 Retained loss (54,875) (33,073) Shareholders’ funds attributable to equity owners of parent 34,240 51,609 The financial statements were approved by the Board of Directors and authorised for issue on 29 June 2023. They were signed on its behalf by: Steve Flavell Director The notes on pages 57 to 87 form part of these financial statements. Company number 09980752 52 LoopUp Group plc | Annual Report & Accounts 2022 COMPANY STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2022 Note 2022 £000 2021 £000 Assets Investments 22 7,393 6,248 Trade and other receivables 15 35,749 68,492 Total assets 43,142 74,740 Net assets 43,142 74,740 Equity Share capital 20 881 485 Share premium 20 74,055 70,860 Share-based payment reserve 4,028 3,395 Retained loss (35,822) – Shareholders’ funds attributable to equity owners of parent 43,142 74,740 Under section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own statement of comprehensive income. The Company recorded a loss of £35,822,000 in the year ended 31 December 2022 (2021: £nil). The financial statements were approved by the Board of Directors and authorised for issue on 29 June 2023. They were signed on its behalf by: Steve Flavell Director The notes on pages 57 to 87 form part of these financial statements. Company number 09980752 53 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022 Share capital £000 Share premium £000 Other reserve £000 Foreign currency translation reserve £000 Share-based payment reserve £000 Retained loss £000 Shareholders’ funds/deficit attributable to equity owners of parent £000 As at 1 January 2021 277 60,677 12,691 (2,409) 1,354 (8,106) 64,484 Loss for the year – – – – – (24,967) (24,967) Other comprehensive loss – – – (340) – – (340) Total comprehensive loss for the year – – – (340) – (24,967) (25,307) Transactions with owners of parent in their capacity as owners: Equity share-based payment compensation 4 163 – – 2,041 – 2,208 Shares issued net of transaction costs 204 10,020 – – – – 10,224 As at 31 December 2021 485 70,860 12,691 (2,749) 3,395 (33,073) 51,609 As at 1 January 2022 485 70,860 12,691 (2,749) 3,395 (33,073) 51,609 Loss for the year – – – – – (21,802) (21,802) Other comprehensive loss – – – 209 – – 209 Total comprehensive loss for the year – – – 209 – (21,802) (21,593) Transactions with owners of parent in their capacity as owners: Equity share-based payment compensation 46 460 – – 633 – 1,139 Shares issued net of transaction costs 350 2,735 – – – – 3,085 As at 31 December 2022 881 74,055 12,691 (2,540) 4,028 (54,875) 34,240 The notes on pages 57 to 87 form part of these financial statements. 54 LoopUp Group plc | Annual Report & Accounts 2022 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022 Share capital £000 Share premium £000 Share-based payment reserve £000 Retained profit £000 Shareholders’ funds attributable to equity owners of parent £000 As at 1 January 2021 277 60,677 1,354 – 62,308 Result for the year – – – – – Total comprehensive result for the year – – – – – Transactions with owners of parent in their capacity as owners: Equity share-based payment compensation 4 163 2,041 – 2,208 Shares issued net of transaction costs 204 10,020 – – 10,224 As at 31 December 2021 485 70,860 3,395 – 74,740 As at 1 January 2022 485 70,860 3,395 – 74,740 Loss for the year – – – (35,822) (35,822) Total comprehensive loss for the year – – – (35,822) (35,822) Transactions with owners of parent in their capacity as owners: Equity share-based payment compensation 46 460 633 – 1,139 Shares issued net of transaction costs 350 2,735 – – 3,085 As at 31 December 2022 881 74,055 4,028 (35,822) 43,142 The notes on pages 57 to 87 form part of these financial statements. 55 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2022 Note 2022 £000 2021 £000 Operating activities Loss before income tax (25,868) (31,019) Non-cash adjustments Depreciation and amortisation 7 8,900 9,548 Share based payments charge 1,145 2,208 Impairment charge 13,560 19,597 Interest payable 502 465 Working capital adjustments (Increase)/decrease in trade and other receivables (3,170) 3,377 Increase/(decrease) in trade and other payables 4,214 (4,864) Net tax received 1,280 1,194 Net cash generated by operating activities 563 506 Cash flows from investing activities Purchase of property, plant and equipment 13.01 (39) (586) Addition of intangible assets 14.01 (5,942) (6,919) Payment for acquisition of subsidiary – (3,574) Net cash used in investing activities (5,981) (11,079) Cash flows from financing activities Proceeds from share issue net of issue costs 20 3,085 10,391 Repayment of loans 26 (424) (5,839) Payments in respect of leases (885) (840) Loans acquired on acquisition – 971 Interest and finance fees paid (400) (365) Net cash generated from financing activities 1,376 4,318 Net change in cash and cash equivalents (4,042) (6,255) Cash and cash equivalents, beginning of year 5,465 12,086 Exchange differences on cash and cash equivalents 238 (366) Cash and cash equivalents, end of year 16 1,661 5,465 The notes on pages 57 to 87 form part of these financial statements. 56 LoopUp Group plc | Annual Report & Accounts 2022 COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2022 2022 £000 2021 £000 Operating activities Loss before income tax (35,822) – Non-cash adjustments Impairment charge 35,822 – Working capital adjustments Increase in debtors (3,085) (7,677) Net cash used by operations (3,085) (7,677) Net cash from financing activities Proceeds from share issue net of issue costs 3,085 10,391 Net cash generated from financing activities 3,085 10,391 Cash flows from investing activities Investment in subsidiary – (167) Payment for acquisition of subsidiary – (2,547) Net cash used in investing activities – (2,714) Net change in cash and cash equivalents – – Cash and cash equivalents, beginning of year – – Cash and cash equivalents, end of year – – The notes on pages 57 to 87 form part of these financial statements. 57 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 1. Business description and basis of preparation 1.01 Business description The principal activity of the Group is the provision of a premium cloud communications platform for business-critical external and specialist communications. LoopUp Group plc (‘the Group’) is a limited liability company incorporated and domiciled in England and Wales, with company number 09980752. Its registered office is 8th Floor, 9 Appold Street, London EC2A 2AP. 1.02 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with UK adopted International Accounting Standards (“IFRS”) and IFRS Interpretations Committee (formerly IFRIC) interpretations in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The consolidated financial statements have been prepared under the historical cost basis. The preparation of financial information requires the Directors to exercise judgements in the process of applying accounting policies as outlined in note 5. Financial information is presented in Pounds Sterling (£) and, unless otherwise stated, amounts are expressed in thousands (£000), with rounding accordingly. Under section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own statement of comprehensive income. The loss for the year dealt with in the financial statements of the Company was £35,822,000 (2021: £nil). The accounting policies used have been consistently applied throughout all periods presented in the financial statements. 1.03 Going concern At the 2022 reporting date, the Group had cash of £1.7m (2021: £15.5m), net debt of £5.8m (2021: £2.4m), net assets of £34.2m (2021: £51.6m), and net current liabilities of £17.8m (2021: £3.1m). The operating loss for the year was £25.1m (2021: £30.5m), and the adjusted operating loss for the year (before amortisation of other intangible assets, non-recurring transaction costs, exceptional reorganisation costs, exceptional impairment charges and share based payments charges) was £8.0m (2021: £6.1m loss). The Directors prepared detailed cash flow forecasts covering the Group’s expected performance and activity over a period covering at least the next twelve months from the date of these financial statements. This modelled expected activity in each of the business segments of the Group, and also covered a number of scenarios and sensitivities in order for the Board to satisfy itself that the Group has sufficient cash resources to continue to trade during this period. At the reporting date, the Group had outstanding borrowings of £7.5m, including £6.8m under a facility agreement with Bank of Ireland. These facilities were renegotiated and amended during the year to reflect the Group’s ongoing strategic transition plan. Key elements of the amended arrangements include a holiday on planned principal repayments through to June 2023; a margin increase of 2.0 percent, taking the overall interest rate to 4.5 percent above the Sterling Overnight Index Average (SONIA); an extension of the term through to September 2023; and a revised set of financial covenants which are more concerned with sufficient ongoing cash liquidity and the growth objectives for Cloud Telephony and Hybridium in the Group’s transition business plan. The facilities were further amended following the reporting date to extend the term of the loan so that it now matures in September 2024, with no changes to the key commercial terms. The repayment that was due in June 2023 was duly made, leaving the amount outstanding to Bank of Ireland at £6.0m. Management have reviewed forecast cash flows and revenues for at least the next twelve months following the date of these financial statements and are confident of remaining within the amended covenant levels and facility limits. In order to repay the Bank of Ireland debt facilities at the extended maturity in September 2024, the Group may need to raise debt or equity funding, or both. The Group is in the process of raising appropriate debt to repay the Bank of Ireland facility, and is confident that this exercise will be successful. Furthermore, the Group has a strong track record of fundraising from a group of consistently supportive shareholders. The Directors are confident that the Bank of Ireland debt facilities will be able to be repaid at term. However, because there can be no certainty of this, and because the impact of a failure to refinance would be material, a material uncertainty exists in relation to going concern. As a consequence, the Directors have a reasonable expectation that the Group can continue to operate and to meet its commitments and discharge its liabilities in the normal course of business for a period of not less than twelve months form the date of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing these financial statements. 58 LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 1. Business description and basis of preparation continued 1.04 Chief operating decision-maker The chief operating decision-maker is considered to be the Board of Directors acting together. 2. Significant accounting policies The principal accounting policies adopted are set out below: 2.01 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (‘the Subsidiaries’) made up to the accounting reference date each year. Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. Control is achieved when the Group has power over an entity in which it has invested (‘the Investee’); is exposed, or has rights, to variable returns from its involvement with the Investee; and has the ability to use its power to affect its returns. The Group reassesses 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 listed above. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group losses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation. The consolidated financial statements incorporate the financial statements of the Company and all Group undertakings. 2.02 Currencies (a) Functional and presentational currency Items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the Parent Company operates (‘the functional currency’) which is UK Sterling (£). The consolidated financial statements are presented in UK Sterling, as described in note 1.02 (‘the presentational currency’). (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or at an average rate for a period if the rates do not fluctuate significantly. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. (c) Group companies that have a functional currency other than the presentational currency of the Group The results and financial position of all Group companies that have a functional currency different from the presentational currency of the Group are translated into the presentational currency as follows: • assets and liabilities for each statement of financial position presented are translated at the closing rate at the reporting date; • income and expenses for each statement of comprehensive income are translated at average exchange rates; and • all resulting exchange differences are recognised in the statement of changes in equity as a separate component of equity. On consolidation, exchange differences arising from the translation of the net investment in foreign operations are recognised in other comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that were previously recognised in other comprehensive income are reclassified to profit or loss as part of the gain or loss on sale. 59 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 2. Significant accounting policies continued 2.03 Development costs Expenditure on research activities is recognised as an expense in the period in which it is incurred. Development costs are capitalised when the related projects meet the recognition criteria of an internally generated intangible asset, the key criteria being as follows: (a) technical feasibility of the completed intangible asset has been established; (b) it can be demonstrated that the asset will generate probable future economic benefits; (c) adequate technical, financial and other resources are available to complete the development; (d) the expenditure attributable to the intangible asset can be reliably measured; and (e) management has the ability and intention to use or sell the asset. These projects are designed to bring new capabilities into the Group’s products. Salaries associated with development time and directly attributable overheads are capitalised within intangible assets. Development costs recognised as assets are amortised on a straight-line basis over their expected useful life. Development expenditure is only amortised over the period the Group is expected to benefit and is subject to annual impairment testing. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. 2.04 Goodwill Goodwill arising on business combinations represents the difference between the consideration for a business acquisition and the fair value of the net identifiable assets acquired, less any accumulated impairment losses. The consideration for a business acquisition represents the fair value of the assets given and equity instruments issued in return for the assets acquired. Goodwill is not amortised but is subject to an impairment review performed at least annually. 2.05 Acquired intangible assets Acquired intangible assets include customer relationships and brands. Intangible assets acquired in material business combinations are capitalised at their fair value as determined by reference to the methodologies, judgements and policies disclosed on page 74. Intangible assets are amortised on a straight-line basis over their useful economic life of between six and 15 years. Amortisation charges are charged to the income statement as other administrative expenses. The table in note 7 separates out the amortisation of each asset category. During 2021, the useful economic life of the customer relationships asset, which was previously assessed at 15 years, was reassessed to a total of six years from acquisition in 2018. 2.06 Investments Investments in subsidiary and associated undertakings are stated at cost less provision for impairment. 60 LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 2. Significant accounting policies continued 2.07 Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, on a straight-line basis starting from the month they are first used, as follows: • Office equipment – 20-33% straight line; • Computer equipment – 20-33% straight line; and • Certain assets in acquired subsidiaries are depreciated on a reducing balance basis, resulting in an immaterial difference in depreciation charges. The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated statement of comprehensive income. 2.08 Impairment of non-current assets For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of a related business combination and represent the lowest level within the Group at which management monitors goodwill. Cash-generating units to which goodwill has been allocated (determined by the Group’s management as equivalent to its operating segments) are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or charges in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s (or cash-generating units) carrying amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect current market assessments of the time value of money and asset-specific risk factors. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash‑generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed if the asset’s or cash-generating unit’s recoverable amount exceeds its carrying amount. 2.09 Revenue recognition Revenue comprises the transaction price, being the amount of consideration the Group expects to be entitled to in exchange for transferring promised goods or services to a customer in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. LoopUp Platform Capabilities revenue arises from the delivery of conferencing services using LoopUp’s proprietary products, as well as revenue earned on MeetingZone’s audio conferencing platform and the Group’s Cloud Telephony products. The significant majority of revenue arises upon usage by customers of services delivered on a pay as you go model, based on seconds of conference time, the number of participants on the conference, and usage of other value- added services. An increasing proportion of customers are subject to contracted levels of minimum usage, however this is still invoiced and recognised on a monthly basis. Revenue is recognised in relation to conferencing services as the service is performed, is invoiced to the customer monthly in arrears, and is recognised at a point in time. 61 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 2. Significant accounting policies continued Revenue from Cloud Telephony products arises from subscription and usage charges. Subscription charges are recognised in the month to which they relate, and usage charges at the point of billing, which occurs monthly. Hybridium revenue arises from the licensing of hybrid meetings software, as well as from professional services connected to the installation of appropriate hardware on which to run the software. The licensing revenue is recognised monthly over the lifetime of the license, and professional services revenue is recognised when delivered. Subscription revenues are recognised over the life of the subscription term. Revenue from equipment sales is recognised when delivery is made and the risk in the equipment has passed to the customer, with support costs recognised over the period of time to which the charges relate. Third party resale services revenue arises from a combination of re-sold seat licenses for third party products, sold on a ‘per host per month’ basis, typically on twelve month or more committed terms, and minutes and overage charges for usage of these products. Revenue from licenses is recognised evenly over the period of time to which the charges relate. Revenue from usage is recognised at the time the service is performed. Any difference between the amount of revenue recognised and the amount invoiced to a customer is included in the statement of financial position as accrued or deferred income. 2.10 Cost of sales Cost of sales consists of fees and commissions payable to third parties and other expenses that are directly related to sales. Where commissions are payable only once payment for invoices has been received, as with PGi transitioned customers, the commissions are accrued in the period in which the associated revenue is recognised. 2.11 Current and deferred tax The tax expense or credit represents the sum of the tax currently payable or recoverable and the movement in deferred tax assets and liabilities. (a) Current tax Current tax is based on taxable income for the period and any adjustment to tax from previous periods. Taxable income differs from net income in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other periods or that are never taxable or deductible. The calculation uses the latest tax rates and laws for the period that have been enacted or substantively enacted by the reporting date. (b) Deferred tax Deferred tax is calculated at the latest tax rates and laws that have been enacted or substantively enacted by the reporting date that are expected to apply when settled. It is charged or credited in the statement of comprehensive income, except when it relates to items credited or charged directly to equity, in which case it is also dealt with in equity. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable income, and is accounted for using the liability method. It is not discounted. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable income will be available against which the asset can be utilised. Such assets are reduced to the extent that it is no longer probable that the asset can be utilised. Deferred tax assets are recognised to the extent it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Deferred tax assets and liabilities are offset when there is a right to offset current tax assets and liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 62 LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 2. Significant accounting policies continued 2.12 Leases The Group is not party to any material leases where it acts as a lessor, but it does have certain material property leases, under which it is a lessee. Following adoption of IFRS16, for any new contracts entered into on or after 1 January 2019, the Group considers whether a contract is, or contains, a lease. A lease is defined as “a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration”. To apply this definition the Griup assesses whether the contract meets three key evaluations, which are whether: • the contract contains an identified asset, which is ether explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group; • the Group has the right to obtain substantially all of the economic benefit from the use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; and • the Group has the right to direct the use of the identified asset throughout the period of use, The Group assesses whether it has the right to direct “how and for what purpose” the asset is used throughout the period of use. Measurement and recognition of leases as a lessee At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the statement of financial position. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received). The Group depreciates the right-of-use assets on a straight line basis from lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist. At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease, if that rate is readily available or the Group’s incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero. The Group has elected to account for short term leases and leases of low value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense to the income statement on a straight-line basis over the lease term. On the statement of financial position, right-of-use assets have been disclosed separately within non-current assets and lease liabilities have been disclosed separately within current and non-current liabilities. 2.13 Payroll expense and related contributions Wages, salaries, payroll tax, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the period in which the associated services are rendered. 2.14 Benefits and pension costs LoopUp Limited and MeetingZone Limited operate contributory pension schemes under the UK’s auto-enrolment rules. Company contributions (3% in 2021 and 2022) are recognised as an expense in profit or loss as they fall due. US staff qualify for a non-contributory 401k pension scheme. The Group has no further payment obligations once the contributions have been deducted and paid. The costs of administering this scheme are charged as an expense to the statement of comprehensive income in the period to which they relate. 63 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 2. Significant accounting policies continued 2.15 Share-based payments The Group issues share-based payments to certain employees and Directors. Equity-settled share-based payments are measured at fair value at the date of grant and expensed on a straight-line basis over any vesting period, along with a corresponding increase in equity if they are deemed to be material to the Group. At each reporting date, the Directors revise their estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of any revision is recognised in profit or loss, with a corresponding adjustment to equity reserves. The fair value of share options is determined using a Black-Scholes model, taking into consideration the best estimate of the expected life of the option and the specific terms of the option grant. The Group operates an Employee Share Incentive Scheme (ESIS) under which employees may sacrifice a portion of their base salary, and receive shares in the Group. The fair value of the shares issued is taken to the statement of comprehensive income as a share-based payment charge, with a corresponding adjustment to equity reserves. 2.16 Alternative performance measures The Board assesses the performance of the Group using alternative performance measures (namely Adjusted operating expenses, Adjusted EBITDA, Adjusted operating profit and Adjusted basic/diluted earnings per share) as in the Board’s view, these reflect the underlying performance of the business and provides a more meaningful comparison of how the business is managed and measured on a day-to-day basis and is used as a basis for incentive compensation arrangements for employees. Adjusted operating expenses represents total administrative expenses excluding depreciation, amortisation and impairment of development costs and acquired intangibles, exceptional reorganisation and tax charges, exceptional impairment charges and share-based payments charges. Adjusted EBITDA is defined as operating profit stated before depreciation, amortisation and impairment of development costs and acquired intangibles, exceptional reorganisation and tax charges, exceptional impairment charges and share- based payments charges. Adjusted operating profit is defined as operating profit stated before amortisation of acquired intangibles, exceptional reorganisation and tax charges, exceptional impairment charges and share-based payments charges. Adjusted earnings per share numbers are calculated using profit attributable to shareholders, adjusted for exceptional reorganisation costs, amortisation of acquired intangibles, and share-based payment charges. Exceptional reorganisation costs are considered to be one-off in nature and are of such significance to the performance of the Group due to their size, nature or incidence that the board considers it necessary to show them separately on the face of the statement of comprehensive income. It is important to note that alternative performance measures are not defined under IFRS and therefore are defined as ‘Non-GAAP’ measures. The alternative performance measures used by the Group may not be directly comparable to similarly titled measures reported by other companies. They are not intended to be a substitute for, or be superior to, GAAP measures of performance. 2.17 Dividends Dividends are recognised as a liability and deducted from equity at the time they are approved. Otherwise dividends are disclosed if they have been proposed before the relevant consolidated financial statements are approved. 64 LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 2. Significant accounting policies continued 2.18 Accounting developments This report has been prepared based on the accounting policies detailed in the Group’s financial statements for the year ended 31 December 2022 and is consistent with the policies applied in the previous financial year. There are no other new standards, amendments and interpretations which are effective for periods beginning on or after 1 January 2022, which had any impact on the Group’s accounting policies and disclosures in these financial statements. None of the new standards, amendments and interpretations, which are effective for periods beginning after 1 January 2022 and which have not been adopted early, are expected to have a significant effect on the consolidated financial statements of the Group. 2.19 Segment reporting IFRS 8 Operating Segments requires operating segments to be identified on the same basis as is used internally for the review of performance and allocation of resources by the CODM. The Directors have identified the segments by reference to the principal groups of services offered and the geographical organisation of the business as reported to the CODM. In July 2020, the Group announced a major extension to the LoopUp proposition to include global cloud voice services via Direct Routing integration with Microsoft Teams (known as Cloud Telephony). This capability, alongside the Group’s longstanding Remote Meetings and Managed Events capabilities, combine into a category termed LoopUp Platform Capabilities (LPC). Revenue from resale of Cisco WebEx services is categorised as ‘third party resale services’. Following the acquisition of SyncRTC in October 2021, a new segment exists, that of Hybridium. Segmental revenues are external and there are no material transactions between segments. The Group’s largest customer represented less than 5% of total revenue in both years. No segmental balance sheet was presented to the CODM. It is not possible to allocate overheads, and therefore profits, by segment due to the pooled nature of the overhead base and the capital structure. Overheads are not presented to the CODM on a segmental basis. 2.20 Adoption of new and revised standards Standards and amendments that are not yet effective and have not been adopted early by the Group include: • Narrow scope amendments to IAS 1, Practice statement 2 and IAS 8 - disclosure of accounting policies; • Amendment to IAS 12 – deferred tax related to assets and liabilities arising from a single transaction; • Amendment to IFRS 16 – leases on sale and leaseback; • Amendment to IAS 1 – Non-current liabilities with covenants; • IFRS 17 – Insurance contracts. 3. Financial instruments Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred. Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expires. 3.01 Trade and other receivables Trade receivables are amounts due from customers for goods sold or 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 initially at the amount of consideration that is unconditional, unless they contain significant financing components, when they are recognised at fair value. The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix. The Group assesses impairment of trade receivables on a collective basis as they possess shared credit risk characteristics and have been grouped based on the days past due. 65 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 3. Financial instruments continued 3.02 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments maturing within 90 days from the date of acquisition that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. 3.03 Financial liabilities The Group’s financial liabilities comprise borrowings, finance leases and trade and other payables. Borrowings and trade and other payables Trade and other payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest rate method; this method allocates interest expense over the relevant period by applying the ‘effective interest rate’ to the carrying amount of the liability. 3.04 Classification as debt or equity Debt and equity instruments issued are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all liabilities. 3.05 Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued are recognised as the proceeds received, net of direct issue costs. The components of equity are as follows: (a) Share capital The nominal values of equity shares. The rights attributable to the classes of equity in issue are disclosed in note 20. (b) Share premium The fair value of consideration received in excess of the nominal value of equity shares, net of expenses of the share issue. (c) Retained earnings The retained net profits or losses to date less distributions. (d) Foreign currency translation reserve The net foreign exchange gains or losses to date on consolidation of investments in overseas subsidiaries. (e) Other Reserve A reserve has been created to enable the reconciliation of a consolidated balance sheet which combines the equity structure of the legal parent with the non-statutory reserves of the legal subsidiary. (f) Share-based payments reserve A reserve used to recognise the value of equity-settled share-based payments provided to employees, including Key Management Personnel as part of their remuneration. 4. Financial risk management 4.01 Financial risk factors The Group’s activities expose it to certain financial risks: market risk, credit risk and liquidity risk, as explained below. The overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out by the Directors, who identify and evaluate financial risks in close cooperation with key staff. (a) Market risk is the risk of loss that may arise from changes in market factors, such as competitor pricing, interest rates, foreign exchange rates. (b) Credit risk is the risk of financial loss to the Group if a client or counterparty to financial instruments fails to meet its contractual obligation. Credit risk arises from the Group’s cash and cash equivalents and receivables balances. (c) Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. This risk relates to the Group’s prudent liquidity risk management and implies maintaining sufficient cash. The Directors monitor rolling forecasts of liquidity, cash and cash equivalents based on expected cash flow. 66 LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 4. Financial risk management continued 4.02 Capital risk management The Group is funded by equity and loans. The objective when managing capital is to maintain adequate financial flexibility to preserve the ability to meet financial obligations, both current and long term. The capital structure is managed and adjusted to reflect changes in economic conditions. Expenditures on commitments are funded from existing cash and cash equivalent balances, primarily received from issuances of shareholders’ equity. Financing decisions are made based on forecasts of the expected timing and level of capital and operating expenditure required to meet commitments and development plans. Aside from the contractual conditions of the Group’s loan facilities, which include certain financial covenants, there are no externally imposed capital requirements. 4.03 Fair value estimation The carrying value less impairment provision of trade receivables and payables are assumed to approximate to their fair values because the short-term nature of such assets renders the impact of discounting to be negligible. 5. Critical accounting estimates and judgements The preparation of financial statements under UK adopted International Accounting Standards required the Group to make estimates and assumptions that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions which have a risk of causing a material adjustment to the carrying amount of assets and liabilities are discussed below. Judgements 5.01 Functional currency The functional currency is deemed to be Sterling, as the Directors consider that the primary economic environment. 5.02 Recognition of deferred tax assets Deferred tax assets are recognised to the extent that it is considered probable that those assets will be recoverable. This involves an assessment of when those assets are likely to reverse, and a judgement as to whether there will be sufficient taxable income available to offset the assets when they do reverse. This requires assumptions regarding the future profitability of the Group for the 12 months from the date of signing of the financial statements, and as this is inherently uncertain, no deferred tax asset in relation to tax losses has been recognised in the financial statements. The Group has trading losses of £21.6m (2021: £12.3m) and non-trading losses of £0.4m (2021: £0.5m) carried forward. 5.03 Capitalised development costs Capitalisation of development costs requires the Directors to make judgements in allocating staff time appropriately to relevant projects and in assessing the technical feasibility and economic potential of those projects. These judgements have resulted in the intangible assets as set out in note 14. 5.04 Valuation of acquired intangibles Management identified and valued acquired intangible assets on acquisitions made during the period. Management has applied judgements in identifying and valuing intangible assets separate from goodwill that consist of assessing the value of brands and customer relationships. The Board has a policy of engaging professional advisors on acquisitions with a purchase price greater than £5 million to advise and assist in calculating intangible asset values. The Group consistently applies the following methodologies for each class of identified intangible: • Customer relationships – Net present value of future cash flows • Intellectual Property – Cost to recreate the asset • Brands – Royalty relief method 67 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 5. Critical accounting estimates and judgements continued Estimates 5.05 Useful economic life of intangible assets Assumptions are made on the useful life of an intangible and if shortened, would increase the amortisation charge recognised in profit or loss. The identified intangibles are set out in note 14. There are a number of assumptions in estimating the present value of future cash flows including management’s expectation of future revenue, renewal rates for subscription customers, costs, timing and quantum of future capital expenditure, long-term growth rates and discount rates. During the prior year, the useful economic life of the customer relationships asset was reassessed, and amended from 15 years to six years from acquisition. 5.06 Carrying value of goodwill and other intangibles The carrying value of goodwill and other intangibles is assessed at least annually to ensure that there is no need for impairment. Performing this assessment requires management to estimate future cash flows to be generated by the related cash generating unit, which entails making judgements including the expected rate of growth of sales, margins expected to be achieved, the level of future capital expenditure required to support these outcomes and the appropriate discount rate to apply when valuing future cash flows. The Group now considers that it has two cash generating units in the Group as a whole. LoopUp Platform In the years since the acquisition of MeetingZone, the vast majority of MeetingZone’s audio revenue customer base has been transitioned onto the LoopUp platform. The growing cloud telephony business also relies on infrastructure created within both the LoopUp and MeetingZone businesses. Staff and overhead costs have also been amalgamated such that it is not possible to separately identify the acquired MeetingZone business. This is entirely in line with the intention at the time of the acquisition. Impairment testing has therefore been carried out on this basis. Hybridium Hybridium (previously known as MashMe) revenues are delivered through a distinct technology platform, which was acquired with SyncRTC in October 2021. 5.07 Intangible asset life Intangible assets are amortised over their estimated useful lives. 5.08 Share based payments The Group operates a share-based payment plan under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options and awards is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted, excluding the impact of any non-market service and performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period). Non-market vesting conditions are included in assumptions about the number of options and awards that are expected to vest. The total amount expensed is recognised over the vesting period, which is the period over which all the specified existing conditions are to be satisfied. At each reporting date, the entity revises its estimates of the number of options and awards that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. The significant judgements involved in calculating the share based payments charge are the fair value at the date of grant which is determined by using the Black-Scholes model, the staff retention rate which is determined with reference to historical churn and the estimated vesting periods which are determined with reference to the Group’s forecasts. Additional disclosures on the calculation of share-based payments are provided in note 20. The Group also operates an employee share incentive scheme (ESIS) pursuant to which employees can choose to sacrifice a percentage of their base salary in respect of an ESIS period (calendar quarters) and receive shares in the Group. The fair value of the shares issued in respect of each ESIS period is charged to the statement of comprehensive income as a share-based payment, with a corresponding increase in issued share capital and share premium account. 68 LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 6. Revenue and segmental reporting The Group’s revenue disaggregated by primary geographical markets is as follows: LoopUp Platform Capabilities £000 Third party Resale Services £000 Hybridium £000 Total £000 For the year ended 31 December 2022: UK 2,788 995 – 3,783 EU 1,502 811 468 2,781 North America 8,127 1,165 161 9,453 Rest of World 463 – – 463 Total 12,880 2,971 629 16,480 For the year ended 31 December 2021: UK 7,027 1,624 13 8,664 EU 2,181 1,136 138 3,455 North America 5,363 1,684 61 7,108 Rest of World 269 – 30 299 Total 14,840 4,444 242 19,526 The Group’s revenue disaggregated by pattern of revenue recognition is as follows: LoopUp Platform Capabilities £000 Third party Resale Services £000 Hybridium £000 Total £000 For the year ended 31 December 2022: Services transferred at a point in time 10,995 – – 10,995 Services transferred over time 1,885 2,971 629 5,485 Total 12,880 2,971 629 16,480 For the year ended 31 December 2021: Services transferred at a point in time 12,740 10 – 12,750 Services transferred over time 2,100 4,434 242 6,776 Total 14,840 4,444 242 19,526 The Group’s gross profit disaggregated by segment is as follows: 2022 £000 2021 £000 LoopUp Platform Capabilities 9,838 11,740 Third Party Resale Services 953 1,487 Hybridium 629 241 Total 11,420 13,468 69 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 6. Revenue and segmental reporting continued The Group’s non-current assets disaggregated by primary geographical markets are as follows: 2022 £000 2021 £000 Geographical analysis of non-current assets: UK 52,394 56,851 EU 237 253 North America 2,113 1,181 Rest of World 2 2 54,746 58,287 7. Administrative expenses The loss from operations is stated after charging amounts as follows: 2022 £000 2021 £000 Staff costs (note 9) 7,156 7,228 Auditor’s remuneration (note 8) 168 211 Foreign exchange loss 90 24 Other administrative expenses 4,873 4,809 Total adjusted operating expenses 12,287 12,272 Depreciation of owned property, plant and equipment (note 13) 765 934 Amortisation of right of use assets (note 13) 791 826 Amortisation of development costs (note 14) 5,495 5,582 Amortisation of acquired intangibles (note 14) 1,849 2,211 Exceptional reorganisation costs and tax charge 633 392 Exceptional impairment charge 13,560 19,597 Share-based payment charge (note 20) 1,142 2,208 Total administrative expenses 36,522 44,022 Exceptional reorganisation costs are legal and professional fees and staff termination costs incurred in relation to restructuring the Group in line with the strategic transition. The reorganisation impacted entities throughout the Group, but principally LoopUp Limited and LoopUp LLC, where the majority of staff are employed. These are not expected to recur. The exceptional impairment charge arose from an assessment of the carrying value of the customer relationships asset conducted in the year. As a result of this assessment, the value of the asset was impaired, and the useful economic life shortened (see note 14.03). 8. Auditor’s remuneration The Group obtained the following services from the auditor and their associates: 2022 £000 2021 £000 Fees payable to the Group’s auditor for the audit of the consolidated financial statements 189 150 Fees payable to the Group’s auditor for the audit of the Parent Company’s financial statements 10 10 Audit-related assurance services 12 8 Other professional services – 43 Tax compliance services – – 211 211 Other professional services in 2021 related to due diligence work on an acquisition which took place prior to appointment as auditor. 70 LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 9. Staff and remuneration 9.01 Number of staff 2022 Number 2021 Number Average number of employees (including Directors): Executive Directors 2 3 Non-executive Directors 3 3 Commercial 28 62 Engineering and development 55 60 Other 53 72 141 200 9.02 Remuneration 2022 £000 2021 £000 Aggregate remuneration of staff (including Directors): Short-term remuneration 11,066 10,906 Social security costs 1,179 1,333 Benefits in kind 767 1,017 13,012 13,256 Capitalisation as development costs (note 14) (5,856) (6,028) Included in adjusted operating expenses 7,156 7,228 In addition to the staff costs above, £650,000 (2021: £738,000) of outsourced contractor costs were incurred and capitalised as development costs. 9.03 Directors’ remuneration Remuneration of the Directors included within the statement of comprehensive income is as follows: 2022 £000 2021 £000 Short-term remuneration 428 572 Share based payments 136 27 Benefits in kind 15 18 Non-Executive Director fees 47 45 626 662 The highest paid director received remuneration in 2022 of £225,000 (2021: £225,000) including pension contributions of £nil (2021: £nil). The remuneration of key management personnel is shown in note 21.01. 71 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 10. Finance costs 2022 £000 2021 £000 Interest on loans 642 300 Loan facility fees 49 49 Interest charges on right of use assets 75 116 766 465 11. Taxation 11.01 Income tax credit 2022 £000 2021 £000 Current tax Current period UK income tax (1,747) (1,878) Current period foreign income tax 1,152 151 Adjustment for prior periods 224 53 Total current tax (371) (1,674) Deferred tax adjustments (note 25) (3,695) (4,378) Net income tax credit (4,066) (6,052) 11.02 Factors affecting the tax charge The income tax charge differs from the theoretical charge arising from applying UK corporate tax rates to the profits for the reasons below: 2022 £000 2021 £000 UK corporate tax average rate 19% 19% Loss before income tax (25,868) (31,019) Tax at the UK corporate tax rate (4,915) (5,894) Effects of: Expenses deductible – (1,930) Expenses not deductible for tax purposes 1,974 1,598 Losses surrendered for R&D credit – 2,461 Additional reduction for R&D expenditure (752) (1,391) Losses carried forward – (862) Set against brought forward losses – (89) Effect of foreign tax rates 188 55 Adjustment for prior periods (697) (16) Deferred tax not recognised 520 – Other differences (389) 16 Net income tax credit (4,066) (6,052) 11.03 Factors that may affect future tax charges The effective rate of UK corporate tax at the period end was 19%. An increase in the rate to 25% for the financial year commencing 1 April 2023 had been substantively enacted at the reporting date. 72 LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 12. Earnings per share The basic earnings per share is calculated by dividing the net loss attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the year. 2022 2021 Loss attributable to equity holders (£000) (21,802) (24,967) Adjusted loss attributable to equity holders (£000)(i) (9,090) (4,938) Weighted average number of ordinary shares in issue (000) 120,522 63,992 Basic adjusted earnings per share (pence)(ii) (6.9) (7.7) Basic earnings per share (pence) (18.1) (39.0) The diluted earnings per share have been calculated by dividing the net profit attributable to equity holders of the Group by the weighted average number of shares in issue during the year, adjusted for potentially dilutive shares that are not anti-dilutive. 2022 000 2021 000 Weighted average number of ordinary shares in issue 120,522 63,992 Adjustment for share options – – Weighted average number of potential ordinary shares in issue 120,522 63,992 Diluted adjusted earnings per share (pence)(ii) (6.9) (7.7) Diluted earnings per share (pence) (18.1) (39.0) (i) Calculated as (loss)/profit attributable to equity holders adjusted for exceptional reorganisation costs, amortisation of acquired intangibles and share based payments charges. (ii) Basic adjusted and diluted adjusted earnings per share are calculated using the loss above and adjusting for exceptional reorganisation and tax charges, exceptional impairment charges, amortisation of acquired intangibles and share based payments charges. 73 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 13. Property, plant and equipment 13.01 Property, plant and equipment (Group) Computer equipment £000 Office equipment £000 Total £000 Cost: As at 1 January 2021 8,654 929 9,583 Additions 614 3 617 Acquired on acquisition of SyncRTC (Note 22.02) 79 – 79 Disposals (30) (15) (45) Net exchange difference 20 1 21 As at 31 December 2021 9,337 918 10,255 Additions 39 – 39 Disposals (138) – (138) Net exchange difference 266 4 270 As at 31 December 2022 9,504 922 10,426 Accumulated depreciation: As at 1 January 2021 6,477 443 6,920 Charge for the year 815 119 934 Acquired on acquisition of SyncRTC (Note 22.02) 51 – 51 Disposals (30) (15) (45) Net exchange difference 26 1 27 As at 31 December 2021 7,339 548 7,887 Charge for the year 670 95 765 Disposals (138) – (138) Net exchange difference 275 11 286 As at 31 December 2022 8,146 654 8,800 Carrying amount: As at 1 January 2021 2,177 486 2,663 As at 31 December 2021 1,998 370 2,368 As at 31 December 2022 1,358 268 1,626 13.02 Property, plant and equipment (Company) The Company held no property, plant and equipment during the period. 13.03 Right of use assets The statement of financial position shows the following amounts in relation to leases: 2022 £000 2021 £000 Right-of-use assets Buildings 780 2,130 Lease liabilities Current 819 956 Non-current 897 1,463 1,716 2,419 74 LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 13. Property, plant and equipment continued There were no additions to the right-of-use assets during 2022 (2021: £nil). The statement of comprehensive income shows the following amounts relating to leases: 2022 £000 2021 £000 Income from subleasing right-of-use assets - Buildings 52 – Amortisation of right-of-use assets - Buildings 791 826 Interest expense 75 116 The aggregate cash outflow in respect of leases in the year was £885,000 (2021: £840,000). The Group’s leases include various office premises, typically on rental contracts from three to ten years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease arrangements do not impose any covenants other than the security interests in the leased assets held by the lessor. Leased assets may not be used as security for borrowing purposes. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the future expected lease payments. The lease payments are discounted using the Group’s incremental borrowing rate, which at the start of the year was estimated at 3.5%, but during the year increased to 4.5% above SONIA. Lease payments are allocated between principal and finance costs. The latter is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right of use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight line basis. Payments associated with short-term or low value leases are recognised on a straight line basis as an expense on the income statement. The right of use assets balances were subject to prior year adjustments which are explained more fully in Note 24.01. 14. Intangible assets 14.01 Intangible assets (Group) Customer relationships £000 Brand and trademarks £000 Acquired goodwill £000 Development costs £000 Total £000 Cost: As at 1 January 2021 31,178 1,977 31,511 30,117 94,783 Additions – – 3,914 6,919 10,833 As at 31 December 2021 31,178 1,977 35,425 37,036 105,616 Additions – – – 5,895 5,895 As at 31 December 2022 31,178 1,977 35,425 42,931 111,511 Accumulated amortisation: As at 31 December 2020 5,368 341 – 18,728 24,437 Charge for the year 2,079 132 – 5,582 7,793 Exceptional impairment charge 19,597 – – – 19,597 As at 31 December 2021 27,044 473 – 24,310 51,827 Charge for the year 1,717 132 – 5,495 7,344 Exceptional impairment charge 2,417 1,372 9,771 – 13,560 As at 31 December 2022 31,178 1,977 9,771 29,805 72,731 Carrying amount: As at 1 January 2021 25,810 1,636 31,511 11,389 70,346 As at 31 December 2021 4,134 1,504 35,425 12,726 53,789 As at 31 December 2022 – – 25,654 13,126 38,780 75 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 14. Intangible assets continued 14.02 Development costs Amortisation and any impairment charges are included in operating expenses in the statement of comprehensive income. Intangible assets not yet ready for use are tested for impairment at least annually. Amortisation of each asset begins from the date the asset becomes available for use. 14.03 Goodwill, customer relationships, and brands and trademarks The addition to acquired goodwill in 2021 arose on the acquisition of SyncRTC. Aside from that, there were no additions to these assets in 2022 or 2021. The customer relationships and brands and trademarks assets relate to the acquisition of MeetingZone in 2018. The acquisition consisted of a single identifiable cash generating unit. The Group used specialist external advisors to value the separately identifiable assets acquired using an income approach to identify the present value of the future economic value of these assets and the resulting goodwill. Detailed three-year cash flow forecasts were produced at the time of the acquisition to support these valuations. The acquired customer relationships and brand assets were considered to have a useful economic life of at least 15 years when acquired. The useful economic life of the customer relationships was reassessed in 2021, and it was determined that the churn in customers in the period since the acquisition results in a reduced assessment of the economic life of this customer book to six years. There was also determined to be an impairment in the value of the customer relationships asset, which was assessed by considering a discounted cash flow calculation of those acquired customers remaining, and making assumptions about future churn. This impairment resulted in an exceptional impairment charge of £19.6 million in 2021. In 2022, it was determined that there was an impairment in the value of both the customer relationships asset and the brands and trademarks assets, with the result that both assets were impaired to £nil. 14.04 Impairment testing The Group tests goodwill for impairment on an annual basis by considering the recoverable amount of each cash generating unit. The Hybridium cash generating unit was not tested for impairment in 2021, being the year of acquisition. There are no intangible assets with indefinite useful lives (other than goodwill). For the purpose of impairment testing, the recoverable amount of the LPC cash-generating unit has been calculated with reference to value in use. The key assumptions for the period over which management approved forecasts are based and, beyond this, for the value in use calculations overall, are those regarding discount rates, growth rates and achievement of future revenues. In arriving at the values assigned to each key assumption management make reference to past experience and external sources of information regarding the future. The assumptions have been reviewed in light of the current economic environment. The key features of these calculations are shown below: Period over which management approved forecasts are based 5 years Growth rate applied beyond approved forecast period for both costs and revenues 2% Pre-tax discount rate 13.9% The discount rates used in each value in use calculation have been based upon divisional specific risk, taking account of factors such as the nature of service user need, cost profiles and the barriers to entry into each market segment as well as other macro-economic factors. The Directors believe that, even in the current economic environment and taking into account the nature of the Group’s operations, any reasonably possible change in the key assumptions on which the recoverable amounts are based would not cause the cash-generating units’ carrying amount to exceed the recoverable amount. 14.05 Intangible assets (Company) The Company held no intangible assets during the period. 76 LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 15. Trade and other receivables Group 2022 £000 Group 2021 £000 Company 2022 £000 Company 2021 £000 Trade receivables 6,193 2,298 – – Accrued revenue 208 83 – – Amounts owed by subsidiary undertakings – – 35,749 68,492 Other receivables 618 – – – Deposits and prepayments 1,154 1,227 – – 8,173 3,608 35,749 68,492 Current corporate tax 825 1,862 – – The Directors believe that the carrying value of receivables represents their fair value. In determining the recoverability of a receivable, the Directors consider any change in its credit quality from the date credit was granted up to the reporting date. The largest single receivable at any time would typically constitute no more than 3% of total receivables and would relate to a blue-chip customer. As such, the concentrated credit risk is considered minimal. Details of the credit risk management policies are shown in note 19.05. No collateral is held as security for trade or other receivables. The ageing analysis of trade receivables is as follows: Group 2022 £000 Group 2021 £000 Company 2022 £000 Company 2021 £000 Not overdue 2,414 1,226 – – Up to 30 days overdue 2,112 697 – – Between 30 and 60 days overdue 2,263 127 – – Over 60 days overdue 533 465 – – 7,322 2,515 – – Provision for credit losses (1,129) (217) – – 6,193 2,298 – – At the reporting date gross amounts receivable from Group companies were £71.6 million (2021: £68.5 million). The Company recognised additional expected credit loss provisions in relation to receivables from subsidiaries in 2022 of £35.8 million (2021: £nil). The accumulated provision on receivables at 31 December 2022 was £35.8 million (2021: £nil). Amounts owed by subsidiary undertakings are interest free and repayable on demand, and are classified as non-current based on the expected timing of receipt notwithstanding their terms. 16. Cash and cash equivalents Group 2022 £000 Group 2021 £000 Company 2022 £000 Company 2021 £000 Cash and cash equivalents 1,661 5,465 – – 1,661 5,465 – – The cash and cash equivalents do not currently earn interest. The Directors consider that the carrying value of cash and cash equivalents approximates to their fair value. 77 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 17. Trade and other payables Group 2022 £000 Group 2021 £000 Company 2022 £000 Company 2021 £000 Current: Trade payables 3,154 2,320 – – Other tax and social security 3,159 1,064 – – 6,313 3,384 – – Accruals 2,379 1,148 – – Deferred income 1,535 888 – – 3,914 2,036 – – Lease liabilities (note 13.03) 819 956 – – 819 956 – – Borrowings (note 18) 6,772 1,700 – – 6,772 1,700 – – Total current liabilities 17,818 8,076 – – 18. Borrowings Borrowings held at amortised cost Group 2022 £000 Group 2021 £000 Company 2022 £000 Company 2021 £000 Current: Bank loan 6,772 1,700 – – Total current borrowings 6,772 1,700 – – Non-current: Bank loan – 5,218 – – Debt acquired in SyncRTC acquisition 686 963 – – Total non-current borrowings 686 6,181 – – Total of current and non-current borrowings 7,458 7,881 – – The Group’s primary bank loan is a £17m facility arranged with the Bank of Ireland in June 2018 in connection with the acquisition of MeetingZone, and was amended in October 2021 in connection with the acquisition of SyncRTC. The facility is a 5-year term loan – 50% amortising, 50% bullet repayment at maturity, at a floating interest rate of 2.5% over LIBOR, with a zero LIBOR floor. Repayments of £0.85m are made every six months, and a prepayment of £4.1 million was made in October 2021. As at 31 December 2021, the maturity date for the facility was 30 June 2023. During the year, the facility was amended. These amendments include extending the term of the loan to 30 September 2023, the removal of capital repayments until June 2023, an increase in the interest rate to 4.5% above SONIA, and the adoption of a different suite of covenants. Since the reporting date, the term of the loan has been extended so that it now matures on 30 September 2024, with covenants extended on the same basis as previously, and no changes to key commercial terms. The repayment that was due in June 2023 was duly paid. The facility includes security over the assets of LoopUp Limited and certain other subsidiary companies. The Group is required to ensure that it complies with covenants governing minimum liquidity, EBITDA, and Cloud Telephony revenue. The Group has complied with all covenant tests up to the reporting date. 78 LoopUp Group plc | Annual Report & Accounts 2022 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 18. Borrowings continued Additional debt, which was acquired in the SyncRTC acquisition, comprises several loans, as below: Unsecured bank loans from Banco Sabadell, as below: – €40,000 taken in May 2020. Interest only for the first twelve months, following which the loan is repayable in 48 monthly instalments of interest and capital. The interest rate is 3.5% per annum. – €90,000 taken in May 2021. Interest only for the first eleven months, following which the loan is repayable in a single payment on the anniversary of the loan. The interest rate is 3.5% per annum. Unsecured bank loans from La Caixa, as below: – €100,000, taken in October 2019. Repayable in 48 monthly payments of interest and capital. Interest rate is 3.0%. – €120,000, taken in July 2020. Interest only for twelve months, following which the loan is repayable in 48 monthly instalments of interest and capital. The interest rate is 1.5%. – €40,000, taken in March 2021. Interest only for twelve months, following which the loan is repayable in 48 monthly instalments of interest and capital. The interest rate is 2.5%. An unsecured, non-bank loan from European Regional Development Fund, FEDER as part of a RETOS R&D project, which included grant and loan funding. The loan was made in three tranches: €180,000 in June 2016, €318,000 in June 2017 and €316,000 in June 2018. The tranches are each repayable in even annual payments, beginning around four years after drawdown of the tranche. The interest rate on each tranche is 0.06%. A non-bank loan from The European Union Agency for Cybersecurity (ENISA) for €200,000, made in November 2016. Repayable in 16 quarterly payments, which began in February 2019. Interest rate is 3.68%. A non-bank loan from the Centre for the Development of Industrial Technology (CDTI) a Spanish public sector organisation. The loan was initially created in November 2015, with drawdowns in 2016 (€124,000) and 2021 (€109,000). The loans are secured on a cash deposit of €124,000, held by Banco Santander. The loans are repayable in six-monthly payments of interest and capital. The interest rate is 0.163%. This loan was repaid in the year, and the security deposit released. Maturity analysis showing the contractual undiscounted cash flows. The Group’s non-derivative financial liabilities have contractual maturities as summarised below: Within six months £000 Six to twelve months £000 One to five years £000 Non-current later than five years £000 31 December 2022: Trade payables 3,154 – – – SyncRTC acquired debt – – 686 – Bank loan – 6,772 – – 3,154 6,772 686 – 31 December 2021: Trade payables 2,320 – – – SyncRTC acquired debt – – 963 – Bank loan 850 850 5,218 – 3,170 850 6,181 – The above amounts reflect the contractual undiscounted cash flows, which may differ to the carrying values of the liabilities at the reporting date. 79 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 18. Borrowings continued The changes in the Group’s liabilities arising from financing activities can be classified as follows: Long-term borrowings £000 Short-term borrowings £000 Total £000 At 1 January 2021 11,050 1,700 12,750 Cash flows: – Repayment (4,132) (1,700) (5,832) – Reclassification (1,700) 1,700 – – SyncRTC acquired debt 963 – 963 At 31 December 2021 6,181 1,700 7,881 At 1 January 2022 6,181 1,700 7,881 Cash flows: – Repayment (423) – (423) – Reclassification (5,072) 5,072 – At 31 December 2022 686 6,772 7,458 19. Financial instruments There is an exposure to the risks that arise from the financial instruments. The policies for managing those risks and the methods to measure them are described in note 4. 19.01 Capital risk management Funding to date has been by equity (note 20) and loans (note 18). 19.02 Financial assets The following financial assets were held, all classified as loans, cash or receivables: Group 2022 £000 Group 2021 £000 Company 2022 £000 Company 2021 £000 Cash and cash equivalents 1,661 5,465 – – Trade receivables 6,193 2,298 – – Amounts owed by subsidiary undertakings – – 35,749 68,492 Other receivables – – – – Deposits 299 262 – – 8,153 8,025 35,749 68,492 19.03 Financial liabilities The following financial liabilities were held, all classified as other financial liabilities: Group 2022 £000 Group 2021 £000 Company 2022 £000 Company 2021 £000 Trade payables 3,154 2,320 – – Loans 7,458 7,881 – – Other payables – – – – 10,612 10,201 – – 80 LoopUp Group plc | Annual Report & Accounts 2022 19. Financial instruments continued 19.04 Market risk There is an exposure to the financial risk of changes in exchange rates impacting overseas revenues and costs. The Directors do not consider it appropriate to engage in hedging activities at this point in time, as the Group’s US Dollar revenues and costs are naturally hedged, to a large degree. 19.05 Credit risk Careful consideration is given to the choice of bank in order to minimise credit risk. Cash is held at different banks in each local jurisdiction. The amounts of cash held with those banks at the reporting date can be seen in the financial assets table above. Cash is held in local currency in each jurisdiction. Amounts held in non-sterling accounts are minimised where possible. There was no significant concentration of credit risk at the reporting date other than as described at note 15. The carrying amount of financial assets, net of any allowances for losses, represents the maximum exposure to credit risk without taking account of the value of any collateral obtained. A provision of £468,000 (2021: £217,000) has been made for impairment losses in relation to trade receivables. This represents 6.4% of gross outstanding trade receivables (2021: 8.6%). The Group considers the current level of this provision to be adequate to cover expected credit losses on trade receivables. Bad debt expenses are reported in profit or loss. In the Directors’ opinion, there has been no other impairment of financial assets. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. The Directors consider the above measures to be sufficient to control the credit risk exposure. No collateral is held as security in relation to its financial assets. Amounts owed by subsidiaries are unsecured, have no fixed date of repayment and are repayable on demand. 19.06 Liquidity risk management The Directors manage liquidity risk by regularly reviewing cash requirements by reference to short-term cash flow forecasts and medium-term working capital projections. 19.07 Maturity of financial assets and liabilities The maturity of non-derivative financial liabilities and assets at the reporting date are shown in note 18. 19.08 Fair value The fair values of all the financial assets and liabilities on the balance sheet are considered to approximate to their carrying values. Financial instruments are either carried at amortised cost, less any provision for impairment, or fair value. The fair value of long-term borrowings is the same as the carrying value of long-term borrowings as at 31 December 2022. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. There were no financial instruments which met any of the above classifications as at 31 December 2022 or 2021. Where market values are not available, fair values of financial assets and liabilities have been calculated by discounting expected future cash flows at prevailing interest rates with the following assumptions being applied: for trade and other receivables and payables with a remaining life of less than one year the carrying amount is deemed to reflect the fair value; and for cash and cash equivalents the amounts reported on the balance sheet approximate to fair value. NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 81 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 20. Share capital and share premium 20.01 Number of shares in issue 2022 Number 2021 Number Ordinary shares of 0.5p each 176,115,262 97,001,114 176,115,262 97,001,114 20.02 Share capital at par, fully paid 2022 Number 2021 Number Carried forward: Ordinary shares of 0.5p each 881 485 881 485 Movement in year: Shares issued: – Ordinary shares of 0.5p each 396 208 396 208 20.03 Changes to shares in issue 2022 Number 2021 Number Shares at the start of the year 97,001,114 55,441,182 Ordinary shares issued at £0.3730 – consideration for SyncRTC acquisition – 5,374,050 Ordinary shares issued at £0.25 – placing – 35,400,000 Ordinary shares issued at £0.2201 – pursuant to the ESIS – 785,882 Ordinary shares issued at £0.18442 – pursuant to the ESIS 151,838 – Ordinary shares issued at £nil – pursuant to exercise of share options 2,257,525 – Ordinary shares issued at £0.085 – pursuant to the ESIS 2,544,831 – Ordinary shares issued at £0.07065 – pursuant to the ESIS 1,573,178 – Ordinary shares issued at £0.06810 – pursuant to the ESIS 2,606,776 – Ordinary shares issued at £0.05 – pursuant to an equity fund raising 69,980,000 – Shares at the end of the year 176,115,262 97,001,114 20.04 Share premium account 2022 £000 2021 £000 Brought forward 70,860 60,677 Arising during the year on issue of shares 3,609 10,183 Costs of share issue (414) – Carried forward 74,055 70,860 20.05 Share options The Group operates a shared-based payment scheme for employee remuneration, which is settled in equity. Options are granted to the majority of employees on a periodic basis. Options under the scheme will vest if certain conditions, as defined in the scheme, are met. Upon vesting, each option allows the holder to purchase one ordinary share at a price determined upon the issue of the option. 82 LoopUp Group plc | Annual Report & Accounts 2022 20. Share capital and share premium continued Outstanding share options were as follows: 2022 Number 2021 Number Outstanding at 1 January 10,629,764 5,459,929 Granted at £nil 200,000 5,412,538 Granted at £0.25 276,000 – Granted at £0.0725 4,215,000 – Granted at £0.1475 808,000 – Granted at £0.0525 12,450,000 – Modification – reduction in number (1,313,041) – Lapsed (1,193,994) (242,703) Exercised (note 20.03) (2,603,479) – Outstanding at 31 December 23,468,250 10,629,764 2022 Number 2021 Number At £nil 3,009,059 5,412,538 At £0.0128 127,387 127,387 At £0.0525 14,642,609 – At £0.0725 3,712,966 – At £0.1475 522,667 – At £0.25 276,000 – At £0.50 88,000 88,000 At £0.75 895,138 3,877,030 At £1.105 165,662 1,084,705 At £3.175 1,042 2,500 At £4.40 27,720 37,604 Options outstanding at 31 December 23,468,250 10,629,764 2022 2021 Number of options exercisable at the balance sheet date 4,314,008 9,026,017 Weighted average exercise price of outstanding options carried forward (£) 0.09 0.41 Weighted average remaining contractual life of options outstanding at 31 December (years) 9.3 8.0 In October 2021, the Group issued a total of 5,412,538 new share options at a nil strike price, in lieu of paying bonuses relating to 2020 in cash. These options vested in full on issue. In February 2022, the Group issued 200,000 new share options at a nil strike price, fully vested on issue, and a further 276,000 new share options at a strike price of £0.25, vesting over four years, in lieu of paying certain transaction and performance bonuses in cash. In March 2022, the Group issued a total of 4,215,000 new share options at a strike price of £0.0725, vesting over four years. In May 2022, the Group issued a total of 808,000 new share options at a strike price of £0.0875, vesting over four years. In November 2022, the Group issued a total of 12,450,000 new share options at a strike price of £0.0525, vesting over four years. In November 2022, the Group modified the share-based payments arrangements in respect of certain options, which had the effect of applying a new four year vesting period, and decreasing the exercise price to £0.0525 and quantity of the options (from 3,505,650 to 2,192,609) to reflect falls in share price. There is no incremental fair value to be charged in respect of this modification. NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 83 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 20. Share capital and share premium continued 20.06 Share-based payments The fair values of the options granted have been calculated using a Black-Scholes model. Assumptions used were an option life of five years, a volatility of 25% and zero dividend yield. Other inputs were as follows: 2022 Number 2021 Number Number granted in year 17,949,000 5,412,538 Share price at grant date £0.0525 – £0.1475 £0.27 Exercise price £0.005 – £0.1475 £0.005 Risk free rate 1.66% – 3.49% 1.007% Fair value of each issued option £0.01 – £0.14 £0.27 Vesting period (years) 1-4 1 Allowance for leavers and failed vestings 10% 0% Total charge for grant £43,000 £1,436,000 Charge for the year: £642,000 £1,436,000 – 2022 grant £43,000 – – 2021 grant – £1,436,000 – 2020 grant £57,000 £57,000 – 2019 grant £144,000 £144,000 – 2018 grant £398,000 £398,000 Charge in relation to share options £642,000 £2,035,000 Charge in relation to employee share incentive scheme £503,000 £173,000 £1,145,000 £2,208,000 21. Related party transactions 21.01 Remuneration of key management personnel Key management of the Group are the members of the executive leadership team. Key management personnel remuneration includes the following expenses: 2022 £000 2021 £000 Short-term remuneration 1,301 1,604 Share based payments 236 59 Benefits in kind 37 59 Total remuneration 1,574 1,722 21.02 Transactions and balances with key management personnel 2022 £000 2021 £000 Amounts owed to key personnel: Steve Flavell (31) (19) Michael Hughes (24) (36) Mike Reynolds (4) (4) (59) (59) These amounts represent unpaid expense claims or fee invoices. 84 LoopUp Group plc | Annual Report & Accounts 2022 22. Subsidiary undertakings and business combinations 22.01 Subsidiary undertakings 2022 £000 2021 £000 At the start of the year 6,248 1,493 Additions – acquisition of subsidiary – 2,547 Additions – issue of share-based payments in own shares to employees of Group undertakings 1,145 2,208 At the end of the year 7,393 6,248 The Company owns 100% of the issued shares of the following telephony and conferencing services subsidiaries which, taken with the amounts of share-based payments relating to shares in the parent but awarded to employees of subsidiaries, make up the carrying value of £7,394,000 (2021: £6,248,000). Country of incorporation and principal place of business Principal activity Proportion of ownership interests held by Group at year end 2022 2021 Owned directly by LoopUp Group plc: LoopUp Limited UK Telephony and conferencing services 100% 100% SyncRTC Inc USA Hybrid meetings and events services 100% 100% Owned indirectly by LoopUp Group plc Held in LoopUp Limited: LoopUp LLC USA Telephony and conferencing services 100% 100% LoopUp (Barbados) Limited Barbados Telephony and conferencing services 100% 100% LoopUp (HK) Limited Hong Kong Telephony and conferencing services 100% 100% LoopUp Australia Pty Ltd Australia Telephony and conferencing services 100% 100% Pimco 2711 Limited UK Dormant company 100% 100% Warwick Holdco Limited UK Holding company 100% 100% Warwick Debtco Limited UK Holding company 100% 100% Warwick Bidco Limited UK Holding company 100% 100% MeetingZone Limited UK Telephony and conferencing services 100% 100% MeetingZone GmbH Germany Telephony and conferencing services 100% 100% MeetingZone Inc USA Telephony and conferencing services 100% 100% MeetingZone Canada Limited Canada Telephony and conferencing services 100% 100% Confy MeetingZone AB Sweden Telephony and conferencing services 100% 100% LoopUp South Africa South Africa Dormant company 100% 100% LoopUp SG Pte Ltd Singapore Dormant company 100% 100% LoopUp India Private Limited India Dormant company 100% 100% LoopUp Brasil Solucoes Em Brazil Dormant company 100% 100% Technologia Ltda Estonia Dormant company 100% 100% LoopUp Estonia OÜ Malaysia Service provision to the group 100% – LoopUp Malaysia Sdn Bhd Japan Dormant company 100% – LoopUp Japan KK Ireland Service provision to the group 100% – LoopUp Ireland Limited Estonia Dormant company 100% 100% Held in SyncRTC Inc: MashMe Group SL Spain Hybrid meetings and events services 100% 100% SyncRTC Limited* UK Hybrid meetings and events services 100% 100% * The company’s subsidiary SyncRTC Limited is exempt from the requirements of the Companies Act 2006 relating to the audit of their individual accounts by virtue of section 479A of the Companies Act 2006. NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 85 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 22. Subsidiary undertakings and business combinations continued The registered offices of the companies in the Group are: All UK subsidiaries 8th Floor, 9 Appold Street, London EC2A 2AP LoopUp LLC 282 2nd Street, Suite 200, San Francisco, CA 94105, USA LoopUp (Barbados) Limited 1st Floor, One Welches, St Thomas 220025, Barbados LoopUp (HK) Limited 46/F Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong LoopUp Australia Pty Ltd Level 10, 580 George Street, Sydney, NSW 2000, Australia MeetingZone Canada Limited 11-1155 North Service Road West, Oakville, ON L6M 3E3, Canada MeetingZone Inc One Mifflin Place, Suite 40, Cambridge MA 02138, USA MeetingZone GmbH Hardenbergstr 32, 10623 Berlin, Germany Confy MeetingZone AB Sodra Forstadsgatan 40A, 21143 Malmo, Sweden LoopUp South Africa 4 Lisbon Lane, Waterfall Coty, Jukskei View, Gauteng 2090, South Africa LoopUp SG Pte Ltd 6 Battery Road #42, Singapore 049909 LoopUp India Private Limited Plot No 66, Lower Ground Floor, #TheHub, Okhla Phase III, Okhla Industrial Estate, New Delhi 110020, India LoopUp Brasil Solucoes Em Technologia Ltda Avenida Paulista No 2064, 14 andar, Bela Vista, São Paulo – SP – CEP 01310-200, Brazil LoopUp Estonia OÜ Padriku tee 12/3-4, 11912 Tallinn, Estonia LoopUp Malaysia Sdn Bhd Unit 20-01, Level 20, Menara Centara No 360 Jalan Tuanku Abdul Rahman, 50100 Kuala Lumpur, Malaysia LoopUp Japan KK Nukariya Building 6F, 1-16-20, Minami-ikebukuro, Toshima-ku, Tokyo 171-0022, Japan LoopUp Ireland Limited Carlisle Building, 51 Bracken Road, Sandyford Business Park, Dublin D18 CV48, Ireland MashMe Group SL C/Cronos 20 bloque 2 1º4 28037, Madrid, Spain 22.02 Acquisition On 1 October 2021, the Company acquired the entire share capital of SyncRTC Inc. The consideration of £2,547,000 million was comprised of cash of £542,000 and the issue of 5,374,500 shares at a price of £0.37303 each, being the market price, to a total of £2,005,000 paid on completion. In addition, the Group assumed £1 million of cash indebtedness of SyncRTC Inc. The consideration for the acquisition was as follows: £000 Cash consideration – paid 542 Equity consideration – issued 2,005 2,547 86 LoopUp Group plc | Annual Report & Accounts 2022 22. Subsidiary undertakings and business combinations continued SyncRTC Inc, together with its subsidiaries MashMe Group SL and SyncRTC Limited (together “SyncRTC”) provides a best-in-class experience for larger scale hybrid education and corporate training implementations. At the time of acquisition, SyncRTC had a customer base of approximately 30 education and corporate training customers including Said Business School at the University of Oxford, NYU Stern School of Business, Colorado State University, Saudi Aramco and Grupo Santander. SyncRTC brings meaningful differentiation to both LoopUp’s Collaboration and Managed Events strategic rings by taking both into hybrid as well as purely virtual implementations. The Group plans to continue to target new business in higher education and increase investment into targeting new business in both corporate training and hybrid events leveraging cross-selling opportunities with its existing enterprise customer base. The fair value of the assets acquired, and liabilities assumed was as follows: Book value £000 Fair Value Adjustment £000 Fair Value £000 Goodwill – 3,914 3,914 Intangible assets 467 (467) – Tangible assets 28 – 28 Trade and other receivables 401 (73) 328 Cash and cash equivalents (56) – (56) Current liabilities (882) (17) (899) Non-current liabilities (768) – (768) Deferred tax 271 (271) – (539) 3,086 2,547 Trade and other receivables shown above at a fair value of £328,000 had a gross contractual value of £401,000. The best estimate at the acquisition date of the contractual values not to be collected was £73,000. The goodwill represents the acquired workforce and the product synergies with the Group’s business and customer-base. SyncRTC contributed £242,000 revenue and £100,000 to the Group’s loss between the date of acquisition and the 31 December 2021. If the acquisition had completed on the first day of that financial year, the Group’s revenue for the year would have been £20,205,000 and the Group’s loss would have been £25,711,000. The Consolidated Statement of Comprehensive Income includes nil of acquisition costs. 23. Dividends The Directors do not recommend the payment of a dividend (2021: £nil). 24. Recognition of liabilities arising from financing activities The change in the Group’s liabilities arising from financing activities can be classified as: Long-term borrowing £000 Short-term borrowing £000 Total £000 1 January 2022 6,181 1,700 7,881 Cash flows: – repayment (423) – (423) – reclassification (5,072) 5,072 – 31 December 2022 686 6,772 7,458 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2022 87 Strategic Report Governance Financial Statements LoopUp Group plc | Annual Report & Accounts 2022 25. Deferred Tax Deferred tax assets and liabilities are attributable to the following: Other temporary differences £000 Timing differences on tax losses £000 Total £000 Balance as at 1 January 2021 (7,525) 1,426 (6,099) Timing differences recognised on tax losses – 1,728 1,728 Timing differences recognised on intangible assets (1,155) – (1,155) Reduction in timing differences on amounts amortised 3,805 – 3,805 Balance as at 31 December 2021 (4,875) 3,154 (1,721) Balance as at 1 January 2022 (4,875) 3,154 (1,721) Timing differences recognised on tax losses – 1,534 1,534 Timing differences recognised on other temporary differences 2,161 – 2,161 Balance as at 31 December 2022 (2,714) 4,688 1,974 26. Provisions 2022 £000 2021 £000 At the start of the year 172 – Provision in year 6 172 At the end of the year 178 172 Under three of its office leases, the Group is required to restore the leased premises to their original condition at the end of the respective lease terms. A provision has been recognised for the present value of the estimated expenditure required to do so. The provision as at 31 December 2021 is £178,000 (2021: £172,000). The expiry dates of these leases fall between June 2023 and September 2024. 88 LoopUp Group plc | Annual Report & Accounts 2022 Legal Counsel White & Case 5 Old Broad Street London EC2N 1DW 020 7532 1000 Financial Public Relations FTI Consulting 200 Aldersgate Street London EC1A 4HD 020 7979 7400 Financial Adviser, NOMAD, Joint Broker Panmure Gordon 40 Gracechurch Street London EC3V 0BT 020 7886 2500 Joint Broker Cenkos Securities 6-8 Tokenhouse Yard London EC2R 7AS 020 7397 8900 Auditor Moore Kingston Smith LLP 6th Floor 9 Appold Street London EC2A 2AP 020 7566 4000 Registrars Neville Registrars Neville House Steelpark Road Halesowen B62 8HD 0121 585 1131 Company Registration Number: 09980752 COMPANY INFORMATION AND CORPORATE ADVISERS CBP00019082504183028 Printed by a CarbonNeutral® Company certified to ISO 14001 environmental management system. Printed on material from well-managed, FSC ™ certified forests and other controlled sources. 100% of the inks used are HP Indigo ElectroInk which complies with RoHS legislation and meets the chemical requirements of the Nordic Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy. The paper is Carbon Balanced with World Land Trust, an international conservation charity, who offset carbon emissions through the purchase and preservation of high conservation value land. Through protecting standing forests, under threat of clearance, carbon is locked-in, that would otherwise be released. LoopUp Group plc 8th Floor 9 Appold Street London EC2A 2AP Tel: +44 (0)20 3107 0206 Email: ir@loopup.com www.loopup.com