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PCI-PAL PLC
CONTENTS
STRATEGIC REPORT
• Highlights
• Chairman’s Statement
• Chief Executives Statement
• Chief Financial Officer’s Statement
• Principal Risks and Uncertainties and Risk Mitigation
• Corporate Responsibilities
GOVERNANCE
• The Board of Directors
• Corporate Governance
• Audit Committee Report
• Remuneration Committee Report
• Directors and Advisers
• Directors Report
FINANCIAL STATEMENTS
Independent Auditors Report to the Members of PCI-PAL PLC
•
• Consolidated Statement of Comprehensive Income
• Consolidated Statement of Financial Position
• Consolidated Statement of Changes in Equity
• Consolidated Statement of Cash Flows
• Notes to the Consolidated Financial Statement
• Company Statement of Financial Position
• Company Statement of Changes in Equity
• Company Statement of Cash Flows
• Notes to the Company Financial Statement
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PCI-PAL PLC
HIGHLIGHTS
FOR THE YEAR ENDED 30 JUNE 2019
Significant Sales Growth and Channel Partnerships Delivering
PCI-PAL PLC (AIM: PCIP), the customer engagement specialist that secures and protects payment card data
for companies handling payments by phone, is pleased to announce full year results for the year ended 30
June 2019 (the "Period").
Financial Highlights
• Revenue increase of 40% to £2.82 million (2018: £2.01 million)
• Gross margin increased to 60.2% (2018: 42.6%) reflecting the transition of our service delivery to AWS
• Substantial increase in sales leading to:
o Signed Annual Contract Value (“ACV”) increasing by 290% to £1.91 million (2018: £0.49
million); and
o Total Contract Value (“TCV”) increasing by 223% to £5.66 million (2018: £1.75 million)
• Total contracted recurring ACV1 now stands at £4.06 million (2018: £2.17 million)
• Deferred income increased 117% to £2.45 million (2018: £1.13 million) as a result of new business
•
sales growth
Loss before Tax in line with expectations at £4.50 million (2018: £3.78 million) following significant
investment in the North American operations
• Cash balances at year end of £1.49 million (2018: £3.75 million)
• New £2.75 million debt facility entered into in October 2019 to provide additional working capital to
support continued growth
Strategic Highlights
• Strong performance against all key metrics across EMEA and North America businesses
• Established as the only partner-first, pureplay organisation operating in the PCI phone payment space
with a truly cloud delivery model with availability zones across multiple continents
• Partner-first strategy proven with 84%2 of all new business sold via partners (2018: 40%)
• Signed and delivered largest contract in Company’s history in UK
• Signed second largest contract in Company’s history in North America
• Established global, integrated reseller partnerships with two more global leading CCaaS vendors
• Established reseller partnership and delivered first customer with largest telco in Canada
• Services and customers live across five Amazon Web Services (“AWS”) regions of the PCI Pal cloud
platform globally
• Maintained customer retention at over 95%
Current Trading
• Successful start to FY 2020 with new business sales levels tracking to management expectations
• New business sold through channel partners has continued at a high rate of >85%
• Announced as EMEA Partner of the Year for the Genesys Partner Community, “AppFoundry”
• Total Contracted ACV as at 30 June 2019 providing over 80% revenue visibility against management
expectations for FY 2020
• Appointment of US-based software executive, Simon Wilson, to the board in the role of Non-
Executive Director, effective from 1st November 2019
1 Contracted ACV is the total annual recurring revenue of all signed contracts, whether invoiced and included in deferred revenue or
still to be deployed and/or not yet invoiced
2 Percentage of new business by signed ACV
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PCI-PAL PLC
CHAIRMAN’S STATEMENT
FOR THE YEAR ENDED 30 JUNE 2019
During the last twelve months, PCI Pal has made significant progress against both its strategic and operational
goals, while at the same time bringing further clarity and specificity to its operating plans. Our business now
has a clearly stated Vision: To be the preferred solution provider that technology vendors globally turn to for
achieving PCI compliance for payments by phone. We are determined to achieve that Vision through a
channel-first approach.
Early and rapid channel success is already becoming evident. For example, 84% of this year’s new business
bookings were generated through partners and we have created tight-knit, integrated product partnerships
with several of the world’s leading Cloud Contact Centre-as-a-Service (CCaaS) vendors and other leading
technology companies.
The advantages of a channel-first approach and our Cloud-based solutions go beyond just winning new
business. Having varying degrees of pre-integration with our contact centre, telephony, and payment
gateway partners is now enabling us to deploy and take our customers live in shorter periods of time. The
ease of Cloud deployments (compared to on-premise) is also reducing customer delivery challenges that are
frequently encountered in our industry. We believe that this is becoming a major source of competitive
differentiation for PCI Pal, as well as improving the capital and people efficiency of our business model. We
will continue to focus on further improvements in deployment efficiencies going forward, thereby ensuring
higher levels of success for both our partners and their customers, as well as our own direct customers.
People
The appointment of James Barham as CEO in October 2018 and his work in building the North American team
and operation has marked an acceleration of our plan to expand the operational capability of our business to
handle sales and delivery growth in a capital efficient and cost-effective manner, in order to scale the
business. Key aspects of the plan include establishing global rather than regional functions to avoid localised-
based thinking, duplication and inefficiencies; the creation of a Chief Information Security Officer function to
underpin the reliability and safety of our customer services; and the recruitment and development of first
class talent.
The ranks of our management team have been expanded to include a new CTO based in the U.K. and a new
CRO based in the U.S. Our ability to attract such technically talented and wonderful people in both North
America and the U.K. is a testament to both the attractiveness of the market opportunity ahead for PCI Pal
as well as the management team’s dedication to people development.
In addition, I am very pleased with the appointment of Simon Wilson to the Group board as a non-executive
director. Simon’s background includes thirty years in international business to business software. He has
been a resident of the United States for over twenty five years and past positions include CEO, CFO and
corporate development roles as well as independent board director in a range of US and UK companies
including SurfControl plc, Endace plc and M86 Security.
The PCI Pal team has grown from 34 to 50 employees over the course of the year and I would like to personally
thank all of our employees for their excitement, dedication and hard work in growing PCI Pal and in pursuing
our Mission: safeguarding the reputation and trust of our customers. I have no doubt that they will all
continue to build on their successes during the last twelve months, both as individuals and as globally focused
teams.
New debt facility
On 8 October 2019 the Company entered into a new £2.75 million debt facility. In common with many Cloud
companies operating a SaaS business model, we have chosen to utilize a layer of debt on top of equity funds
raised so as to optimise the growth in shareholder value. The additional capital available under the facility,
of which £1.5 million will be drawn immediately, provides the Company with additional working capital as it
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continues to grow and expand thereby enabling it to continue to capitalise on the Company’s excellent
growth opportunities. Full disclosure of the terms of the facility has been made in the notes to these accounts
and within the Chief Financial Officer’s Review.
Shareholder Communications
As a board we set out this year to expand and improve our communications with current and prospective
shareholders as we sought to increase transparency and understanding of the global PCI market opportunity
ahead for the Group. Examples have included more detailed investor presentations, expanded analysis of
results and underlying KPIs, more frequent communications and the judicious use of RNS-Reach, and
participation in investor-focused events such as ‘tech demo days’ and investor group conferences. We look
forward to continuing and reinforcing these programmes and events as each year progresses, and I welcome
your feedback and suggestions for further improvement.
Corporate Governance
We continue to monitor the business in line with the latest Corporate Governance Code published by the
Quoted Company Alliance. In the Corporate Governance section of our Annual Accounts, we outline how we
have complied with the Code and where our policies depart from the recommendations made by the Code,
and the reasons for doing so, which reflect the current size and scale of our business.
Looking Forward
We are clearly seeing an expansion of the market drivers causing businesses to properly adopt solutions that
provide adherence to PCI compliance standards. In addition to the enforcement of the industry standards
themselves, the advent of actual legislation such as GDPR and the clear and measurable business risks of
reputational damage in the event of customer data loss, are all increasing the logic and value of adopting
solutions like PCI Pal’s. Increasing demands from consumers for data protection, as well as the rapid adoption
of Cloud-technologies, are also accelerating the rate of adoption.
With a clear strategy; experienced management; an attractive business model; a growing global market
opportunity and good corporate governance, PCI Pal is well positioned to build on this year’s success. As we
take our next steps towards achieving additional key milestones on the journey to building shareholder value
and profitable growth, I look forward to sharing further progress reports and news during the coming financial
year.
Chris Fielding
Non-Executive Chairman
8 October 2019
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CHIEF EXECUTIVE’S STATEMENT
FOR THE YEAR ENDED 30 JUNE 2019
PCI Pal Overview
With this being my first annual report as Chief Executive, I am pleased to report that we have continued our
momentum from the half year by showing continued strong growth in all our key metrics. In particular, new
business Annual Contract Value (“ACV”) increased 290% year on year to £1.91 million (2018: £0.49 million);
with new business Total Contract Value (“TCV”) increasing 223% year on year to £5.66 million (2018: £1.75
million).
Revenues grew 40% year on year to £2.82 million (2018: £2.01 million), with Contracted ACV1 at the year-end
now standing at £4.06 million (2018: £2.17 million), illustrating the build-up in future revenue visibility that
our SaaS licensing model produces as new sales are achieved and revenue eventually recognised. This
progress is firmly establishing the building blocks towards future sustainable cash generation and profitability.
We have delivered against our stated strategies for the year: focusing on the accessibility of our virtualised
cloud offering hosted on AWS; penetrating the North American market through channel relationships; and
growing our capability to attract major global technology partners through our easy-to-integrate, cloud
technology. As a result, we have established ourselves as the only channel-first, pureplay organisation
operating in the PCI phone payment space with a truly global cloud delivery model with availability zones
across multiple continents.
The increase in our North American ACV from £0.10 million to £0.44 million is evidence of this year’s success
in North America which is substantially the result of our achievements in building channel relationships with
70% of sales for the year coming from channel partners.
We have made substantial progress in our focus of being channel-first by adding reseller partnerships with
several leading global technology vendors including 8x8, Talkdesk, and Genesys, as well as partnerships with
some of those companies’ leading resellers including maintaining our partnership with the largest carrier in
Canada. These new partners have chosen to work with PCI Pal because of our pureplay, cloud business model
which is in contrast to that of our competitors whose solutions are typically legacy hardware offerings, or
privately-hosted cloud solutions.
Through our vision to be the chosen payment security provider to technology vendors globally, we are
opening up an area of the market previously untapped. Our easy-to-use, light touch integrations allow our
partners to sell our services to not only enterprise, large organisations, but also cost-effectively to the higher
volume of small to medium size enterprises. Additionally, we have proven our ability to service all size contact
centres from the cloud having this year won, and successfully delivered within six months of signing, the
contract to supply one of the largest contact centres in Europe, with over 4,000 agents active on our platform
each day for this customer alone.
During the course of the year, we have made significant steps forward as we establish ourselves as a global
business engaged with enterprise partners yet still retaining the benefits of being small and agile. We have
introduced a clear mission and vision for the business, as well as identifying the core values which represent
our business. We have brought our international businesses closer together, ensuring that we maximise our
global sales opportunities and partnerships. This has been particularly evident in sales where we created the
position of Chief Revenue Officer, responsible for sales globally, bringing the global sales function together to
maximise the benefits of all sales activity across all territories. We have also strengthened our Engineering
and Professional Services teams, ensuring we can deliver our solutions on-time wherever they are required.
All of these actions have helped us win new customers across multiple continents.
1 Contracted ACV is the total annual recurring revenue of all signed contracts (excludes professional services and setup fees), whether invoiced and
included in deferred revenue or still to be deployed and/or not yet invoiced
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Market Drivers
As thought leaders in our growing marketplace, we have taken the lead in research in the market carrying out
consumer research campaigns across the UK, U.S., Australia, and Canada in our “This is” series. In these
market research reports, we have seen strong similarities between these four developed contact centre and
payment markets, with consumers becoming increasingly aware of the security of companies from whom
they buy products and services. Across our reports more than 33% of consumers in all regions surveyed claim
to have been victims of security theft. Additionally, and more specific to our market, we found that between
40% - 55% of consumers were uncomfortable to share their credit and debit card information over the phone.
The market for PCI Pal is any organisation taking payments by phone or within contact centre environments
globally, and particularly in our core markets across EMEA and North America. Contact centre markets in both
the UK and US represent between 3-4% of the working populations of those countries, so in contact centres
alone there is a sizeable market to address.
We access our market through a channel go-to-market sales model, working primarily with technology
vendors who are involved in customer interactions for those companies. By majority today these include
CCaaS, UCaaS, Carrier, VARs, Payment Service Providers, and consultancies advising these organisations.
These partner organisations work with PCI Pal to provide cloud-based, globally accessible payment security
solutions to their customers who use their broader customer experience, call handling, and payment
solutions. PCI Pal’s position as the only true-cloud, pureplay vendor in the PCI space for contact centres
positions us with strength in being selected by these companies as their partner for secure payments.
The UK market is the most advanced globally in terms of adoption of compliance standards, such as PCI
compliance, related to payment security. It is our belief that the North American region and mainland Europe
are beginning to adopt improved security practices and working towards achievement of PCI compliance
across their businesses and as a result we have seen increases in enquiries across these territories. We are
seeing organisations worldwide move towards the use of technology to solve complex compliance and
security challenges through the use of secure technology like PCI Pal’s. This evolution toward secure
operations is not only being driven by the major risks to companies that lose data (including loss of reputation,
loss of customers, and reductions in share price or company value) but more recently by regulations being
introduced across all territories within which we operate. Chiefly this is led by the General Data Protection
Regulations (GDPR) which is law that governs companies handling EU citizen’s data, but also more regional
data regulations such as the California Consumer Privacy Act in the U.S. Recent well-publicised data breaches
include market leaders in a variety of sectors from airlines, to financial services, to technology.
In terms of the contact centre market itself, there is a significant shift from traditional on-premise technology
to cloud environments offering improved customer experience through a growing number of additional
digital customer engagement channels, with research forecasting CAGRs of nearly 25% between 2019 – 2024.
We believe that this trend will naturally suit our true-cloud, pureplay offering as we can fully integrate our
solution seamlessly into our cloud partners offerings in a light-touch fashion that does not interrupt that
partners ability to provide their core service offerings.
Cloud
PCI Pal has continued to develop its position as the only true-cloud, globally available, partner-first provider
of secure payment solutions to contact centres worldwide. We have extended the accessibility of our
platform with availability zones within AWS in the UK, Ireland, Germany, United States, Canada, and Australia
with customers live across all regions.
We have proven our ability to move at pace when scaling the platform, activating new availability zones in
Germany and Australia to meet partner and customer demand within 2 weeks each. Our ability to react
quickly to provide partners who operate globally with service availability anywhere in the world is a significant
competitive advantage. In addition, these partners’ customers benefit from localised data sovereignty across
our multi-region, cloud platform environment.
In addition to the ability to scale geographically, our AWS-based platform also allows us to scale automatically
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to meet the demands of customer growth. The ability to scale for greater volume handling is an essential part
of the capital efficiency of our model which in turn allows us to offer more competitive pricing to our partners.
In addition, we are able to manage our entire global cloud platform from our Network Operations Centre
(NOC), located at our UK headquarters.
Channel Partners
Having outlined our commitment to making PCI Pal a channel-first business, I am pleased to report that we
finished the period with 84% of sales generated from channel partners, a 110% increase on the prior year
(2018: 40%). The channel strategy is essential to maximising our long-term sales growth potential by being
able to address all sizes of organisations, to utilise PCI Pal solutions, as well as giving us the ability to scale the
business internationally. This strategy is significantly supported by our capabilities in light-touch, easy-to-
integrate methodologies that suit the leading cloud technology vendors with whom we work. Channel
partners are driving sales pipelines to record levels across both EMEA and North America.
We have three categories of partners:
Integrated Partners - Telephony pre-integration with the PCI Pal environment from CCaaS and UCaaS
platforms and Carrier networks creates opportunities for both us and our partners to shorten sales cycles and
enable more efficient and faster project delivery. Adding to the integrated partners we worked with going
into the year, we were successful in winning global agreements with two well-known global vendors, 8x8 and
Talkdesk (both headquartered in the United States), as well as pan-European vendor, Puzzel. In addition, we
secured and delivered our first customer through our reseller partnership with the leading carrier in Canada.
Solutions Providers - Reseller relationships in this category are typically Value-added Resellers (VARs) and
Systems Integrators focused on selling licences and services around the traditional on-premise contact centre
platforms, for example Genesys, Cisco, Mitel and Avaya. Solutions Providers also include payment service
providers and payment gateways who resell PCI Pal services to complement their existing portfolio of
payment solutions, such as Civica, Paymetric, and Capita Pay 360. Such relationships provide access to the
wide installed customer bases of these vendors. In the period we have signed three of the largest North
American VARs serving the Genesys contact centre marketplace, some of whom are also focused on newer
offerings from the CCaaS providers.
Referral Partners – Our strategy in this category is two-fold. Firstly, we utilise referral arrangements with
some major technology vendors with whom reseller arrangements are not immediately available as a first
step in working with them towards becoming an Integrated Partner. Secondly, we have targeted relationships
with Master Agents in order to capitalise on the rising trend and success in the software marketing world of
agent networks, particularly for CCaaS and UCaaS vendors in the United States. Master Agents are highly
organised networks of agents specialising in all segments of enterprise class cloud software applications.
During the year we signed a global referral agreement with Telarus, the largest Master Agent in North America
for contact centre technology.
All of these partners benefit from the PCI Pal partner program which was fully launched during the year. The
Partner Program not only oversees the on-boarding of partners from a technical stand-point but ensures that
we are engaged at the appropriate level in all relevant areas of the partner’s organisation; with sales
enablement, marketing support and collaboration, and co-ordinated service delivery. Our significant focus on
speed of partner enablement is illustrated by a number of successful “Fast Start” campaigns with new
partners, supporting them in creating real value from reselling our services early in the relationship, and
generating early stage pipeline for PCI Pal.
North America
We launched our PCI Pal solution in the US in February 2018 and following a successful first full financial year
in North America, we can report TCV sales bookings for the region increased by 328% to £1.50 million (2018:
£0.35 million) of which recurring ACV is £0.44 million.
As well as gaining sales momentum, we made progress in our strategy of winning partnerships with major
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technology vendors in the territory, particularly in the CCaaS, Carrier and Payment markets. These types of
partners underpin our ability to sell our solutions in volume and at scale to any size organisation within that
partner’s customer ecosystem. Whilst this is a globally consistent strategy for us, it is particularly important
in the United States where the addressable market is more than five times the size of the UK. I am pleased to
report we have made strong progress against this strategy, winning a number of partnerships with well-
known technology vendors, one of which resulted in a global contract with a US headquartered, home
appliance manufacturer. This was the second largest contract in the Company’s history.
We secured global reseller agreements as the sole provider to leading CCaaS and UCaaS vendors 8x8 and
Talkdesk. Additionally, we extended our relationship with NewVoiceMedia, following their acquisition by
Vonage, into their wider global group which incorporates NewVoiceMedia (CCaaS), Vonage (UCaaS), and
Nexmo, (CPaaS - Communications-Platform-as-a-Service). Additionally, we have secured a number of
customers through our referral arrangement with NICE inContact and have been recognised with an award
for our thought-leadership efforts into their partner programme.
In the carrier space, we signed and delivered our first order through our reseller agreement with the largest
carrier in Canada, who is also a major regional distributor of several other contact centre technology partners
with whom we have relationships globally. Our cross-pollination of these relationships within our ecosystem
is a good example of how we are able to benefit from the progress we have made in being the only channel-
focused, pureplay vendor with a growing number of market leading technology partnerships.
As noted above, of the traditional platform providers, we focused the majority of our efforts into our Genesys
relationship and have signed three of their major US-based VARs. In addition, since the end of the year we
were awarded EMEA AppFoundry Partner of the Year with Genesys (AppFoundry being their technology and
partner marketplace). We achieved this award as a result of our work on key customer projects where PCI Pal
played a specialist and important role in wider Genesys deals.
Having spent the majority of the year working in the U.S. establishing our business in the region, I am pleased
to report that we have put together an excellent team of experienced professionals, the majority of whom
have extensive knowledge of the contact centre and unified communications space having worked at
successful channel focused businesses. We now have a team spread across all time zones in the United States,
with sales, marketing, engineering and delivery resources in country.
With low levels of competition in the North American market, limited primarily to UK-domiciled competitors
who deploy a direct sales approach, we believe we are in a strong position from which to expand our pipeline
and gain market share through our channel-first approach, as well as our positioning as the go-to provider to
the CCaaS / UCaaS market.
During the year our partners have introduced us to a number of customers in the Australia/New Zealand
region (ANZ). Due to the time zone overlap, we have been running our early activities from our US-based
team, supported by our Engineering and Professional Services teams in the UK.
The majority of our global partners have businesses in Australia covering the ANZ region, and naturally due
to the repeatable nature of our integrations, we have felt a pull from these partners towards the territory.
We have demonstrated our commitment to these partners by the activation of our Sydney AWS instance,
upon which we have a number of live customers. The Australian market is culturally and technologically
similar to the UK and US so, as such, we see this as important strategic activity for the future.
EMEA
We have seen a significant step forward for the UK-based EMEA business, with excellent growth across all
key metrics including a 180% increase in TCV sales bookings for the year at £3.92m (2018: £1.40m) which
incorporated ACV value of £1.41 million (2018: £0.38 million), with 90% of ACV sales coming from channel.
Included in channel generated business was the signing and delivery of the Company’s largest contract to
date, as announced in December 2018, through a major new partner in the payment processing space. In
June, we also won a milestone contract with a FTSE 100 company, via our reseller partnership with Genesys.
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These results confirm the long term value of our channel strategy.
PCI-PAL PLC
Our business is more mature in the UK, in a market more advanced in its adoption of security solutions for
payments. As such we have been focusing on our relationships with existing channel partners in the region
to drive new customer acquisition. These partners include Civica, Capita Pay 360, 8x8, and Vonage.
Outside of the UK, the EMEA market has lower levels of adoption for PCI solutions and, like North America,
less competition. As a result, we believe there is an early-stage opportunity to capitalise on what is collectively
a large and under-penetrated contact centre market. During the year we have taken initial steps towards
finding suitable partners such as our partnership with a French telecoms company, and a Norwegian-based
pan-European CCaaS vendor. Additionally, we have signed end-user customers in the Nordics, France,
Germany and Spain. Many of our global partners see a similar market opportunity and are hiring extensively
in the wider region as contact centres across Europe begin to adopt cloud technologies. In a similar way to
what we have seen in ANZ, we are optimistic that our partners will pull us into customer opportunities in the
territory over time. Our partnerships, and more importantly technical integrations with these partners, are
repeatable globally across their platforms and we are leveraging their business expansion to achieve our own
strategic objectives in this regard. As a result of this positive momentum we opened the Frankfurt (Germany)
instance of our platform earlier in the year to ensure EU customer data can retain appropriate sovereignty
requirements post-Brexit.
Operations
The focus of the business in the previous two years has been to build a team and foundation from which we
can scale, in order to benefit from the operational gearing of a true-cloud operation. During the year we have
taken further steps to scale the business by focusing increasingly on people, process, and technology to
underpin this foundation, namely engineering and operations. As part of this we restructured these
departments into three teams: engineering; compliance and IT; and professional services. We created the
role of Chief Information Security Officer (CISO) which was taken up by the Group’s long standing Chief
Technology Officer (CTO), Geoff Forsyth.
Additionally, we hired a new CTO who joined the business in January 2019. Hugh James brought with him a
wealth of experience specific to DevOps, telecommunications, and SaaS environments, as well as specific
experience of the PCI marketplace. Hugh spent a number of years working in a senior role at one of our key
partners, NewVoiceMedia (now Vonage) during their global expansion. Along with this hire, we have added
resources into engineering during the year in order to meet the growing demand from our new technology
partners. As part of the operational restructuring, we have created a global professional services function
that focuses entirely on assisting partner and customer solutions delivery, incorporating both implementation
and project management. We have reduced the dependency of professional services on engineering as we
continually drive for repeatability in our technical solutions for our partners and customers. We have added
resource in the core area of SIP telephony to aid a growing number of implementations and to contribute to
further reductions in Time-To-Go-Live (TTGL). In addition, we have enabled more natural collaboration
between sales and professional services by assigning global responsibility to the heads of sales, presales, and
professional services.
Throughout the year we have achieved solid improvements in project delivery times as a result of changes
that have been made with projects now being delivered in 4-7 months compared to our higher historical
average of 6-9 months. The changes we are making with people, process, and technology are expected to
continue to improve deployment efficiencies that will in turn further reduce TTGL.
The business is now better positioned with a stable operational function upon which to maximise the
opportunities presented by our partners as well as strategically important enterprise customers anywhere in
the world. This stable foundation will enable PCI Pal to benefit from the advantages of operational gearing as
we grow our revenues at a faster rate than our costs.
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People
As we state in our Vision, it is our people, beyond the technology, that underpin our business. Creating an
environment within which our employees can succeed ensures the success of the partners that rely on us. We
have built a small, dynamic, and committed team who are experts in their chosen fields, and together they
are driving this business forward at pace.
During the year we have placed significant emphasis in developing the business’ focus and application of
personal development planning and support for all our staff and managers. We created the role of People
and Development Manager, which reports directly to me, illustrating the Company’s commitment to an
improved focus in this key area. Examples of that focus include the implementation of personal and
professional development reviews; increasing the availability of both internal and external training courses
for key skills; and proactively building a benefits and talent development strategy across the business.
For the forthcoming year we have introduced OKRs (Objectives and Key Results) for every employee in the
Company. OKRs create a framework for defining and tracking objectives and their outcomes, providing a top-
down view of what is required from individuals within the business in order for them to contribute to the
Company’s achievement against its corporate goals, mission, and vision.
As a business that has grown from 11 to 50 people in under 3 years, we have given considerable attention to
our approach to hiring, and I am proud to report that our employee retention remains very high. We are
passionate about hiring and bringing great talent into this business, not just in terms of market, technical,
human or managerial skills but also in terms of international and cultural understanding, language skills and
a desire to have fun. We focus on this in every aspect of our recruitment processes. Technology is a globally
competitive market so we have made improvements to our employee benefits packages to continue to
attract the best people. These benefits support the broader appeal of working for our dynamic growing
business, and are designed to be strongly competitive for the geographic markets in which we hire.
New this year we have introduced quarterly company “all-hands” meetings where the CEO and other
contributors from across the business speak to the whole Company simultaneously across all time zones.
These sessions provide a company-wide update, including progress against key or high-profile OKRs. These
meetings ensure that employees of all levels regularly receive a wider-view of business progress and
therefore can better understand the part they play in that journey. Between the quarterly all-hands meetings,
we run regular cross departmental social events and encourage departmental team building.
I view talent acquisition, development and retention as one my most important responsibilities as CEO, and I
am very pleased with the accelerated progress the Company has made in this area during the year.
New Debt Facility
In September 2016, the Group began a five year journey to fully develop the payment security opportunity
offered by the PCI Pal business. We are now three years into the original journey, and I am very pleased with
the strong position we have built. We have made significant progress in establishing major partnerships and
transitioned our business to a channel-first organisation. We have established our core service offerings
across the globe and have built an excellent team upon which we can scale. As a result of this momentum,
we are seeing more opportunities from organisations of all sizes, including large enterprise partners and
customers.
As we look to continue to grow and capitalise on the excellent market opportunity before us, we have taken
the opportunity to strengthen our balance sheet and on 8 October 2019 entered into a £2.75 million debt
facility with Shawbrook Bank. We have drawn down £1.5 million of this facility and the balance remains
available to be drawn down in the next twelve months. This facility will underpin the Group’s working capital
requirements for the foreseeable future.
Page 12
PCI-PAL PLC
Current Trading and Outlook
Following the strong growth and improvement in the business’ key metrics in FY 2019, I can report that the
new financial year has started well and in line with management expectations. Our strength as the only
partner-first, globally available cloud provider in our space has been underpinned by PCI Pal being awarded
“Partner of the Year EMEA” by Genesys, one of our key technology partners, and their partner community,
the “AppFoundry”. To date in FY 2020 our continued partner-focus has resulted in the proportion of new
business sales coming from channel partners being higher than that of the full prior financial
year. Additionally, the nature of our SaaS revenue model provides for greater than 80% revenue visibility
against management expectations for FY 2020.
I am also very pleased to announce the appointment of Simon Wilson to the Board as Non-Executive Director
effective 1st November 2019. Simon has provided valuable consultancy to the Board in helping us create, plan
and execute our North American market entry plans. His extensive board-level and international corporate
strategy experience is a strong addition to the team.
James Barham
CEO
8 October 2019
Page 13
PCI-PAL PLC
CHIEF FINANCIAL OFFICER’S REVIEW
FOR THE YEAR ENDED 30 JUNE 2019
Changes in accounting rules
The Company has implemented IFRS 15: Revenue from Contracts with Customers, effective from 1 July 2018,
on a fully retrospective basis, with the financial statements being presented against restated financial
statements for the year ended 30 June 2018. Full disclosure of the changes has been made in the notes to
these accounts.
The retrospective impact of adopting IFRS 15 has been limited. PCI Pal’s SaaS contracted revenue model is
made up of monthly and annual license fees which, both before and following the adoption of IFRS 15, are
recognised monthly across the term of the contract. The forward impact for PCI Pal of IFRS 15 is therefore
mostly limited to the impact of also spreading implementation professional service fees over the contract
periods.
Revenue and gross margin
Group revenue grew by 40% to £2.82 million (2018: £2.01 million) and gross margin improved to 60% (2018:
43%). This shift reflects the higher margin revenue generated by the PCI Pal platform hosted on AWS which
has only a limited reliance on third party carriers to receive or deliver calls. Going forward, we expect the
gross margin to continue to improve as all new business will be delivered on this platform.
The Group’s revenue reflects its SaaS business model. It delivers its services through the partnership channel
to contact centres who are charged primarily on a recurring licence basis. The terms of the sales contracts
generally allow for automatic renewal of the licences for a further 12 month period at the end of their initial
term. Renewal and retention rates are therefore extremely high exceeding 95%. As the business sells and
delivers more contracts the visibility of recurring revenue increases. At the year end, the Group had visibility
of more than 80% of management’s expected revenue for the next financial year.
Administrative expenses
Total administrative expenses were £6.37 million (2018: £4.65 million), an increase of 37%. Of the £1.72
million increase, £1.67 million was driven by the establishment and expansion of our North American
operations, following the successful fundraising in January 2018.
Personnel costs charged to the Comprehensive Income Statement (including travel and subsistence expenses)
were £4.47 million (2018: £3.30 million), and £0.56 million (2018: £0.46 million) was capitalised as
Development costs. These personnel costs make up 70% (2018: 71%) of the administrative costs of the
business.
Following the adoption of IFRS 15, commissions of £0.30 million (2018: £0.14 million) payable to the sales
team members and directly attributable to new contracts was deferred and will be released over the length
of the contract to which they apply.
Exceptional costs
During the year the Group charged an exceptional cost of £0.36 million to the Statement of Comprehensive
Income. This cost wholly related to the costs of termination of the employment contract with William
Catchpole, the former CEO and board director.
Adjusted operating loss1
Adjusted operating loss for the Group changed as follows for the year:
Central
£000s
(605)
(790)
185
EMEA North America
£000s
£000s
(2,489)
(1,138)
(955)
(1,953)
(1,534)
815
2019
2018
Change in year
1 Loss from Operating Activities before exceptional costs and share option charges
Page 14
Total
£000s
(4,232)
(3,698)
(534)
PCI-PAL PLC
The EMEA region’s Adjusted Operating Loss improved by £0.82 million in the year. The operations within
this region have been established longer than those in North America and include the majority of the
Engineering, Information Security and Professional Services people and costs for the Group as a
whole. EMEA’s Adjusted Operating Loss has started to improve during the period because the rate of
expansion of headcount and operating costs is slowing at the same time as revenues and gross margin are
increasing.
Following the fundraising in January 2018 PCI Pal fully launched its cloud services in North America. James
Barham, originally in his capacity as COO prior to becoming group CEO, was seconded to the region and was
living and working there for most of the period. During this time, we fully established the North American
office in Charlotte, NC, the operational team and our channel-centric route-to-market strategy. As of the
year end the team had 10 employees. The Operating Losses incurred in the region therefore reflect the build
out of the team in the region. As sales and subsequent customer deployments in North America continue
to grow, we expect Operating Losses in the future to start to decrease when the rate of revenue growth
exceeds the rate of growth in operating costs.
Costs for our Central operations relating to PLC activities decreased in the period as for a portion of the year,
the costs of the CEO were charged to the North American operations.
Further divisional information is shown in Note 9.
Key financial performance indicators
The directors use several Key Financial Performance Indicators (KPIs) to monitor the performance of the
Group, its subsidiaries and targets. The principal KPIs are as follows:
1. Revenue
2. Gross Margin
3. Signed ACV in financial period
4. Contracted ACV
5. Cash facilities available*
6. Deferred Income
7. Ratio Personnel cost to
administrative expenses
2019
£2.82 million
60.2%
£1.91 million
£4.06 million
£1.49 million
£2.45 million
70%
2018
£2.01 million
42.6%
£0.49 million
£2.17 million
£6.05 million
£1.13 million
71%
* Cash balance plus Loan notes receivable plus undrawn debt facilities
Actual performance to budget is reviewed on a monthly basis and the results are used to continually update
the Groups forecasts as to expected performance and cash resources.
Capital expenditure
As required by IAS 38, we have capitalised a further £0.56 million (2018: £0.46 million) in development
expenditure as we continue to invest in the AWS platform.
As a business we are not hindered by having to commit significant amounts upfront in capital to deploy new
instances of our AWS platform globally, nor to extend its load-capacity handling. Our AWS platform is paid
for on a monthly basis and charged as an administrative expense. In total we spent £0.03 million on new
computer equipment in the year.
Deferred income
Deferred income increased to £2.45 million (2018: £1.13 million) mostly reflecting the significant growth in
new business sales and the consequent increase in invoices raised in advance, per our contract terms and
revenue model.
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PCI-PAL PLC
Contracted ACV
Total Contracted ACV2 at the end of the financial year was £4.06 million (2018: £2.17 million). This is a new
metric that we have started tracking in the period and is a key indicator of our ability to reach first cash flow
and then profit break-even. Growing levels of Contracted ACV2 produces increasing levels of future revenue
visibility, an attractive aspect of the Group’s business model.
Trade receivables
Trade receivables grew to £1.057 million (2018: £0.475 million). The level of receivables reflects both
significant growth in new business sales overall during the period, as well as the typical year end boost in
sales levels. This balance should be converted into cash in the first half of FY 2020.
Taxation
During the year the UK entity received £0.14 million as a R & D tax credit from HMRC relating to the financial
year ending 30 June 2017. An application has been made for an additional credit of £0.22 million related to
the financial year ending 30 June 2018, which has been received post the year end, but has not been
recognised in the accounts.
Cashflow and liquidity
Net cash as at 30 June 2019 was £1.49 million (2018: £3.75 million), net cash decreased by £2.26 million in
the year. During the year we received the final loan repayment from the sale of the contact centre business
of £2.30 million. Adjusting for this loan repayment the Group invested £4.56 million in cash in the period
reflecting the expansion of operations and the consequent loss made for the financial year.
Post the close of the financial year, the Group has entered into a £2.75 million loan facility with Shawbrook
Bank. The principal terms are as follows:
Term
Interest rate
Arrangement Fee
Non utilisation fee
Exit fee
Security
36 months with three month capital repayment holiday
9.3% over LIBOR paid monthly
1.4% of loan facility
0.6% of unutilised amount
cash amount calculated on the shares equivalent of 7.5% of the facility
payable on takeover of Group or refinance of the loan
Fixed and Floating debenture over the assets of the Group.
The loan balance can be drawn in two tranches with a minimum of £1.0 million within five business days of
the signing of the agreement and the remaining balance within twelve months. The Company will initially be
drawing down £1.5 million of this new facility. The facility is being used to support the working capital
requirements of the Group as it continues to grow – see Note 28 for full disclosure of terms.
This debt facility will support our working capital needs created by rapid growth and the expansion of our
Sterling-exposure to multiple currencies. In common with many Cloud companies operating a SaaS business
model, we have chosen to utilise this layer of debt on top of equity funds raised to fund the journey to
becoming a cash generative business. This mixed financing structure is intended to optimise the growth in
shareholder value over time.
Dividend
The Board is not recommending a dividend for the financial year (2018: £nil).
William Good
Chief Financial Officer8 October 2019
2 Contracted ACV is the total annual recurring revenue of all signed contracts, whether invoiced and included in deferred revenue or still to be deployed
and/or not yet invoiced
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PCI-PAL PLC
PRINCIPAL RISKS AND UNCERTAINTIES AND RISK MITIGATION
The Group is exposed to several risks factors that may affect its performance. The Group has a framework for
reviewing and assessing these risks on a regular basis and has put in place appropriate procedures to mitigate,
where possible, against them. No system of control or mitigation can completely eliminate all risks. The Board
has determined that the following are the principal risks facing the Group.
Short trading history of the Group: The Group has a limited operating history as a standalone business under
the PCI Pal brand, having launched it’s true-cloud offering on AWS in only October 2017, and its North
American business shortly after in February 2018. It therefore does not have an extensive track record to call
on. The Group has brought in people with extensive experience of our market and new geographies, including
advisors with specific experience of international, scale-up software companies. The Group is therefore still
subject to some of the risks and uncertainties associated with new business enterprise trading for under 3
years.
There can be no assurances that the Group will successfully develop its business in the manner intended or
otherwise, or that the resources it has will be suitable or sufficient for its requirements. The Group therefore
may require the injection of further capital in the future.
Generation of sales through Channel Partners: While the Board continues to be confident that the use of
international channel partners (including but not limited to CCaaS vendors, VARs, carriers, and payment
service providers) is the most appropriate route to market to scale the business, delays could arise in the
expected timetable of engagement and enablement of those partners. Such delays could slow the rate of
growth in the Group’s sales bookings and revenues. This could have an impact on the trading and financial
position of the Group and the planned future timing of when it is expected to reach break-even.
Notwithstanding this, the Board is confident that the Group has hired the right people, adding to the already
experienced team, to capitalise on existing channel partnerships whilst growing new channel routes-to-
market. It is our focus on hiring of people, refinement of process, and suitability of our technology to our
business model that gives the Board the belief that these risks are therefore manageable.
Growth plans may change: The PCI compliance and personal data security market place is rapidly evolving
and growing. PCI Pal’s focus today is in the PCI compliance for telephone payments, primarily in the UK and
North America, managing payments made in contact centre environments. Given the pace at which the
global markets are moving, the Group may choose to explore additional strategic growth options utilising our
existing global cloud platform. As such, the Board may alter its current expansion plans if a material new
opportunity presents itself that, in its opinion, is more attractive than its current plans. Any change in strategy
may require additional financing, which may include the issue of additional ordinary shares in the Company
and dilution to shareholdings.
Staff Retention and Recruitment: The Group has built a strong, core team to deliver its on-going strategy.
However, additional staff may be required to scale the business. Failure to recruit the individuals required
would significantly restrict the Group’s growth potential. The Group also depends on the services of its key
technical, operations, sales and management personnel. The loss of the services of any one or more of these
key persons could have a material adverse effect on the Group’s business. As detailed in the CEO’s review,
the Group has an active policy to identify, hire, train, motivate and retain highly skilled personnel in key
functions.
Loss or infringement of Intellectual property rights (“IPR”): The Group is in part reliant on its own IPR
embedded in its proprietary software and as a result has a number of patents in pending status across the
territories within which it operates. In order to counteract the risk of third parties infringing PCI Pal’s own
intellectual property rights, or claim that PCI Pal has infringed their rights, the company regularly reviews its
proprietary software and development activities with its IPR lawyers. As such the Directors do not envisage
the risk of loss or infringement to be significant.
Page 17
Information technology: Data security and business continuity pose inherent risks for the Group. The Group
invests in and keeps under review formal data security and business continuity policies which are
independently audited. The Group’s solutions do not store details of its clients’ payment data or that of their
end customers as such significantly reducing any potential exposure in the event of a data security incident.
PCI-PAL PLC
Our core PCI platforms are audited annually to enable us to maintain our PCI DSS accreditations. These audits
include independent monthly firewall scanning, six monthly penetration testing by ‘white hat hackers’ and
annual validation, document review and reporting by a PCI SSC certified security assessor. The Group’s
primary platform is hosted on AWS which is a PCI compliant hosting environment in its own right. The Group
has an established an Information Security team, headed by our Chief Information Security Officer (CISO),
who focus on ensuring the highest standards of data security and compliance are maintained. Additionally,
the CISO is a board member.
Operational risks:
To reduce the operational risks for the legacy first-generation platform the Group has multiple datacentres
locations from which services are delivered. These back-up facilities have independent telephone lines,
phone switch and computer data systems synchronised to the main datacentre that can automatically fail-
over in the event of a major incident occurring.
The primary AWS platform is hosted across multiple AWS regions, and within those regions retains resilience
through a minimum of two independent availability zones. Load balancers and auto-scaling groups running
within each availability zone constantly monitor the health and capacity of the network and automatically
take action, launching new server instances in the event of high load or server The PCI Pal platform is true
cloud, with all data centres maintained by AWS globally.
General business risks:
The Group has expanded into new regions and this has naturally created general business risks, for example
due to having to set up systems to comply with all new local regulations and laws. Failure to comply with
these laws may result in sanctions against the Group. To try and mitigate these risks the Directors use a
system of establishing a network of professional advisers located in each region to advise the Group
accordingly, and then implement a suitable control environment.
The Group generates most of its cashflow and revenue from the licensing and periodic charges for our
solutions. The Group invoices its customers both initially on the signature of its contracts and then at set
times during the term of the contract. The timing of some of these periodic charges may be linked to contract
implementation. Unexpected or extended delays to the
delivery milestones related to solution
implementation process may therefore impact the timing of our ability to charge and receive payment for
our services, which may have a serious, detrimental impact on the Group’s financial position. The Board has
created KPIs specifically related to project delivery and implementations and management reviews these on
a day to day basis. The Board believes the Group has employed the right people to oversee these risks and
has established good systems and processes to ensure we can manage the risk as best as possible.
Market place and competition: The sectors in which the Group operates in and/or routes to market may
undergo rapid or unexpected changes or not develop at a pace in line with the Boards’ expectations. It is also
possible that competitors will develop similar or better products; the Group’s technology may become
obsolete or less effective if left without product development or evolution; or that consumers use alternative
channels of communications or methods of payment, which may reduce demand for the Group’s products
and services in the future.
In addition, the Group’s success may depend in part upon its ability to develop new and enhanced existing
software solutions, on a timely and cost-effective basis, that meet changing customer requirements and
incorporate technological advancements. The Directors review market movements, customer and partner
requirements and competitors’ products regularly, and in depth. This focus allows the Directors to make
product driven decisions for the Group to ensure that we move with the marketplace, open new
Page 18
opportunities, and keep ahead of the competition with our chosen strategy.
PCI-PAL PLC
Reputational risk: The Group’s reputation may be damaged by a range of events, such as poor solution
implementation, servicing of product partners, product performance or data security incidents. The Group’s
reputation underpins its service offerings and so any damage to our reputation may damage our prospects.
The Board believes that the steps taken in establishing strong people, process, and technology ensure that
this risk is significantly reduced.
Financial risk management objectives and policies
The principal financial instruments used by the Group, from which financial risk arises, are trade receivables,
cash at bank and trade and other payables and, created post year-end, the new bank debt facility. The Board
has overall responsibility for the determination of the Group’s financial risk management objectives and
policies and, while retaining ultimate responsibility for them, it has delegated the authority for designing,
operating and reporting thereof to the Group’s finance function. The overall objective is to set policies that
seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility.
Further details regarding these policies are set out below:
• Credit risk: Credit risk is the risk of financial loss to the Group if a partner or customer or a counter
party to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed
to credit risk from credit sales. It is Group policy to assess the credit risk of new customers and
partners before entering new contracts and it has a frequent and proactive collections process. The
concentration of credit risk is limited as the credit given is spread across all clients and partners.
Under the terms of our contracts many services are charged for in advance of delivery, thus
mitigating the risk further. Credit risk also arises from cash and cash equivalents and deposits with
banks and financial institutions. At the year-end, the Group’s cash at bank was held with two banks.
• Market risk: The Directors consider that exposure to market risk, arising from the Group’s use of
interest-bearing and foreign currency financial instruments, is not significant. This is assessed in note
20.
Liquidity risk: Liquidity risk arises from the Group’s management of working capital. It is the risk that
the Group will encounter difficulty in meeting its financial obligations as they fall due. On a monthly
basis, the Directors review an annual twelve-month cash flow projection as well as information
regarding cash balances. The Group has recently established an on-going term debt facility with a UK
Bank to assist in managing its liquidity risk.
•
• Currency risk – As a consequence of the increasingly international nature of its business, the Group
has become more exposed to risks associated with changes in foreign currency exchange rates. The
Group is based in the United Kingdom and presents its consolidated financial statements in pounds
sterling. The Group’s current revenues are currently generated primarily in pounds sterling but
increasingly it is envisaged that the revenues will be generated in foreign currency, particularly the
US dollar and the Canadian dollar. The Group also has substantial contractual obligations (primarily
employment contracts) that are denominated in U.S. Dollars. The Group has no currency hedging
arrangements in place at present and notwithstanding any future currency hedging arrangements
that the Group may put in place, the Group will have exposure to translation effects arising from
movements in the relevant currency exchange rates against sterling. Therefore, there can be no
assurance that its future results or resources will not be significantly affected by fluctuations in
exchange rates.
• Taxation risk – The Group’s operations and business will be subject to the effect of future changes
to tax legislation and practice in the countries in which it operates. Any change in the tax status of
the Group or any member of the Group or in applicable tax legislation or regulations in any relevant
jurisdiction could affect its ability to provide returns to shareholders or negatively alter post tax
returns to shareholders. The taxation of an investment in the Group depends on the individual
circumstances of the investor.
• Risks relating to the UK’s proposed exit from the European Union - The UK’s June 2016 referendum
vote to leave the European Union (“EU”), the subsequent initiation of the withdrawal procedure in
March 2017 when the UK Government triggered article 50 of the Treaty on European Union and the
Page 19
PCI-PAL PLC
recent parliamentary events and postponement of Article 50, has created significant uncertainty
regarding the UK’s relationship with the EU, including the terms and timeframe within which the UK’s
exit from the EU will be effected. Although the Group has not experienced any immediate material
changes to its operations and structure, the UK’s proposed exit from the EU could generate political,
economic and currency volatility and uncertainty in the markets. The effects of the UK’s exit from
the EU on the Group could include: (i) significant legal and regulatory uncertainty; (ii) increased
compliance and operating costs for the Group; (iii) increased levels of inflation, in the UK and other
markets in which the Group operates; (iv) lower levels of demand for the Group’s services; and (v) a
reduction in the net assets and/or share price of the Group. Although it is impossible to predict the
full impact of the UK’s exit from the EU at this stage, the resultant risks could have a material adverse
impact on the Group’s growth plans, financial position, results of operations and/or prospects.
Litigation Risk – Companies in all sectors, including the sector in which the Group operates, are
subject to legal claims, with and without merit. The Group may become involved in legal disputes in
the future. Defence and settlement costs can be substantial, even with respect to claims that have
no merit. Due to the inherent uncertainty of the litigation process, there can be no assurance that
the resolution of any particular legal proceeding will not have a material adverse effect on the
Group’s financial position, results of operations and/or prospects.
•
Page 20
PCI-PAL PLC
CORPORATE RESPONSIBILITIES
Mission, Vision and Values
Our mission is to safeguard reputation and trust. We provide organisations that engage with customers by
phone with globally accessible cloud solutions ensuring their conversations are PCI compliant and personal
data is protected. Safeguarding reputation and trust.
At PCI Pal, our vision is to be the preferred solution provider that technology vendors globally turn to for
achieving PCI compliance for payments by phone. By dedicating ourselves to the focused pursuit of easy to
integrate and simple to deploy technology, we will provide the most compelling value proposition for our
partners to solve their customers’ challenges in achieving compliance and safeguarding reputations. It is our
people beyond the technology, who underpin our business and support our partners.
Our Values:
00. Security is job zero
01. Be the difference
02. Champion the mission
03. Team first
04. Enjoy the journey
The PCI Pal CSR policy compliments our business mission, vision and values, reflecting the way we work and
the services we deliver by focusing on three components:
Customer Engagement and Business Growth
“developing our business based on highly professional and ethical standards”
We build strong relationships with our customers and stakeholders by ensuring we fully understand their
objectives and needs. By being honest, open and transparent in our dealings we aim to have the highest
professional and ethical standards. Working in partnership with our stakeholders we create tailored, high
quality and fair value solutions. We engage with our customer base to address both opportunities and issues
and have procedures in place to deal effectively with both complaint escalations and compliments.
Employee engagement, retention and development:
“recruiting and developing employees to ensure PCI Pal services are led and delivered by a well-motivated,
educated and engaged workforce”
Supported by a thorough onboarding programme that starts from the point of employment acceptance, PCI
Pal welcomes our new people to the business in a friendly and professional manner. Tailored induction
timetables give new starters the chance to engage with key players within the business to help them quickly
establish working relationships and begin building their network. Training doesn’t stop after onboarding
finishes, with a host of tailored management initiatives, technical courses and development opportunities.
Our people development framework encourages feedback and open discussions around performance,
objectives and achievements. The diversity of our workforce reflects both the customers and communities
we work with. We expect our employees to act with integrity towards both one another, and partners,
customers and suppliers, with diversity, fairness and equal opportunity policies laid out in our online
employee handbook.
Our employee turnover is low, but when people do decide to move on, we take the opportunity to interview
and document their reasons for leaving to allow us to make improvements wherever possible.
The welfare of our people is underpinned by our Health and Safety and Wellbeing policies. These ensure our
people are both educated and supported with issues they may have both within and outside the workplace.
Page 21
PCI-PAL PLC
Community Impact
“appreciating and improving the communities we work within”
We recognise the importance of the local and global communities within which we operate. We aim to
enhance our contribution to the community by being sensitive to the needs of local people and groups, and
by promoting ethical and socially responsible trading.
Our environmental policy ensures we are aware of the environmental impact our business has, and the
steps we take to reduce this. We seek to reduce waste by exploiting systems to remove the need for
paperwork and have recycling bins throughout the offices. Video and conference facilities are used as a first
option for meetings.
The Strategic Report for the Group was reviewed and approved by the Board of Directors on 8 October
2019
Signed by Order of the Board
J C Barham
CEO
8 October 2019
Page 22
PCI-PAL PLC
Page 23
PCI-PAL PLC
CORPORATE GOVERNANCE
Chairman’s statement on Corporate Governance
Dear Shareholder,
The Board is responsible for ensuring the long-term success of the Group and is committed to delivering
leadership through good governance and accountability for the benefit and protection of our shareholders.
In this Corporate Governance section, we outline how we have complied with the latest governance code as
published by the Quoted Company Alliance (the “Code”) and explain where our policies vary from the Code.
As the Chairman of the Group I am responsible for ensuring that the Board outlines and delivers its strategy.
To this end the full Board meets regularly throughout the year and is available for short notice meetings as
required from time to time. The Board consists of three executive directors each with their own areas of
expertise, together with two non-executive directors, including myself.
In accordance with the Code, the Board has a list of matters that are reserved for its authority and also
delegates certain roles and responsibilities to Committees, whilst retaining overall responsibility for the
decisions recommended and made. As a Board, we have decided that a Nominations Committee is not
required, given the current size of the business, and any future nominations will be decided by the full Board.
Our Audit Committee has focused upon ensuring that the Group plans for, and adopts, the latest accounting
standards, the most important has been the adoption of IFRS 15: Revenue from Contracts with Customers
which was adopted by the Group on the 1st July 2018. The Committee is informed by the work of the external
auditors, Grant Thornton, and considers recommendations from our Chief Financial Officer.
Our Remuneration Committee has overall responsibility for changes made to the Executive Directors
remuneration. It is also responsible for the approval of the Group’s various share options schemes. In
considering its responsibilities it also takes input from the Group Chief Executive Officer where appropriate.
We are confident that the Board has adopted an appropriate corporate governance strategy that will allow
us to deliver on our strategic goals.
Chris Fielding
Non-Executive Chairman
8 October 2019
Page 24
PCI-PAL PLC
CORPORATE GOVERNANCE
Compliance statement
The Directors recognise the importance of sound corporate governance. The Board considers that it has
complied with the provisions of the UK Corporate Governance Code, (the Code) as issued by the Quoted
Company Alliance, with the exception of the following areas:
1. The Group does not have a formal system of training the Directors for their on-going roles, instead
they are expected to keep up-to-date personally with matters relevant to their own positions through
memberships of relevant professional societies; regular briefings from lawyers and accountants as
well as other professional advisers;
2. The Board has not prepared a formal statement on culture, ethical values and behaviours and so
there is no formal, regular measurement or assessment of this. However, the Group has only 50
employees operating from two principal locations. The Board is therefore confident that it can
adequately assess the corporate culture within the Group;
3. Given the company size and recent growth, the Board has not carried out a formal evaluation of the
Board’s performance or of its individual directors;
4. The Board has not established a nominations committee and so all matters relating to the
appointment of directors are reserved for the full Board.
Information on significant shareholders in the Company has been included in the directors’ report on page
33.
Leadership
The Board is collectively responsible for the long-term success of the Group and provides effective leadership
by setting the strategic aim of the Group and overseeing the efficient implementation of these aims in order
to achieve a successful and sustainable business.
In practice the Executive Directors prepare and present the strategic plan to the Board, which the Board
challenges in order to determine the strategic priorities. The Board also ensures that the appropriate
framework of controls is in place to enable the proper assessment and management of risks. The Executive
Directors are responsible for the management of the business and implementing the Board’s decisions.
Board composition
The Board of PCI PAL PLC is made up of an independent Non-Executive Chairman, CEO, CFO, CISO and one
other independent Non-Executive Director. Details of the Board’s experience are shown on page 23 which
demonstrate the range of skills and insight that they bring to the Board. It is important that the Non-Executive
Directors bring a wide range of skills to the Board in order to provide robust challenges to the Executive
Directors and to ensure that shareholders’ interests are represented. The two Non-Executive Directors are
both deemed to be independent. All Directors are subject to election by the shareholders at the first Annual
General Meeting following their appointment, and to re-election thereafter every three years.
Board meetings
The Board meets formally four to six times per year to discuss the strategy, direction and financial
performance of the company. Other additional Board meetings occur as required. The Directors review a
management pack each month and a more detailed Board pack on a quarterly basis, which enables them to
fulfil all of their duties of stewardship. This Board pack contains detailed financial information as well as wider
resources on the KPIs for the Group.
The Non-Executive Directors attend all of the meetings.
Page 25
Directors’ meeting attendance 2018/19
PCI-PAL PLC
Board
Scheduled
Board
Short
Notice
Audit
Scheduled
Audit
Short
Notice
Rem Com
Scheduled
Rem Com
Short Notice
Executive Directors
James Barham
William Good
Geoff Forsyth
Non-executive directors
Chris Fielding
Jason Starr
5/5
5/5
4/5
5/5
5/5
3/3
3/3
3/3
3/3
3/3
1*
1*
1*
1
1
-
-
-
-
-
-
-
-
-
-
1*
1*
1*
1/1
1/1
* = attended by invitation of the Chairman of the Committee
Directors can formally attend meetings either: in person; by conference call or by video conferencing.
The executive directors are employed on a full-time basis.
Division of roles and responsibilities
The Chairman is responsible for the leadership of the Board and ensuing the effectiveness of all aspects of its
role. Each scheduled meeting includes an agenda that allows each Executive Director to report to the Board
on performance of the business including risk analysis and monitoring. Non-scheduled meetings are normally
called to discuss single points of matter.
The Chairman’s role and the Chief Executives role have been divided. The Chairman sets the agenda for each
meeting and ensures compliance with Board procedures and sets the highest standards of integrity, probity
and corporate governance throughout the Group. The Chief Executive is responsible for running the Group’s
business by proposing and developing the Group’s strategy and overall commercial objectives. He also
ensures that the Chairman is notified of forthcoming matters that may affect the running of the Group that
the Chairman may not be aware of.
Evaluation
The Board has not undergone a formal evaluation during the financial year.
Re-election
The articles of association require that at the AGM one third, or as near as possible, of the Directors will retire
by rotation. In addition, any new Director to the Board will automatically stand for re-election at the first
AGM following his or her appointment.
Insurance
The Group maintains appropriate insurance cover in respect of legal action against the Directors.
Conflict of Interest
Under the articles of association, the Board has the authority to approve any conflicts or potential conflicts
of interest that are declared by individual directors; conditions may be attached to such approvals and
directors will generally not be entitled to participate in discussions or vote on matters in which they have or
may have a conflict of interest.
Page 26
PCI-PAL PLC
Financial and business reporting
Please refer to the following pages for information as to how the Board has carried out the financial and
business reporting obligations:
1. Page 35 of the Directors’ Report details the Board’s responsibility statement setting out the steps
taken to present a fair, balanced and understandable assessment of the Group’s position and
prospects.
2. Pages 4 to 21 of these accounts reports on the business model and explains how the Group generates
and preserves value over the longer term and also reports on the strategy for delivering the objectives
of the Group.
3. Page 37 of the Directors’ Report confirms that the financial statements have been prepared on a
going concern basis
Risk Management and internal controls
The Board has overall responsibility for establishing and maintaining sound risk management and internal
control systems. The Board monitor these risks and systems regularly to ensure they continue to be effective
and fit-for-purpose. Further information on risk management and internal controls is set out in the Audit
Committee Report on Page 28.
The Directors have carried out an assessment of the principal risks facing the group and how these risks can
be reduced. The explanation of these risks and how they are being mitigated can be found on pages 17 to 20.
Communications with shareholders
The Board recognises the importance of regular and effective communication with shareholders. The primary
forms of communication are:
1. The annual and interim statutory financial reports and associated investor and analyst presentations
and reports.
2. Announcements relating to trading or business updates released to the London Stock Exchange.
3. The Annual General Meeting which provides shareholders with an opportunity to meet the Board of
Directors and to ask questions relating to the business.
4. Private investor roadshows and presentations at investor conferences.
All statutory financial reports are published on www.pcipal.com and are made available on a timely basis.
Page 27
PCI-PAL PLC
AUDIT COMMITTEE REPORT
Dear Shareholder,
On behalf of the Audit Committee, I am pleased to present our report for the year ended 30th June 2019.
Composition
The Audit Committee comprises the Chairman and the other Non-Executive Director. The Audit Committee
as in prior years is chaired by myself. The executive directors may attend by invitation.
Responsibilities
The Audit Committee meets at least once a year to review the independent audit report of the Company’s
auditors and the wider responsibilities set out below:
1. Monitor the integrity of the financial statements of the Company.
2. Review the Group’s internal financial controls and risk management systems.
3. Ensure a formal channel is available for employees and other stakeholders to express any complaints
in respect of financial accounting and reporting.
External Audit
In relation to the Group’s external auditors the key responsibilities are:
1. Make recommendations to the Board, for it to put to the shareholders for their approval in relation
to the appointment of the external auditor and to approve the remuneration and terms of reference
of the external auditor.
2. Discussion of the nature, extent and timing of the external auditor’s procedures and discussion of
the external auditor’s findings.
3. Review and monitor the external auditor’s independence and objectivity and the effectiveness of the
audit process.
4. Develop and implement policy on the engagement of the external auditor to supply non-audit
services.
Changes in accounting policies
During the financial year the Group has adopted IFRS 15: Revenue from Contracts with Customers and has
worked with the Group Auditors to ensure that all the required information has been correctly implemented
and disclosed. As a result, the prior year financial results have been restated.
The retrospective impact of adopting IFRS 15 has been limited. PCI Pal’s operating model is to provide a SaaS
solution to its end customers via a Cloud platform service. Our partner and customer contracts are therefore
structured primarily as annual recurring license fees, revenue from which is recognised rateably over time.
The forward impact for PCI Pal of IFRS 15 is therefore mostly limited to the impact of also spreading
implementation professional service fees over the contract periods.
The Group has also adopted IFRS 9: Financial Instruments. As the Group does not enter into forward contracts
to hedge forecast transactions there has not been any restatement to the accounts.
In the next financial year, the Group will be adopting IFRS 16: Leases. However, the Group does not expect
this adoption to have a material impact on its results.
Internal Audit
PCI-PAL does not currently have an internal audit function, which the Board considers appropriate for a
Group of the Company’s size. The Committee will continue to monitor this situation and may add such a
function in due course as the Group continues to grow.
Page 28
Internal control procedures
The Board is responsible for the Group’s system of internal controls and risk management, and for reviewing
the effectiveness of these systems. These systems are designed to manage, rather than eliminate, the risk of
failure to achieve business objectives.
PCI-PAL PLC
The key features of the Group’s internal controls are described below:
1. A clearly defined organisational structure with appropriate delegation of authority.
2. The approval by the Board of a one-year budget, including monthly income statements, balance
sheets and cash flow statements. The budget is prepared in conjunction with senior managers to
ensure targets are feasible.
3. The business plan is updated on a periodic basis to take into account the most recent forecasts. On
a monthly basis, actual results are compared to the latest forecast and market expectations and
presented to the Board on a timely basis.
4. Regular reviews by the Board and by the senior management team of key performance indicators.
5. Dual authority is required for bank payments.
6. Payments are not permitted without an approved invoice signed in accordance with the Delegation
of Authority document.
7. Reconciliations of key balance sheet accounts are performed and independently reviewed by the
finance team. Wherever possible segregation of duties are implemented to provide additional
comfort and support on all finance processes.
8. Appropriate physical security and virtual checks are in place at all locations to protect the Group’s
assets.
9. Appropriate whistleblowing and escalation points are established and communicated to staff to
provide a safe and secure forum for employees to escalate matters.
10. A disaster recovery plan and back-up system is documented and in place.
The Board in conjunction with the Audit Committee keeps under review the Group’s internal control system
on a periodic basis.
Chris Fielding
Chairman of the Audit Committee
8 October 2019
Page 29
PCI-PAL PLC
REMUNERATION COMMITTEE REPORT
FOR THE YEAR ENDED 30 JUNE 2018
Dear Shareholder,
On behalf of the Board I am pleased to report to you on remuneration matters considered by the Committee
during the year.
Composition
The Remuneration Committee consists of non-executive directors Jason Starr (Committee Chairman) and
Chris Fielding, and it is normal to invite the Chief Executive to the meeting to hear his recommendation for
remuneration.
Remuneration Policy
The objective of the Group’s remuneration policy is to attract, motivate, and retain high quality individuals
who will contribute significantly to shareholder value. The Remuneration Committee decides on the
remuneration of the executive directors.
Annual Performance Bonus
For Board executives, a bonus will be paid dependant on the level of achievement against annual key
performance indicators for the Group, which will be set annually by the Remuneration Committee, with
achievement assessed at the end of the year.
The Executive Directors annual bonus scheme is based upon the achievement of certain quantifiable profit
and commercial targets for the Group, as appropriate.
Any bonus will be paid as cash, company shares or a combination of the two, also to be decided annually by
the Remuneration Committee. Under normal circumstances, a bonus will not be payable if targets are not
met.
Executive Directors’ remuneration
The remuneration package of the Executive Directors includes the following elements:
Basic salary
Salaries are normally reviewed annually considering the rate of inflation and salaries paid to Directors of
comparable companies. Pay reviews also consider Group and personal performance.
Additional benefits
The Executive Directors receive an annual car allowance, personal health insurance and a contribution to
their pension scheme of 10% of their basic salary paid annually in advance.
Payments made to the former Chief Executive Officer
In October 2018 the Group terminated the employment of William Catchpole, the Chief Executive. The Group
reached a settlement with him and the remuneration committee sanctioned the following amounts as a
termination payment: A payment in lieu of notice of £161,000; compensation for loss of office of £100,000;
settlement of outstanding pension obligations of £11,000 and settlement of outstanding benefit obligations
of £8,000. The Group also contributed towards his legal fees.
Page 30
PCI-PAL PLC
Long Term Incentive Plan
Long Term Incentives will continue to be set under the 2012 Long Term Incentive Plan (“Plan”). The
key elements of this LTIP are as follows:
• The Group reviews its medium and long-term strategy on an annual basis, towards the end of each
financial year. The output of this annual review will be an updated set of actions to implement or modify
existing or new strategic imperatives.
• During each financial year the Remuneration Committee will agree participants for participation in the
plan as recommended by the CEO. The Committee will grant share options to participants which will
vest during/over a minimum three year period, depending on whether the options have met the
performance criteria set. The vesting rules reflect the generally accepted employment practices for each
region the participant is employed in.
• The performance criteria set will be specifically designed to align shareholder and executive’s interests,
such as retaining key personnel for a minimum period or delivering growth in the Company’s share price.
Shareholders have authorised the Board to issue share options under the Plan to a maximum of 20% of the
Group’s equity at the time of issue, but the Board has agreed it will limit share options to a total of 15% of
shares in issue.
Note 19 of these accounts details the number of share options that have been issued by the Group.
The service contracts and letters of appointment of the directors include the following terms:
Executive Directors
Date of appointment
Notice period
J C Barham
T W Good
G Forsyth
1 October 2016
1 April 2017
27 November 1999
12 months
12 months
12 months
The Non-Executive Directors have letters of appointment, setting out the terms and conditions of their
appointment and their expected time commitment, and they are also subject to re-election by rotation by
shareholders at least once every three years. The current Non-Executive Directors’ initial appointments
commenced on the following dates:
Non-Executive Director
Date of appointment
C M Fielding
J S Starr
24 August 2014
20 November 2014
Note 3 of the Directors’ Report sets out the detailed remuneration and share options granted to each director
who served during the year.
Jason S Starr
Chair, Remuneration Committee
8 October 2019
Page 31
PCI-PAL PLC
DIRECTORS and ADVISERS
Company registration number:
03869545
Registered office:
7 Gamma Terrace
Ransomes Europark
Ipswich
Suffolk IP3 9FF
Telephone:
+44 (0)330 131 0330
Directors:
Secretary:
Bankers:
Christopher Michael Fielding
Jason Stuart Starr
James Christopher Barham
Geoffrey Forsyth
Thomas William Good
Thomas William Good BA (Hons) ACMA CGMA
National Westminster Bank PLC
Silicon Valley Bank
Auditors:
Grant Thornton UK LLP
Nominated Adviser
and Broker:
finnCap
Registrars:
Telephone:
Lawyers:
Link Asset Services
(UK):
(Overseas):
0871 664 0300
+44 371 664 0300
Shepherd and Wedderburn LLP
Brownstein Hyatt Farber and Schreck
Financial statements are available at:
www.pcipal.com
Page 32
PCI-PAL PLC
DIRECTORS’ REPORT
The directors present their report together with the financial statements for the year to 30
June 2019.
1. Principal activities
The Company (Company number 03869545) operates principally as a holding company. During the
year, the main subsidiary was engaged in the provision of PCI compliant solutions.
2. Results, dividends, future prospects
The trading results of the continuing operations of the company are set out in the annexed accounts
and are summarised as follows:
Revenue
Loss before taxation
2019
£000s
2,817
2018
Restated
£000s
2,007
(4,502)
(3,775)
The directors are not recommending a payment of a final dividend (2018: nil pence per share).
3. Directors
The membership of the Board is set out on page 23.
The beneficial and other interests of the directors and their families in the shares of the Company at
30 June 2019 and 1 July 2018 were as follows:
G Forsyth
J Barham
T W Good
C M Fielding (non-executive)
J S Starr (non-executive)
30 June 2019
Ordinary shares of 1p
each
1 July 2018
Ordinary shares of
1p each
1,311,719
121,942
140,000
35,590
-
1,225,039
52,203
125,000
-
-
Page 33
PCI-PAL PLC
The directors’ remuneration for the year was as follows:
Salary
Bonus
Benefits
2018/19
G Forsyth
J Barham
T W Good
C M Fielding (non-
executive)
J S Starr (non-
executive)
W A Catchpole (to 8th
October 2018)
£
137,100
157,058
139,800
35,000
25,000
43,856
£
-
24,498
-
-
-
-
£
5,005
394
-
-
-
-
Total
537,814
24,498
5,399
Salary
Bonus
Benefits
2017/18
G Forsyth
J Barham
T W Good
C M Fielding (non-
executive)
J S Starr (non-
executive)
W A Catchpole
£
111,600
118,002
117,068
45,000
25,000
£
17,500
34,500
10,000
-
-
£
4,885
2,347
-
-
-
175,700
27,500
7,700
Payments
relating to
overseas
posting
£
-
64,838
-
-
-
-
64,838
Payments
relating to
overseas
posting
£
-
24,455
-
-
-
-
Total
Pension
£
142,105
246,788
139,800
35,000
25,000
43,856
£
14,150
13,513
-
674
425
-
632,549
28,762
Total
Pension
£
133,985
179,304
127,068
45,000
25,000
210,900
£
10,200
12,500
-
226
143
-
Total
592,370
89,500
14,932
24,455
721,257
23,069
In April 2018, James Barham was relocated to the United States of America as part of the Group’s
expansion into that region. In October 2018, James Barham was appointed CEO of the Group and as
a result, in April 2019, he relocated back to the UK. The Group agreed to meet certain costs relating
to these relocation and postings which totalled £64,838 (2018: £24,455)
£70,000 of the 2017/2018 bonus figures reflect bonuses paid to the executive directors relating to
the Group performance from the 2016/2017 financial year but were only confirmed following the
publication of the 2016/2017 financial year results. All bonus amounts had been fully accrued for in
the appropriate financial year’s accounts.
On 8th October 2018 the Group terminated the employment of William Catchpole the Chief Executive.
The Group reached a settlement with him and the remuneration committee sanctioned the following
amounts as a termination payment: A payment in lieu of notice of £161,000; compensation for loss
of office of £100,000; settlement of outstanding pension obligations of £11,000 and settlement of
outstanding benefit obligations of £8,000. The Group also contributed £8,250 towards his legal fees.
In the year to 30 June 2018, C M Fielding received an additional payment of £10,000 relating to
addition time spend advising the Board during the equity fund raising, which completed in January
2018.
Page 34
PCI-PAL PLC
Directors’ interests in Long Term Incentive plans
The Directors’ interests in share options to subscribe for ordinary shares in the Company are as
follows:
Note
James
Barham
Geoff
Forsyth
William
Good
1
2
4
1
1
3
At 1 July
2018
(number)
300,000
Granted
in year
(number)
-
Lapsed in
year
(number)
(300,000)
Exercised
in year
(number)
-
At 30 June
2019
(number
-
Exercise
Price
(pence)
33.0
550,000
(550,000)
-
-
325,000
300,000
525,000
-
-
-
100,000
-
-
-
-
-
-
-
-
-
-
525,000
325,000
300,000
100,000
28.5
28.5
33.0
33.0
26.5
Earliest
exercise
date
26th May
2020
26th May
2020
26th May
2020
26th May
2020
26th May
2020
13th Nov
2021
Last
exercise
date
24th May
2027
24th May
2027
24th May
2027
24th May
2027
24th May
2027
11th Nov
2028
Total
925,000
1,175,000
(850,000)
-
1,250,000
Note 1: Option grant on the 25th May 2017
Note 2: Option grant on the 12th July 2018
Note 3: Option grant on the 12th November 2018
Note 4: Option grant on 13th June 2019
4. Share price and substantial shareholdings
During the year, the share price fluctuated between 39.5 pence and 17.5 pence and closed at 30.98
pence on 30 June 2019.
The beneficial and other interests of other substantial shareholders and their families in the shares of
the Company at 30 June 2019 and 1 July 2018 were as follows:
Ordinary Shares of 1 p each
P Wildey
D Hamilton
W A Catchpole
Unicorn AIM VCT LLP
Octopus Investments Nominees
Livingbridge VCT LLP
30 June 2019
4,529,665
1,814,000
2,943,697
2,000,000
2,666,667
2,000,000
1 July 2018
4,650,000
1,814,000
2,943,697
2,000,000
2,666,667
2,000,000
5. Directors’ responsibilities for the financial statements
The directors are responsible for preparing the Strategic Report, the Directors’ Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that
law the directors have elected to prepare Group financial statements in accordance with International
Financial Reporting Standards as adopted by the European Union (“IFRSs”) and have elected to prepare
Company financial statements in accordance with United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice). 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
at the balance sheet date and of the profit and loss of the Group for the period ended. In preparing these
financial statements, the directors are required to:
•
• make judgements and accounting estimates that are reasonable and prudent;
•
Page 35
state whether applicable Accounting Standards have been followed, subject to any material
select suitable accounting policies and then apply them consistently;
PCI-PAL PLC
•
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 Group will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Group’s transactions, disclose with reasonable accuracy at any time the financial position
of the Group and enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
The directors confirm that:
•
•
so far as each director is aware, there is no relevant audit information of which the Group's
auditor is unaware; and
the directors have taken all 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 auditors are aware
of that information.
The directors are responsible for the maintenance and integrity of the corporate and financial
information included 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.
6. Qualifying third party indemnity provision
During the financial year, a qualifying third-party indemnity provision for the benefit of the directors
was in force.
7. Research and development
PCI-PAL is continuing to invest in its new fully-cloud based, PCI DSS level 1 compliant secure platform
hosted on the AWS cloud infrastructure for its services. The new platform is operational but further
functionality and product offerings are planned to be added over the coming years. The expenditure
now meets the guidelines laid down by IAS 38 and have therefore capitalised the direct expenditure
incurred in the development. See note 12.
8.
Employee policy
The Group operates a policy of non-discrimination in respect of ethnicity, sexual orientation, gender,
religion and disability and encourages the personal and professional development of all persons
working within the Group by giving full and fair consideration for all vacancies in accordance with
their particular aptitudes and abilities.
9.
Corporate governance
The Group’s policy on Corporate Governance is detailed on page 24 to 27 in the report and accounts.
10.
Financial Risk Management Objectives
The principal financial and non-financial risks arising within the Group are detailed on pages 17 to 20
of the report and accounts.
11.
Treasury shares
The Group holds a total of 167,229 ordinary shares as treasury shares acquired for a consideration
of £39,636.25.
Page 36
PCI-PAL PLC
12. Going concern
After making enquiries and preparing forecasts, which take a balanced view of the future growth
prospects, the directors have a reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. For these reasons, the directors continue
to adopt the going concern basis in preparing the accounts.
13. Auditors
Grant Thornton UK LLP has expressed willingness to continue in office. In accordance with S489 (4) of
the Companies Act 2006, a resolution to reappoint Grant Thornton UK LLP as auditors will be
proposed at the Annual General Meeting to be held on 21 November 2019.
7 Gamma Terrace
Ransomes Europark
Ipswich, Suffolk
IP3 9FF
BY ORDER OF THE BOARD
T W Good
Secretary
8 October 2019
Page 37
Independent auditor’s report to the members of PCI-PAL PLC Opinion
PCI-PAL PLC
Our opinion on the financial statements is unmodified
We have audited the financial statements of PCI-PAL PLC (the ‘parent company’) and its subsidiaries (the
‘group’) for the year ended 30 June 2019, which comprise the Consolidated Statement of Comprehensive
Income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company
Statements of Changes in Equity, the Consolidated and Company Statements of Cash Flows and notes to
the financial statements, including a summary of significant accounting policies. The financial reporting
framework that has been applied in the preparation of the group financial statements is applicable law
and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial
reporting framework that has been applied in the preparation of the parent company financial
statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting
Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (United
Kingdom Generally Accepted Accounting Practice).
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and of the parent
company’s affairs as at 30 June 2019 and of the group’s loss for the year then ended; 30 June 2019
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by
the European Union;
• the parent company financial statements have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; 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.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us
to report to you where:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements
is not appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that
may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the
going concern basis of accounting for a period of at least twelve months from the date when the financial
statements are authorised for issue.
Overview of our audit approach
• Overall materiality: £110,000.
• Key audit matter was identified as revenue recognition; and
• We performed full scope audit procedures on the financial
statements of PCI-PAL PLC and on the financial information of its
subsidiary PCI-PAL
(U.K) Limited. We performed analytical
procedures on the financial information of the subsidiary PCI-PAL
(US) Inc.
Page 38
PCI-PAL PLC
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified. These matters included those that
had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
Key Audit Matter – Group
Risk– Revenue Recognition
During the year, the Group generated £2,817,000 (2018: £2,007,000)
of revenue, which after costs generated a loss for the year of
£4,366,000 (2018: £3,775,000).
The Group’s revenue is generated from providing contractual services
to customers. As a result management could manipulate the timing of
revenue recognition to meet performance targets. Therefore,
revenue should be recognised in the financial statements in a manner
that is consistent with the contractual terms and in accordance with
the Group’s accounting policy.
Under ISA (UK) 240 ‘The Auditor’s Responsibilities Relating to Fraud in
an Audit of Financial Statements’ there is a presumed risk of fraud in
revenue recognition. Additionally, the entity is loss making, therefore,
there is more risk that management may want to include more
revenue to show growth. We therefore,
identified revenue
recognition as a significant risk, which was one of the most significant
assessed risks of material misstatement.
How the matter was addressed in the audit – Group
Our audit work included, but was not restricted to:
• Determining that the stated accounting policy was in accordance
with International Financial Reporting Standard (IFRS) 15: ‘Revenue’
for the current and prior period and that revenue has been
recognised in line with the revenue recognition policy;
•
•
•
For contract revenue, testing the existence, validity and appropriate
recognition of a sample of contracts by agreeing to signed contracts
and confirming revenue recognition points;
Testing the existence, validity and appropriate recognition for a
statistical sample for remaining revenue streams by agreeing
amounts to third party reports;
Testing the cut off of sales by checking, for a sample of contracts at
the year end, the appropriateness of revenue recognised and
revenue deferred with reference to confirmation of works. ;
The group’s accounting policy on revenue recognition is shown in note
4d to the financial statements and related disclosures are included in
note 9.
Key observations
Based on our audit work, we did not note any material misstatement in
the revenue recognition as per accounting policy which was identified
to be in accordance with IFRS 15.
There are no key audit matters in relation to the parent entity.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable
that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We
use materiality in determining the nature, timing and extent of our audit work and in evaluating the results
of that work.
Materiality was determined as follows:
Materiality
measure
Group
Parent
£110,000 - Our determination of materiality was based
on consideration of a number of benchmarks which we
believe to be of importance to the users of the
financial statements, most notably, total revenues and
tax. These benchmarks were
the
loss before
considered particularly
the
significant level of user focus on these figures in
assessing the Group’s future prospects and
in
assessing the controllable aspects of the Group’s
performance during the year.
important due
to
£99,000 - Similar to our determination of materiality for
the group financial statements, given the parent
company
is non-trading, our determination of
materiality was based on consideration of a number of
benchmarks which we believe to be of importance to the
users of the financial statements. We considered total
assets and net assets as appropriate benchmarks which
we believed to be of importance to the users of the
financial statements.
The level of materiality was not determined by the
application of a specific measurement percentage to
The level of materiality was not determined by the
application of a specific measurement percentage to any
single particular benchmark we considered; rather the
Financial
statements as a
whole
Page 39
Materiality
measure
Group
PCI-PAL PLC
Parent
any single particular benchmark we considered; rather
the appropriate amount of materiality was
determined to be £110,000 based on a review of the
financial statements and this amount was evaluated
for appropriateness by reference to a range of
benchmarks.
appropriate amount of materiality was determined to be
£99,000 based on a review of the financial statements
and the interaction of materiality with the group
financial statements and this amount was evaluated for
appropriateness by reference to a range of benchmarks.
70% of financial statement materiality.
70% of financial statement materiality.
We determined a lower level of specific materiality for
certain areas such as, directors' remuneration and
related party transactions.
We determined a lower level of specific materiality for
certain areas such as, directors' remuneration and
related party transactions.
£6,000 and misstatements below that threshold that,
in our view, warrant reporting on qualitative grounds.
£5,000 and misstatements below that threshold that, in
our view, warrant reporting on qualitative grounds.
Performance
materiality
used to drive
the extent of
our testing
Specific
materiality
Communication
of
misstatements
to the audit
committee
The graph below illustrates how performance materiality interacts with our overall materiality and the
tolerance for potential uncorrected misstatements.
Overall materiality – Group
Overall materiality – Parent
30%
30%
70%
70%
Tolerance for potential uncorrected mis-statements
Performance materiality
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the group’s
business, its environment and risk profile and in particular included:
• PCI-PAL Plc has centralised processes over the key areas of our audit focus. Group management are
responsible for all judgemental processes and significant risk areas. All accounting is centralised, and we
have tailored our audit response accordingly with all audit work being undertaken by the group audit
team. In assessing the risk of material misstatement to the Group financial statements we considered
the transactions undertaken by each entity and therefore the required focus of our work and;
• We performed full scope audits of the financial statements of the parent company PCI-PAL PLC and PCI-
PAL (U.K.) Limited based on their materiality to the Group. The audit work performed focused on the risk
areas for these components and the scope of our audit work was unchanged from the prior year, other
than consideration of a greater risk over revenue recognition as a result of the introduction of IFRS 15.
• We performed analytical procedures on the US subsidiary, PCI-PAL (US) Inc. based in North Carolina,
United States. This was based on the entity’s size and materiality to the Group with targeted procedures
conducted in respect of wages and salaries and revenue testing; and
• Full scope and targeted procedures were performed over 100% of revenue and total assets within the
group. We performed the audit during our visit in July 2019.
Page 40
PCI-PAL PLC
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which
the financial statements are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the group and the parent company and its environment
obtained in the course of the audit, we have not identified material misstatements in the strategic report
or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our
audit have not been received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns;
or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 35, the directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true and
fair view, and for such internal control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent
company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the directors either intend to liquidate the group or
the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
Page 41
PCI-PAL PLC
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Christopher Frostwick
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Chelmsford
8 October 2019
Page 42
PCI-PAL PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2019
Note
6
7
5
11
Revenue
Cost of sales
Gross profit
Administrative expenses
Loss from Operating Activities
Adjusted Operating Loss
Exceptional costs
Expenses relating to Share Options
Loss from Operating Activities
Finance income
Finance expenditure
Loss before taxation
Taxation
Loss for the year
Other comprehensive expense:
Items that will be reclassified
subsequently to profit or loss
Foreign exchange translation differences
Total other comprehensive expense
Total comprehensive loss attributable
to equity holders for the period
2019
£000s
2,817
(1,119)
1,698
(6,373)
(4,675)
(4,232)
(361)
(82)
(4,675)
181
(8)
(4,502)
136
(4,366)
(107)
(107)
2018
£000s
Restated
2,007
(1,151)
856
(4,649)
(3,793)
(3,698)
-
(95)
(3,793)
28
(10)
(3,775)
-
(3,775)
(31)
(31)
(4,473)
(3,806)
Basic and diluted earnings per share
10
(10.30) p
(10.45) p
The accompanying accounting policies and notes form an integral part of these financial statements.
Page 43
PCI-PAL PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2019
Note
2019
£000s
2018
£000s
Restated
2017
£000s
Restated
ASSETS
Non-current assets
Plant and equipment
Intangible assets
Deferred taxation
Loan note receivable
Non-current assets
Current assets
Trade and other receivables
Loan note receivable
Cash and cash equivalents
Current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current portion of long-term
borrowings
Current liabilities
Non-current liabilities
Long term borrowings
Non-current liabilities
Total liabilities
Net assets
13
12
17
14
14
14
15
15
16
71
1,300
-
-
1,371
1,999
-
1,492
3,491
4,862
97
844
-
1,206
2,147
846
908
3,748
5,502
7,649
99
495
-
2,202
2,796
648
945
1,958
3,551
6,347
(3,447)
-
(1,842)
-
(1,468)
-
(3,447)
(1,842)
(1,468)
-
-
-
-
-
-
(3,447)
(1,842)
(1,468)
1,415
5,807
4,879
Page 44
PCI-PAL PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)
AS AT 30 JUNE 2019
Note
2019
£000s
2018
£000s
Restated
2017
£000s
Restated
EQUITY
Equity attributable to equity holders of the parent
19
Share capital
Share premium
Other reserves
Currency reserves
Profit and loss account
Total equity
427
4,618
181
(138)
(3,673)
1,415
427
4,618
99
(31)
694
5,807
317
89
4
-
4,469
4,879
The accompanying accounting policies and notes form an integral part of these financial
statements.
The Board of Directors approved and authorised the issue of the financial statements on 8
October 2019.
J Barham
T W Good
Director
Director
Page 45
PCI-PAL PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2019
Share
capital
£000s
Share
premium
£000s
Other
reserves
£000s
Profit and
loss account
Currency
Reserves
Total
Equity
£000s
£000s
£000s
317
-
317
89
-
89
4
-
4
5,014
(545)
4.469
Balance at 1 July 2017
Adjustments from the
adoption of IFRS 15
Adjusted Balance as at 1
July 2017
Share Option
amortisation charge
New shares issued net of
costs
Transactions with
owners
Retranslation of
currency reserve
Loss for the year
Total comprehensive
loss
Dividend paid
-
-
-
-
95
110
4,529
110
4,529
95
-
-
-
-
-
-
Balance at 30 June 2018
427
4,618
Share Option
amortisation charge
Dividend paid
Transactions with
owners
Retranslation of
currency reserve
Loss for the year
Total comprehensive
loss
-
-
-
-
-
-
-
-
-
-
-
-
5,424
(545)
4,879
95
4,639
-
4,734
-
-
-
-
-
-
-
(31)
(31)
-
-
-
-
-
(3,775)
-
(3,775)
(3,775)
(31)
(3,806)
694
(31)
5,807
-
-
-
-
-
-
-
82
-
82
(107)
(107)
(4,367)
-
(4,367)
(4,367)
(107)
(4,474)
-
-
-
-
-
99
82
-
82
-
-
-
Balance at 30 June 2019
427
4,618
181
(3,673)
(138)
1,415
The accompanying accounting policies and notes form an integral part of these financial statements.
Page 46
PCI-PAL PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2019
Cash flows from operating activities
Loss after taxation
Adjustments for:
Depreciation
Amortisation of capitalised development
Interest income
Interest expense
Exchange differences
Income taxes
Deferred tax write off
Share based payments
Increase in trade and other receivables
Increase in trade and other payables
2018
£000s
(4,366)
53
191
(181)
-
(107)
(136)
-
82
(1,154)
1,605
2017
£000s
Restated
(3,775)
44
107
(28)
-
(31)
-
-
95
(197)
375
Cash used in operating activities
(4,013)
(3,410)
Dividend paid
Income taxes received
Interest element of finance leases
Interest paid
-
136
-
-
-
-
-
-
Net cash used in operating activities
(3,877)
(3,410)
Cash flows from investing activities
Purchase of land, buildings, plant and
Equipment
Proceeds from sale of assets
Development expenditure capitalised
Repayment of loan note receivable
Interest received
Net cash generated in investing
activities
(110)
-
(564)
2,114
181
(43)
1
(456)
1,032
28
1,621
562
Page 47
PCI-PAL PLC
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
FOR THE YEAR ENDED 30 JUNE 2019
2019
£000s
2018
£000s
Restated
Cash flows from financing activities
Issue of shares – net of cost of issue
Repayment of borrowings
Capital element of finance lease rentals
Net cash used in financing activities
-
-
-
-
Net (decrease)/increase in cash
(2,256)
Cash and cash equivalents at beginning of year
Net (decrease)/increase in cash
Cash and cash equivalents at end of year
3,748
(2,256)
1,492
4,638
-
-
4,638
1,790
1,958
1,790
3,748
Page 48
PCI-PAL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
1.
AUTHORISATION OF FINANCIAL STATEMENTS
The Group’s consolidated financial statements (the “financial statements”) of PCI-PAL PLC (the
“Company”) and its subsidiaries (together the “Group”) for the year ended 30 June 2019 were
authorised for issue by the Board of Directors on 8 October 2019 and the Chief Executive, James
Barham, and the Chief Financial Officer, William Good, signed the balance sheet.
2.
NATURE OF OPERATIONS AND GENERAL INFORMATION
PCI-PAL PLC is the Group’s ultimate parent company. It is a public limited company incorporated
and domiciled in the United Kingdom. PCI-PAL PLC’s shares are quoted and publicly traded on
the AIM division of the London Stock Exchange. The address of PCI-PAL PLC’s registered office is
also its principal place of business.
The Company operates principally as a holding company. The main subsidiaries are engaged in
the provision of telephony services and PCI Solutions.
3.
STATEMENT OF COMPLIANCE WITH IFRS
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards as adopted by the European Union.
The principal accounting policies adopted by the Group are set out in note 4. The accounting
policies have been applied consistently throughout the Group for the purposes of preparation of
these financial statements.
Standards and interpretations in issue, not yet effective
The Consolidated Financial Statements of the Group have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as adopted by the EU (“endorsed IFRS”).
These Financial Statements have been prepared in accordance with those IFRS standards and
IFRIC interpretations issued and effective or issued and early adopted as at 30 June 2019 as
endorsed by the EU.
The following adopted IFRSs have been issued but have not been applied by the Group in these
Financial Statements. Their adoption is not expected to have a material effect on the Financial
Statements unless otherwise indicated:
Effective for the year ending 30 June 2020
• IFRS 16 Leases: the impact of adopting this IFRS is detailed below
• IFRIC 23 Uncertainty over Income Tax Treatments
• Amendments to IFRS 9 Financial instruments
• Amendments to IAS 28 Investments in Associates and Joint Ventures
Effective for the year ending 30 June 2022
• IFRS 17 Insurance contracts
IFRS 16: Leases – effect for the year ending 30 June 2020
The Directors review newly issued standards and interpretations in order to assess the impact (if
any) on the Financial Statements of the Group in future periods. IFRS 16 “Leases” was issued in
January 2016. It requires the lessee to recognise most leases on the balance sheet as the
distinction between operating leases and finance leases is removed. Currently operating leases
are not recognised on the balance sheet. The only exceptions are for short term leases and leases
of low value.
Page 49
PCI-PAL PLC
As at 30 June 2019 the Group has one non-cancellable lease relating to its premises in Ipswich
with a lease commitment of £68,000 (Note 25: Operating Leases). As at 1 July 2019 for the
remaining lease commitment the Group expects to recognise £52,000 as a right-to-use asset and
lease liabilities of £52,000. It is expected after adoption in 2019 that the operating loss of the
company will improve by £9,000 but there will be no overall effect to the loss before tax figure.
The Group will adopt IFRS 16 on the 1 July 2019.
4.
PRINCIPAL ACCOUNTING POLICIES
a) Basis of preparation
The financial statements have been prepared on a going concern basis in accordance with the
accounting policies set out below. These are based on the International Financial Reporting
Standards (“IFRS”) issued in accordance with the Companies Act 2006 applicable to those
companies reporting under IFRS as adopted by the European Union (“EU”).
The financial statements are presented in pounds sterling (£), which is also the functional
currency of the parent company, and under the historical cost convention.
b) Basis of consolidation
The Group financial statements consolidate those of the Company and its subsidiary undertakings
(see note 18) drawn up to 30 June 2019. A subsidiary is a company controlled directly by the
Group and all of the subsidiaries are 100% owned by the Group. Control is achieved when the
Group is exposed, or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
Unrealised gains on transactions between the Group and its subsidiaries are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment
of the asset transferred. Amounts reported in the financial statements of subsidiaries have been
adjusted where necessary to ensure consistency with the accounting policies adopted by the
Group.
The Group has utilised the exemption (within IFRS 1) not to apply IFRS to pre-transition business
combinations. All other subsidiaries are accounted for using the acquisition method.
c) Going concern
The financial statements have been prepared on a going concern basis, which the directors believe to
be appropriate for the following reasons:
The Group meets its day-to-day working capital requirements through its cash balances and trading
receipts. Cash balances for the group were £1.492 million at the 30 June 2019. Post the financial year
end the Group has arranged a £2.75 million, 36 month term loan with Shawbrook Bank to assist with
the working capital requirements of the Group.
The directors have prepared and reviewed cash flow forecasts to December 2020. These forecasts
make several assumptions relating to predicted revenues and cash receipts, new contracts signed;
investment in new territories and new employees. The working cash flow forecast shows that the
Group will be able to operate within its existing resources throughout the period up this period and
beyond.
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PCI-PAL PLC
The Directors recognise that during the forthcoming year the Group is expected to remain loss making
on a month-to-month basis, albeit with an improving trend. The directors will review, on a regular
basis, the actual results achieved against the planned forecasts. Some of the planned expenditure
assumptions in the current forecast remain discretionary and as a result the directors can delay such
expenditure to further ensure the Group is able to meet its day-to- day financial working capital
needs.
d) Revenue
Revenue represents the fair value of the sale of goods and services and after eliminating sales within
the Group and excluding value added tax or overseas sales taxes. The following summarises the
method of recognising revenue for the solutions and products delivered by the Group.
(i) PCI compliance solutions and hosted telephony services
Revenue for set-up and cloud provision fee will be deferred and will be recognised evenly over the
estimated term of the contract, having accounted for the automatic auto-renewal of our contracts,
up to a maximum of four years, starting the month following from the date of signature of the
underlying contract.
The payment profile for such contracts typically include payment for set-up fees at the point of
signature of the contract, but for revenue recognition purposes, this is deemed to be an integral part
of the wider contract rather than a separate performance obligation.
Revenue for all other professional services and installation fees will be deferred and will be recognised
evenly over the estimated term of the contract, having accounted for the automatic auto-renewal of
our contracts, up to a maximum of four years, starting in the month following the hand over to the
client for user acceptance testing.
(ii) Third party equipment sales
Where the contract involves the sale of third-party equipment that could be acquired and supplied by
other parties to the client the revenues and costs relating to this will continue to be released in full to
the Statement of Comprehensive Income at the time the installation is complete.
e) Deferred Costs
Under IFRS 15 costs directly attributable to the delivery and implementation of the revenue contracts,
such as commissions and third party costs, will be deferred and will be recognised in the statement
of comprehensive income over the length of the contract.
Costs directly attributable to the delivery of the PCI Compliance solutions and hosted telephony
services will be capitalised as 'costs to fulfil a contract' and released over the estimated term of the
contract, having accounted for the automatic auto-renewal of our contracts, up to a maximum of four
years, starting the month following from the date of signature of the underlying contract.
Costs relating to commission costs paid to employees for winning the contract will be capitalised as
'direct costs to fulfil a contract' at the date the commissions payments become due and will be
released in monthly increments over the minimum contract term starting the month following the
date the cost is capitalised.
f)
Intangible assets
Research and development
Expenditure on research (or the research phase of an internal project) is recognised as an expense
in the period in which it is incurred.
Page 51
Development costs incurred are capitalised when all the following conditions are satisfied:
PCI-PAL PLC
• completion of the intangible asset is technically feasible so that it will be available for
use or sale
• the Group intends to complete the intangible asset
• the Group is able to use or sell the intangible asset
• the intangible asset will generate probable future economic benefits. Among other
things, this requires that there is a market for the output from the intangible asset itself,
or, if it is to be used internally, the asset will be used in generating such benefits
• there are adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset
• the expenditure attributable to the intangible asset during the development can be
measured reliably
The cost of an internally generated intangible asset comprises all directly attributable costs
necessary to create, produce and prepare the asset to be capable of operating in the manner
intended by management. Directly attributable costs include development engineer’s salary and
on-costs incurred on software development. The cost of internally generated software
developments are recognised as intangible assets and are subsequently measured in the same
way as externally acquired software. However, until completion of the development project, the
assets are subject to impairment testing only.
The Directors have reviewed the development costs relating to the new AWS platform and are
satisfied that the costs identified meet the tests identified by IAS 38 detailed above. Specifically,
the initial platform was launched in October 2017 and has been successfully sold in Europe, North
America and Australia, with further sales expected, as detailed in the Chief Executives’ statement.
The directors expect that the AWS platform will continue to be developed, as more functionality
is added, and as a result the it is expecting to continue to capitalise the development costs (which
are primarily labour costs) into the future.
Amortisation commences upon completion of the asset and is shown within administrative
expenses in the statement of comprehensive income. Amortisation is calculated to write down
the cost less estimated residual value of all intangible assets by equal annual instalments over
their expected useful lives. The rates generally applicable are:
• Development costs
20% to 33%
Software licences
The cost of perpetual software licences acquired are stated at cost, net of amortisation and any
provision for impairment.
• Software licences
20% to 30%
g) Land, building, plant and equipment
Land, buildings, plant and equipment are stated at cost, net of depreciation and any provision for
impairment.
Disposal of assets
The gain or loss arising on disposal of an asset is determined as the difference between the
disposal proceeds and the carrying amount of the asset and is recognised in the statement of
comprehensive income.
Page 52
Depreciation
PCI-PAL PLC
Depreciation is calculated to write down the cost less estimated residual value of all plant and
equipment assets by equal annual instalments over their expected useful lives. The rates generally
applicable are:
•
•
•
•
•
Land
Buildings
Fixtures and fittings
Plant
Computer equipment
not depreciated
2%
20% to
20% to
33%
50%
50%
Material residual value estimates are updated as required, but at least annually.
h)
Impairment testing of other intangible assets, plant and equipment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (“cash-generating units”). As a result, some assets are tested
individually for impairment and some are tested at cash-generating unit level.
Intangible assets not yet available for use are tested for impairment at least annually. All other
individual assets or cash-generating units are tested for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair
value, reflecting market conditions less cost to sell, and value in use based on an internal
discounted cash flow evaluation. Any impairment loss is first applied to write down goodwill to nil
and then 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 no longer exists.
i) Equity-based and share-based payment transactions
The Company’s share option schemes allow employees to acquire shares in PCI-PAL PLC to be
settled in equity. The fair value of options granted is recognised as an employee expense with a
corresponding increase in equity in the Company accounts. The fair value is measured at grant
date and spread over the period during which the employees will be entitled to the options. The
fair value of the options granted is measured using either the Black-Scholes option valuation
model or the Monte Carlo option pricing model, whichever is appropriate for the type of options
issued. The valuations consider the terms and conditions upon which the options were granted.
The amount recognised as an expense is adjusted to reflect the actual number of share options
that are expected to vest.
j) Taxation
Current tax is the tax payable based on the profit for the year, accounted for at the rates enacted
at 30 June 2019.
Deferred income taxes are calculated using the liability method on temporary differences.
Deferred tax is generally provided on the difference between the carrying amounts of assets and
liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of
goodwill, nor the initial recognition of an asset or liability, unless the related transaction is a
business combination or affects tax or accounting profit. In addition, tax losses available to be
carried forward as well as other income tax credits to the Group are assessed for recognition as
deferred tax assets.
Page 53
PCI-PAL PLC
Deferred tax liabilities are provided in full, accounted for at the rates enacted at 30 June 2019,
with no discounting. Deferred tax assets are recognised to the extent that it is probable that the
underlying deductible temporary differences will be able to be offset against future taxable
income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected
to apply to their respective period of realisation, provided they are enacted or substantively
enacted at the year end.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the
statement of comprehensive income, except where they relate to items that are charged or credited
to other comprehensive income or directly to equity in which case the related tax charge is also
charged or credited directly to other comprehensive income or equity.
k) Dividends
Dividend distributions payable to equity shareholders are included in “other short term financial
liabilities” when the dividends are approved in general meeting prior to the year end. Interim
dividends are recognised when paid.
l) Financial assets and liabilities
The Group’s financial assets comprise cash and trade and other receivables, which under IAS 39 are
classed as “loans and receivables”. Financial assets are recognised on inception at fair value plus
transaction costs. Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Loans and receivables are
measured subsequent to initial recognition at amortised cost using the effective interest method,
less provision for impairment. Any change in their value through impairment or reversal of
impairment is recognised in in the year.
Trade receivables are reviewed at inception under an expected credit loss model, and then
subsequently for further indicators of impairment, and a provision, if required, is determined as
the difference between the assets’ carrying amount and the present value of estimated future cash
flows.
The Group has a number of financial liabilities including trade and other payables and bank
borrowings. These are classed as “financial liabilities measured at amortised cost” in IAS 39. These
financial liabilities are carried on inception at fair value net of transaction costs and are thereafter
carried at amortised cost under the effective interest method.
m) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other
short-term highly liquid investments with maturities of three months or less from inception that
are readily convertible into known amounts of cash and which are subject to an insignificant risk
of changes in value.
n) Equity
Equity comprises the following:
• “Share capital” represents the nominal value of equity shares. The shares have attached to
them voting, dividend and capital distribution (including on winding up) rights; they do not
confer any rights of redemption.
• “Share premium” represents the difference between the nominal and issued share price
after accounting for the costs of issuing the shares
• “Other reserves” represents the net amortisation charge for the Company’s share options
scheme
• “Profit and loss account” represents retained profits or losses
Page 54
• “currency reserves” represents exchange differences arising from the translation of assets and
liabilities of foreign operations
PCI-PAL PLC
o) Contribution to defined contribution pension schemes
The pension costs charged against profits represent the amount of the contributions payable to
the schemes in respect of the accounting period.
p) Foreign currencies
Transactions in foreign currencies are translated in to Sterling at the exchange rate ruling at the
date of the transaction. Monetary assets and liabilities in foreign currencies are translated into
Sterling at the rates of exchange ruling at the year end.
Any exchange differences arising on the settlement of monetary items or on translating monetary
items at rates different from those at which they were initially recorded are recognised in the
statement of comprehensive income in the period in which they arise.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments
arising on consolidation, are translated to the Group’s presentational currency, Sterling, at
foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign
operations are translated at an average rate for the year where this rate approximates to the
foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from
this translation of foreign operations are reported as an item of other comprehensive income and
accumulated in the currency reserve.
q) Significant judgements and estimates
The Group makes estimates concerning the future in assessing the carrying amounts of capitalised
development costs. To substantiate the carrying amount the directors have applied the criteria of
IAS 38 and considered the future economic benefit likely as a result of the investment.
Careful judgement by the directors is applied when deciding whether the recognition requirements
for development costs have been met. Judgement factors include: current sales of the new AWS
platform; future demand; and the resource necessary to finalise the development over the next
few years. This is necessary as the economic success of any product development is uncertain and
may be subject to future technical problems at the time of recognition. Judgements are based on
the information available at each balance sheet date. In addition, all internal activities related to the
research and development of new software products are continuously monitored by the directors.
The Group has adopted IFRS 15. A key related judgement is whether fees relating to the
establishment of a contract constitute a separate performance obligation (see Note 4d above).
Having determined that such fees are not a separate performance obligation, a key estimate is
the period over which such fees are recognised as revenue. The directors have judged that such
revenue will be deferred into deferred revenue and held in the Statement of Financial Position
and will be released to the Statement of Comprehensive Income over the estimated term of the
contract.
That term is estimated as:
- for contracts with defined termination dates, revenue will be recognised over the period to the
termination date
- for rolling contracts with renewal clauses, revenue will be recognised over the maximum of 4
years, representing the directors' current best estimate of a minimum contract term.
Associated direct costs will be assessed and will also be deferred over the same period.
Commission costs directly attributable to the sale will be deferred but over the minimum contract
Page 55
length of the contract it relates to.
PCI-PAL PLC
The calculation of the deferred tax asset involved the estimation of future taxable profits. In the
year ended 30 June 2018, the directors assessed the carrying value of the deferred tax asset and
decided not to recognise the asset, as the utilisation of the assets was unlikely in the near future.
The directors have reached the same conclusion for this accounting period and so no asset has
been recognised.
5.
LOSS BEFORE TAXATION
The loss on ordinary activities is stated after:
Disclosure of the audit and non-audit fees
Fees payable to the Group’s auditors for:
The audit of Company’s accounts
The audit of the Company’s subsidiaries pursuant to legislation
Fees payable to the Group’s auditors for other services
Audit related assurance services
Tax – compliance services
Tax – advisory services
Depreciation and amortisation – charged in administrative expenses
Plant and equipment
Intangible assets
Rents payable
Amortisation of share-based payments
Foreign exchange gain
6. FINANCE INCOME
Unwind of loan note receivable discount
Bank interest receivable
7. FINANCE EXPENDITURE
Interest on bank borrowings
Other
Page 56
2019
£000s
2018
£000s
20
12
-
6
12
53
191
148
82
89
15
17
-
6
24
44
107
133
95
22
2019
£000s
2018
£000s
181
0
181
25
3
28
2019
£000s
-
8
2018
£000s
-
10
8
10
8. DIRECTORS AND EMPLOYEES
PCI-PAL PLC
Staff costs of the Group, including the directors who are considered to be part of the key
management personnel, during the year were as follows.
Wages and salaries
Social security costs
Other pension costs
Average number of employees during the year
Remuneration in respect of directors was as follows:
Emoluments
Bonus
Pension contributions to money purchase pension schemes
Employer’s National insurance and US Federal Taxes
2019
£000s
3,381
425
74
3,880
2019
Heads
45
2019
£000s
543
24
29
65
661
2018
£000s
2,401
302
55
2,758
2018
Heads
37
2018
£000s
592
90
23
92
797
During the year 4 (2017: 5) directors participated in money purchase pension schemes.
The Board consider the Board of directors to be the key management for the Group.
In October 2018 the Group terminated the employment of its Chief Executive. The Group reached a
settlement with him and paid him the following amounts as a termination payment:
Payment in Lieu of Notice
Bonus
Compensation for loss of office
Settlement of pension obligations
Settlement of benefit obligations
Employer’s National insurance
£000s
161
-
100
11
8
280
22
302
The amounts set out above include remuneration in respect of the highest paid director as
follows:
Emoluments
Bonus
Pension contributions to money purchase pension schemes
2019
£000s
157
24
14
2018
£000s
183
28
-
A detailed breakdown of the Directors’ Emoluments, in line with the AIM rules, appears in the
Directors’ Report.
Page 57
PCI-PAL PLC
9. SEGMENTAL INFORMATION
PCI-PAL PLC operates one business sector: the service of providing data secure payment card
authorisations for call centre operations and this is delivered on a regional basis. The Group
manages its operations by reference to geographic segments, which are reported on below:
Segment results, assets and liabilities include items directly attributable to a segment as well as
those that can be allocated on a reasonable basis. Unallocated assets comprise items such as cash
and cash equivalents, taxation and borrowings. All liabilities, other than the bank loan, are
unallocated. Segment capital expenditure is the total cost incurred during the year to acquire
segment assets that are expected to be used for more than one period.
2019
Revenue
Cost of Sales
Gross Profit
Administration Expenses
Loss from Operating Activities
Finance income
Finance costs
PCI Pal
EMEA
£000s
2,721
(1,119)
1,602
59%
(2,754)
(1,152)
-
(3)
PCI Pal
North
America
£000s
96
-
96
100%
(2,680)
(2,584)
-
(5)
Central
£000s
Total
£000s
-
-
-
(939)
(939)
181
-
2,817
(1,119)
1,698
60%
(6,373)
(4,675)
181
(8)
Loss before tax
(1,155)
(2,589)
(758)
(4,502)
Segment assets
3,142
537
1,183
4,862
Segment liabilities
(2,779)
(566)
(115)
(3,447)
Other segment items:
Capital Expenditure
- Equipment, Fixtures &
Licences
Capital Expenditure
- Capitalised Development
Depreciation
- Equipment, Fixtures & Licences
Depreciation
- Capitalised Development
27
647
53
191
-
-
-
-
-
-
-
-
27
647
53
191
Page 58
9. SEGMENTAL INFORMATION (continued)
PCI-PAL PLC
2018 Restated
Revenue
Cost of Sales
Gross Profit
Administration Expenses
Loss from Operating Activities
Finance income
Finance costs
PCI Pal
EMEA
£000s
2,007
(1,151)
856
43%
(2,809)
(1,953)
-
(6)
PCI Pal
North
America
£000s
-
-
-
-%
(955)
(955)
-
(3)
Central
£000s
Total
£000s
-
-
-
2,007
(1,151)
856
43%
(885)
(885)
(4,649)
(3,793)
28
(1)
28
(10)
Loss before tax
(1,959)
(958)
(858)
(3,775)
1,889
(1,697)
1,252
(102)
4,508
7,649
(43)
(1,842)
Segment assets
Segment liabilities
Other segment items:
Capital Expenditure
- Equipment, Fixtures &
Licences
Capital Expenditure
- Capitalised Development
Depreciation
- Equipment, Fixtures & Licences
Depreciation
- Capitalised Development
43
456
45
107
-
-
-
-
Revenue can be split by location of customers as follows:
Continuing activities
PCI – PAL division
United Kingdom and European Union
North America
Asia Pacific
Middle East
Continuing Operations
-
-
-
-
43
456
45
107
2019
£000s
2018
£000s
Restated
2,610
1,907
90
6
111
2,817
-
-
100
2,007
All non-current assets are located in the United Kingdom and no customer accounted for more
than 10% of the revenue of the Group
Page 59
10.
EARNINGS PER SHARE
PCI-PAL PLC
The calculation of the earnings per share is based on the profit after taxation added to reserves
divided by the weighted average number of ordinary shares in issue during the relevant period as
adjusted for treasury shares. Details of potential share options are disclosed in note 19.
12 months
ended
30 June
2019
12 months
ended
30 June
2018
Restated
(Loss)/profit after taxation added to reserves
(£4,366,000)
(£3,775,000)
Basic weighted average number of ordinary shares in
issue during the period
42,386,720
36,137,282
Diluted weighted average number of ordinary shares in issue
during the period
47,083,804
39,355,616
Basic and diluted earnings per share
(10.30) p
(10.45) p
There are no separate diluted earnings per share calculations shown as it is considered to be anti-dilutive.
11.
TAXATION
Analysis of charge in the year
Current tax:
In respect of the year:
UK Corporation tax based on the results for the year at
19% (2018: 19%)
R & D Tax credit received
Total current tax (charged)/credited
Movement on recognition of tax losses
Total deferred tax charged
(Charge)/credit
2019
£000s
2018
£000s
-
136
136
-
-
136
-
-
-
-
-
-
Page 60
PCI-PAL PLC
11. TAXATION (continued)
Factors affecting current tax charge
The tax assessed on the loss on ordinary activities for the year was lower than the standard rate
of corporation tax in the UK of 19% (2018: 19%) and in the United States of 21% (2018: 21%)
Loss on ordinary activities before tax
Loss on ordinary activities multiplied by standard
rate of corporation tax in the UK & US of 20.14%
(2017: 20%)
Expenses not deductible for tax purposes
Depreciation (less than)/in excess of capital allowances
for the year
Utilisation of tax losses
Unrelieved tax losses
Other
Movement on deferred tax timing differences
R&D Tax Credit received
Prior year adjustment
Total tax credited for the year
2019
£000s
(4,502)
2018
£000s
Restated
(3,775)
(907)
(717)
1
28
-
883
(5)
-
136
-
136
1
11
-
717
(12)
-
-
-
The Group has unrecognised tax losses carried forward of £9.42 million (2018: £5.23 million).
Page 61
PCI-PAL PLC
SIP, RTP
and SBC
licences
£000s
Capitalised
Development
£000s
Total
£000s
951
647
-
951
564
-
1,515
1,598
107
183
-
290
107
191
-
298
-
83
-
83
-
8
-
8
75
1,225
1,300
SIP, RTP
and SBC
licences
£000s
-
Capitalised
Development
£000s
495
-
-
-
-
-
-
-
-
456
-
951
-
107
-
107
844
Total
£000s
495
456
-
951
-
107
-
107
844
12.
INTANGIBLE ASSETS
2019
Cost:
At 1 July 2018
Additions
Disposals
At 30 June 2019
Depreciation (included within
administrative expenses):
At 1 July 2018
Charge for the year
Disposals
At 30 June 2019
Net book amount
at 30 June 2019
2018
At 1 July 2017
Additions
Disposals
At 30 June 2018
Depreciation (included within
administrative expenses):
At 1 July 2017
Charge for the year
Disposals
At 30 June 2018
Net book amount
at 30 June 2018
Page 62
PCI-PAL PLC
Fixtures
and
Fittings
£000s
Computer
Equipment
£000s
22
-
-
22
6
4
-
10
12
199
27
-
226
118
49
-
167
59
Fixtures
and
Fittings
£000s
20
Computer
Equipment
£000s
159
3
(1)
22
3
3
-
6
16
40
-
199
77
41
-
118
81
13.
PLANT AND EQUIPMENT
2019
Cost:
At 1 July 2018
Additions
Disposals
At 30 June 2019
Depreciation (included within
administrative expenses):
At 1 July 2018
Charge for the year
Disposals
At 30 June 2019
Net book amount
at 30 June 2019
2018
At 1 July 2017
Additions
Disposals
At 30 June 2018
Depreciation (included within
administrative expenses):
At 1 July 2017
Charge for the year
Disposals
At 30 June 2018
Net book amount
at 30 June 2018
There are no assets held as finance leases.
Page 63
Total
£000s
221
27
-
248
124
53
-
177
71
Total
£000s
179
43
(1)
221
80
44
-
124
97
PCI-PAL PLC
14. TRADE AND OTHER RECEIVABLES
Trade receivables
Accrued income
Other receivables
Loan notes receivable within one year
Prepayments and accrued income
2019
£000s
1,057
35
605
-
302
2018
£000s
Restated
475
-
155
908
216
Trade and other receivables due within one year
1,999
1,754
Loan notes receivable in more than one year
Trade and other receivables
-
1,999
1,206
2,960
All amounts are considered to be approximately equal to the carrying value. The maximum
exposure to credit risk at the reporting date is the carrying value of each class of receivables
mentioned above.
Trade receivables are reviewed at inception under an expected credit loss model, and then
subsequently for further indicators of impairment, and a provision has been recorded as follows:
Opening provision
Charged to income
Closing provision at 30 June
2019
£000s
8
-
8
2018
£000s
15
(7)
8
All of the impaired trade receivables are past due at the reporting dates. In addition, some of the
non-impaired trade receivables are past due at the reporting date:
0-30 days past due
30-60 days past due
Over 60 days past due
2019
£000s
118
19
140
277
2018
£000s
61
6
52
119
Amounts which are not impaired, whether past due or not, are considered to be recoverable at their
carrying value. Factors taken into consideration are past experience of collecting debts from those
customers, plus evidence of post year end collection.
Loan notes receivable
The loan notes receivable outstanding as at 30 June 2018 were fully repaid in the period.
Page 64
PCI-PAL PLC
15.
CURRENT LIABILITIES
Trade payables
Social security and other taxes
Deferred Income
Accruals
2019
£000s
491
97
2,453
406
2018
£000s
Restated
447
111
1,131
153
Trade and other payables
3,447
1,842
Bank loans (note 16)
Amounts due under finance leases (note 16)
Current portion of long-term borrowings
Amounts due under finance leases are secured on the related assets.
16. NON-CURRENT LIABILITIES
Bank loans
Amounts due under finance leases
Long term borrowings
Borrowings
Bank loans are repayable as follows:
Within one year
After one year and within two years
After two years and within five years
Over five years
-
-
-
-
-
-
3,447
1,842
2019
£000s
-
-
-
2019
£000s
-
-
-
-
2018
£000s
-
-
-
2018
£000s
-
-
-
-
-
-
Page 65
PCI-PAL PLC
17. DEFERRED TAXATION
Deferred taxation is calculated at a rate of 19% (2018: 19%) in the UK and 21% (2018: 19%) in the US
Opening balance at 1 July 2017
(Charged)/credited through the statement of
comprehensive income in the year
At 30 June 2018
Charged through the statement of
comprehensive income in the year
At 30 June 2019
Unprovided deferred tax assets
Accelerated capital allowances
Trading losses
Tax losses
£000s
-
-
-
-
-
Total
£000s
Restated
-
-
-
-
-
2019
£000s
2018
£000s
Restated
-
1,602
-
1,060
1,602
1,060
The unprovided deferred tax assets are calculated at a rate of 17% (2018: 17%).
Page 66
18.
GROUP UNDERTAKINGS
PCI-PAL PLC
At 30 June 2019, the Group included the following subsidiary undertakings, which are included
in the consolidated accounts:
Name
Country of
Incorporation
Class of share
capital held
Proportion
held
Nature of business
PCI-PAL (U.K.) Limited
England
Ordinary
100%
Payment Card Industry
software services provider
IP3 Telecom Limited
England
Ordinary
100%
Dormant
The Number Experts
Limited
England
Ordinary
100%
Dormant
PCI PAL (US) Inc
United States
of America
Ordinary
100%
Payment Card Industry
software services provider
19.
SHARE CAPITAL
Group
Authorised:
Ordinary shares of 1p each
Allotted called up and fully paid:
Ordinary shares of 1p each
2019
Number
2019
£000s
2018
Number
2018
£000s
100,000,000
1,000
100,000,000
1,000
42,721,178
427
42,721,178
427
On 30 January 2018 the company placed 11,000,000 ordinary shares of 1 pence with various institutional
investors, priced at 45 pence per share. The placing raised a gross amount of £4.95 million before
expenses. The new shares represent approximately 25.8% of the Company’s enlarged issued ordinary
share capital (excluding those held as treasury shares).
The Group owns 167,229 (2016: 167,229) shares and these are held as Treasury Shares.
During the year, the share price fluctuated between 39.5 pence and 17.5 pence and closed at 30.98 pence
on 30 June 2019.
Page 67
Share Option schemes
The Company operates an Employee Share Option Scheme. The share options granted under the
scheme are subject to performance criteria and generally have a life of 10 years. The grant price is taken
with reference to the closing quotation price as derived from the Daily Official List of the London Stock
Exchange.
The performance criteria are set by the remuneration committee. The grants are individually assessed
with regard to the location of the employee and generally have one of the following performance
criteria:
1: 50% of the options will vest if the share price of the Company as measured on the London Stock
Exchange trades above the share price at the date of grant, for a continuous 30 day period; 25% or the
options will vest if the share price of the Company trade 50% above the share price of the Company at
the date of Grant for a continuous 30 day period; and the remaining 25% will vest if the share price of
the Company trades 100% above the share price of the Company at the date of Grant for a continuous
30 day period. The options cannot be exercised for a three year period from the date of Grant. or;
2: The number of options granted will vest equally over a four year period in monthly tranches with the
earliest exercise date being 12 months from the date of issue of the option
All options will lapse after a ten-year period if they have not been exercised.
The following options grants have been made and are valued using the Monte Carlo Pricing
model with the following assumptions:
Date of Grant
Exercise Price
Price at date of
grant
Estimated time to
Maturity
Expected Dividend
yield
Risk Free Rate
No Steps used in
calculation
No of simulations
used in calculation
Fair value of Option
Weighted average
life in years
# option shares
issued at grant
# option shares
lapsed
# option shares
outstanding as at
30 June 2019
# option shares
exercisable as at 30
June 2019
Total charge for
year
Total cumulative
charge as at 30
June 2019
25 May
17
33.0
pence
44.0
pence
5 years
12 July
18
28.5
pence
28.5
pence
5 years
12 Nov
18
26.5
pence
26.5
pence
5 years
02 Jan
19
19.0
pence
19.0
pence
5 years
27 Feb
19
23.0
pence
23.0
pence
5 years
10 May
19
22.0
pence
22.0
pence
5 years
13 Jun
19
28.5
pence
28.5
pence
5 years
Total
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.57%
10
0.996%
10
0.996%
10
0.839%
10
0.961%
10
0.870%
10
0.622%
10
100,000
100,000
100,000 100,000
100,000
100,000
100,000
14.11
pence
2.90
years
14.18
pence
4.03
years
14.23
pence
4.36
years
14.25
pence
4.50
years
14.21
pence
4.66
years
14.23
pence
4.85
years
14.30
pence
4.95
years
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3,065,000
565,000
225,000 320,000
105,000
145,000
525,000
4,950,000
(580,000)
(350,000)
(10,000)
0
0
0
0
(940,000)
2,485,000
215,000
215,000 320,000
105,000
145,000
525,000
4,010,000
0
0
0
0
0
0
0
0
£52,002
£5,915
£3,875
£4,500
£1,014
£588
£741
£68,635
£147,118
£5,915
£3,875
£4,500
£1,014
£588
£741
£163,751
Page 68
The fair value of these options has been calculated on an issue by issue basis and £68,635 (2018:
£91,116) has been charged to the statement of comprehensive income account for this financial year.
The following options have been valued using a Black Scholes Pricing model with the following
assumptions:
Date of Grant
Exercise Price
Price at date of
grant
Estimated time to
Maturity
Expected
Dividend yield
Risk Free Rate
Volatility
Fair value of
Option
Weighted average
life in years
# option shares
issued at grant
# option shares
lapsed
# option shares
outstanding at 30
June 2019
# option shares
exercisable as at
30 June 2019
Total charge for
year
Total cumulative
charge as at 30
June 2019
28 Jun
17
41.5
pence
41.5
pence
04 Oct
17
44.5
pence
44.5
pence
12 Jul
18
28.5
pence
28.5
pence
12 Jul 18
28.5
pence
28.5
pence
12 Nov
18
26.5
pence
26.0
pence
12 Nov
18
26.0
pence
26.0
pence
07 Jan
19
18.4
pence
18.4
pence
27 Feb
19
23.0
pence
23.0
pence
Total
5 years
5 years
5 years
5 years
5 years
5 years
5 years
5 years
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.57%
20.0%
7.8
pence
3.0
years
0.57%
20.0%
8.4
pence
3.26
years
0.996%
20.0%
5.6
pence
4.03
years
0.996%
20.0%
5.6
pence
4.03
years
1.03%
20.0%
5.0
pence
4.36
years
1.03%
20.0%
5.2
pence
4.36
years
0.89%
20.0%
3.6
pence
4.52
years
0.96%
20.0%
4.5
pence
4.66
years
150,000
150,000
415,000
641,667 150,000
60,000
15,000
100,000
1,681,667
0
0
(25,000)
(550,000)
0
0
0
0
(575,000)
150,000
150,000
390,000
91,667 150,000
60,000
15,000
100,000
1,106,667
71,875
59,375
0
0
0
0
0
0
131,250
£2,346
£2,524
£4,271
£1,004
£941
£393
£52
£308
£11,839
£4,937
£4,384
£4,271
£1,004
£941
£393
£52
£308
£16,290
The fair value of these options has been calculated on an issue by issue basis and £11,839 (2018:
£2,401) has been charged to the statement of comprehensive income account for this financial year.
The analysis of the Company’s option activity for the financial year is as follows:
Number of
Options
2019
Weighted
Average
exercise
Price
£
0.339
0.266
0.300
0.303
3,255,000
3,266,667
-
(1,405,000)
5,116,667
2018
Weighted
Average
exercise
price
£
0.330
0.445
0.330
0.339
Options outstanding at start of year
Options granted during the year
Options exercised during the year
Options lapsed during the year
Options outstanding at end of year
Options exercisable at the end of year
131,250
Number of
Options
3,215,000
150,000
-
(110,000)
3,255,000
-
Page 69
FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
20.
The Group uses various financial instruments including cash, trade receivables, trade payables, other
payables, loans and leasing that arise directly from its operations. The main purpose of these financial
instruments is to maintain adequate finance for the Group’s operations. The existence of these financial
instruments exposes the Group to a number of financial risks, which are described in detail below. The
directors do not consider price risk to be a significant risk. The directors review and agree policies for
managing each of these risks, as summarised below, and these remain unchanged from previous years.
Capital Management
The capital structure of the Group consists of debt, cash, loans and equity. The Group’s objective when
managing capital is to maintain the cash position to protect the future on-going profitable growth which
will reflect in shareholder value.
At 30 June 2018, the Group had a closing cash balance of £1,492,000 (2018: £3,748,000) and no
borrowings.
Financial risk management and objectives
The Group seeks to manage financial risk to ensure sufficient liquidity is available to meet foreseeable
needs and to invest cash assets safely and profitably. The directors achieve this by regularly preparing
and reviewing forecasts based on the trends shown in the monthly management accounts.
In October 2019, after the close of the financial year, the Group agreed a £2.75 million, 36 month term
loan facility with Shawbrook Bank secured over the assets of the business to assist with the working
capital requirements of the Group
Interest rate risk
The Group does not use loan or lease finance and so there is no interest rate risk.
Post the balance sheet date the Group has entered a term loan agreement with Shawbrook Bank, details
of which are disclosed in Note 28: Subsequent Events
Credit risk
The Group’s principal financial assets are cash and trade receivables, with the principal credit risk arising
from trade receivables. In order to manage credit risks the Group conducts third party credit reviews on
all new clients, takes deposits where this is deemed necessary and collects payment by direct debit,
limiting the exposure to a build-up of a large outstanding debt. Concentration of credit risk with respect
to trade receivables are limited due to the wide nature of the Group’s customer base: no one customer
accounts for more than 10% of revenues. In some cases, licences fees are paid for annually in advance.
Liquidity risk
The Group aims to mitigate liquidity risk by closely monitoring cash generation and expenditure. Cash
is monitored daily and forecasts are regularly prepared to ensure that the movements are in line with
the directors’ strategy.
Foreign currencies and foreign currency risk
During the year exchange gains of £89,400 (2018: £21,600) have arisen and at the year-end. As at the
30 June 2019 the Group held the following foreign currency cash balances:
Page 70
US Dollar:
$97,406
$8
Canadian Dollar:
Australian Dollar: $11,273
Total
Sterling equivalent: £77,111
Sterling equivalent: £5
Sterling equivalent: £6,130
Sterling equivalent: £83,246
(2018: £83,246)
(2018: £nil)
(2018: £nil)
(2018: £83,246)
Transactions in foreign currencies are translated at the exchange rate ruling at the date of the
transaction and monetary assets and liabilities in foreign currencies are translated at the rates ruling at
the year end. At present foreign exchange is minimal and hedging and risk management is not deemed
necessary as the company trades and spends in the various currencies.
The Group’s principal exposure to exchange rate fluctuations arise on the translation of overseas net
assets, profits and losses into Sterling, for presentational purposes. The risk is managed by taking the
differences that arise on the retranslation of the net overseas investments to the currency reserve.
Foreign currency risk on cash balances is monitored through regular forecasting and the Group tries to
maintain a minimum level of currency in the accounts so as to meet the short term working capital
requirements.
No sensitivity analysis is provided in respect of foreign currency risks as the risk is considered to be
moderate.
Financial assets
Current financial assets
Cash at bank
Trade receivables – current
Accrued income
Loan notes receivable
Note
2019
2018
14
14
14
£000s
1,492
1,057
35
-
2,584
£000s
3,748
475
-
2,114
6,337
The fair values of the financial assets are considered to be approximately equal to the carrying values.
Financial liabilities
Current financial liabilities
Trade payables
Accruals
Note
2019
2018
15
15
£000s
491
406
£000s
447
153
897
600
The fair values of the financial liabilities are considered to be approximately equal to the carrying
values.
21.
CAPITAL COMMITMENTS
The Group has no capital commitments at 30 June 2019 or 30 June 2018.
Page 71
22.
CONTINGENT ASSETS
The Group has no contingent assets at 30 June 2019 or 30 June 2018.
23.
CONTINGENT LIABILITIES
The Group has no contingent liabilities at 30 June 2019 or 30 June 2018.
24. CHANGES IN ACCOUNTING POLICIES
Impact on the financial statements
As a result of the changes in the entity's accounting policies, prior year financial statements had to be
restated.
IFRS 9 Financial Instruments was implemented without restating comparative information, on the
grounds of materiality.
IFRS 15 Revenue from Contracts with Customers was adopted and the prior year financial statements
have been restated. The tables below show the adjustments recognised for each individual line item for
the period ending 30 June 2018.
The adjustments for the twelve months to 30 June 2018 are as follows:
Consolidated statement of comprehensive
income for the twelve months to 30 June 2018
As originally
presented
Adjustment
IFRS 15
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Loss from operating activities
Interest payable
Finance income
Interest receivable
Loss before taxation
Taxation
Loss for period from continuing activities
Profit for period from discontinued activities
Total comprehensive (loss)/income for the
period
£’000
£’000
2,136
(1,151)
985
(4,747)
(3,762)
(10)
28
-
(3,744)
-
(3,744)
-
(3,744)
(129)
-
(129)
98
(31)
-
-
-
(31)
-
(31)
-
(31)
Restated
twelve
months
ended 30
June
2018
£’000
2,007
(1,151)
856
(4,649)
(3,793)
(10)
28
-
(3,775)
-
(3,775)
-
(3,775)
Profit / (loss) per share expressed in pence
Basic and diluted
(10.36)
(0.09)
(10.45)
Page 72
Consolidated statement of financial position as at
30 June 2017
As originally
presented
Adjustment
IFRS 15
£’000
£’000
Restated
twelve months
ended 30 June
2017
£’000
Assets
Non-current assets
Plant & Equipment
Intangible assets
Loan note receivable
Non-current assets
Current assets
Trade and other receivables
Loan note receivable
Cash and cash equivalents
Current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Other interest-bearing loans and borrowings
Current liabilities
Non-current liabilities
Long term borrowings
Non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Other reserve
Currency reserve
Profit & loss account
Total shareholders’ equity
99
495
2,202
2,796
608
945
1,958
3,511
6,307
(883)
-
(883)
-
-
(883)
5,424
317
89
4
-
5,014
5,424
-
-
-
-
40
-
-
40
40
(585)
-
(585)
-
-
(585)
(545)
-
-
-
-
(545)
(545)
99
495
2,202
2,796
648
945
1,958
3,551
6,347
(1,468)
-
(1,468)
-
-
(1,468)
4,879
317
89
4
-
4,469
4,879
Page 73
Consolidated statement of financial position as at
30 June 2018
As originally
presented
Adjustment
IFRS 15
£’000
£’000
Restated
twelve months
ended 30 June
2018
£’000
Assets
Non-current assets
Plant & Equipment
Intangible assets
Loan note receivable
Non-current assets
Current assets
Trade and other receivables
Loan note receivable
Cash and cash equivalents
Current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Other interest-bearing loans and borrowings
Current liabilities
Non-current liabilities
Long term borrowings
Non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Other reserve
Currency reserve
Profit & loss account
Total shareholders’ equity
Reconciliation of contract revenue balances under IFRS 15
b/fwd deferred revenue
Amounts invoiced and deferred in year
Amounts released as revenue in year
c/fwd deferred revenue
Page 74
97
844
1,206
2,147
708
908
3,748
5,364
7,511
(1,128)
-
(1,128)
-
-
(1,128)
6,383
427
4,618
99
(31)
1,270
6,383
2019
£000s
(714)
(821)
398
(1,137)
97
844
1,206
2,147
846
908
3,748
5,502
7,649
(1,842)
-
(1,842)
-
-
(1,842)
5,807
427
4,618
99
(31)
694
5,807
-
-
-
-
138
-
-
138
138
(714)
-
(714)
-
-
(714)
(576)
-
-
-
-
(576)
(576)
2018
£000s
(585)
(379)
250
(714)
Reconciliation of contract cost balances under IFRS 15
b/fwd deferred cost balance
Amounts of costs deferred in year
Amounts of costs released in year
c/fwd deferred cost balance
2019
£000s
138
605
(138)
605
2018
£000s
40
138
(40)
138
IFRS 15 - Revenue from Contracts with Customers - Impact of adoption
The Group has adopted IFRS 15 from 1 July 2018 which resulted in changes in accounting policies and
adjustments to the amounts recognised in the financial statements. In accordance with the transition
provisions in IFRS 15, the group has adopted the new rules retrospectively and has restated
comparatives both for the 2018 financial year and the opening balance sheet at 1 July 2017. In summary,
the following adjustments were made to the amounts recognised in the balance sheet at the date of
initial application (1 July 2018).
(i) Revenue
From 1 July 2017 all set-up, professional service and installation fees for our PCI compliance solutions
and our hosted telephony services previously recognised in revenue during the implementation phase
of the client projects have been restated under IFRS 15. These fees will now be deferred into deferred
revenue and held in the balance sheet and will be released to the statement of comprehensive income
over the estimated term of the contract up to a maximum of four years.
In addition, the opening balance sheet at 1 July 2017 has been restated for contracts where fees have
been recognised in revenue prior to 1 July 2017.
The net impact of this restatement is a reduction in previously reported revenue of £0.129 million for
the 12 month period to 30 June 2018.
The total deferred liability restated at 30 June 2018 is £0.714 million.
There have been no adjustments made to revenue for the sale of third-party equipment.
(ii) Commission costs (administrative expenses)
Commission paid to members of the sale team for the signing of specific contracts is deferred onto the
balance sheet and held in other current assets and is matched to the revenue over the minimum period
of the contract term.
In addition, the opening balance sheet at 1 July 2017 has been restated for contracts where commission
has been charged as an administrative expense prior to 1 July 2017.
Net commission costs of £0.089 million for the 12 month period to 30 June 2018 have been capitalised
into other current assets.
IFRS 15 - Revenue from Contracts with Customers - Accounting policies
IFRS 15 provides a single, principles-based five-step model to be applied to all sales contracts, based on
the transfer of control of goods and services to customers. Revenue represents the fair value of the sale
of goods and services and after eliminating sales within the Group and excluding value added tax or
overseas sales taxes. The following summarises the method of recognising revenue for the solutions and
products delivered by the Group.
Page 75
(i) PCI compliance solutions and hosted telephony services
Revenue for set-up and cloud provision fee will be deferred and will be recognised evenly over
the estimated term of the contract, having accounted for the automatic auto-renewal of our
contracts, up to a maximum of four years, starting the month following from the date of signature
of the underlying contract.
The payment profile for such contracts typically include payment for set-up fees at the point of
signature of the contract, but for revenue recognition purposes, this is deemed to be an integral
part of the wider contract rather than a separate performance obligation.
Revenue for all other professional services and installation fees will be deferred and will be recognised
evenly over the estimated term of the contract, having accounted for the automatic auto-renewal of
our contracts, up to a maximum of four years, starting in the month following the hand over to the client
for user acceptance testing.
Costs directly attributable to the delivery of the PCI Compliance solutions and hosted telephony services
are capitalised as 'costs to fulfil a contract' and released over the estimated term of the contract, having
accounted for the automatic auto-renewal of our contracts, up to a maximum of four years, starting the
month following from the date of signature of the underlying contract.
Costs relating to commission costs paid to employees for winning the contract will be capitalised as
'costs to fulfil a contract' at the date the commissions payments become due and will be released in
monthly increments over the minimum contract term starting the month following the date the cost is
capitalised.
(ii) Third party equipment sales
Where the contract involves the sale of third-party equipment that could be acquired and supplied by
other parties to the client the revenues and costs relating to this will continue to be released in full to
the Statement of Comprehensive Income at the time the installation is complete.
IFRS 9 - Financial Instruments - Accounting policies
The Group does not enter into forward contracts to hedge forecast transactions and so there is no
requirement to restate the previous financial statements.
25. OPERATING LEASE COMMITMENTS
Total future lease payments:
Less than one year
After one and within two years
After two and within five years
2019
£000s
2018
£000s
45
23
-
68
109
45
68
222
Operating lease commitments relate to the following buildings:
Ipswich Nos 5,6 & 7 Gamma Terrace expires December 2021, with optional break clause for
September 2019
The Company operates from a serviced office facility at 30 Moorgate London that is cancellable at
short notice.
The Company operates from a serviced office facility at 101 N Tryon St, Charlotte that is cancellable
at short notice.
Page 76
26.
TRANSACTIONS WITH DIRECTORS
There were no transactions with directors in the year to June 2019 or June 2018.
27.
DIVIDENDS
The directors have proposed a dividend of nil pence per share (2018: nil pence per share) post year
end (subject to shareholder approval).
28.
SUBSEQUENT EVENTS
Post the close of the financial year the Group has entered into a £2.75 million loan facility with
Shawbrook Bank. The principal terms are as follows:
Term
Interest rate
Arrangement Fee
Non utilisation fee
Exit fee
Security
36 months with three month capital repayment holiday
9.3% over LIBOR paid monthly
1.4% of loan facility
0.6% of unutilised amount
shares equivalent of 7.5% of the facility payable as detailed below
Fixed and Floating debenture over the assets of the Group.
The loan balance can be drawn in two tranches with a minimum of £1.0 million within five
business days of the signing of the agreement and the remaining balance within twelve months.
The company will initially be drawing down £1.5 million of this new facility. The facility is being
used to support the working capital requirements of the Group as it continues to grow.
Shawbrook Bank will be entitled to receive a cash based exit payment calculated on the value
generated, over a 10 year period, on the equivalent of £206,250 of phantom shares (being 7.5%
of the facility) if there is a takeover of the Group or a debt refinancing of the Shawbrook debt.
The exit fee is a cash payment of a sum equal to P, where:
P = (A x B) - C
and where:
A = the Phantom Shares Number – the Phantom Shares Value divided by the fair market value
of one ordinary share, calculated using the average of the closing share price in the previous
five days immediately prior to the date of the facility letter;
B = the fair market value of one ordinary share at the time of the exit fee event; and
C = the Phantom Shares Value, which is £206,250.
An Exit Fee Event is where there is:
(a)
(b)
(c)
a sale or other disposition of all or substantially all of the assets in the Company in
whatever form (whether in a single transaction or multiple related transactions); or
an acquisition of shares in the Company by a person (and any persons acting in
concert with that person) that results in that person (together with any such persons
acting in concert) acquiring a controlling interest in the Company; or
a reorganisation, consolidation or merger of the Company (whether in a single
transaction or multiple related transactions) where shareholders before the
Page 77
transaction(s) directly or indirectly beneficially own issued voting securities of the
surviving entity after the transaction(s) together carrying the right to cast 50% or
less of the votes capable of being cast at general meetings of the surviving entity;
or
(d)
(e)
a distribution or other transfer of assets to the shareholders of the Company in
connection with the liquidation of the Company; or
a refinancing of the Facility with a bank or debt lender (other than the Bank) within thirty
six months of the date of the Facility Agreement, provided that the outstanding balance of
the Facility prior to the date of such refinancing is equal to or greater than £500,000
Page 78
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2019
Note
2019
£000s
2018
£000s
ASSETS
Non current assets
Investments in Subsidiaries
Loan Note Receivable
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one
year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more
than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Other reserves
Profit and loss account
Shareholders’ Funds
5
6
6
7
8
-
-
-
8,568
1,160
-
1,206
1,206
6,769
2,357
9,728
9,126
(115)
(43)
9,613
9,083
9,613
10,289
-
-
9,613
10,289
427
4,618
181
4,387
427
4,618
99
5,145
9,613
10,289
The loss for the Company for the year was £757,700 (2018: £857,500)
The financial statements were approved by the directors and were authorised for issue on 8
October 2019.
J Barham
Director
T W Good
Director
Page 79
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2019
Share
capital
£000s
Share
premium
£000s
Other
reserves
£000s
Balance at 1 July 2017
Dividend paid
317
-
89
-
Equity issued in period
110
4,529
Share Option amortisation charge
-
-
Transactions with owners
110
4,529
Loss for the year
Total comprehensive loss
-
-
-
-
4
-
-
95
95
-
-
Profit and
loss
account
£000s
Total
equity
£000s
6,003
6,413
-
-
-
-
-
4,639
95
4,734
(858)
(858)
(858)
(858)
Balance at 30 June 2018
427
4,618
99
5,145
10,289
Dividend paid
Equity issued in period
Share Option amortisation charge
Transactions with owners
Loss for the year
Total comprehensive loss
-
-
-
-
-
-
-
-
-
-
-
-
-
-
82
82
-
-
-
-
-
-
-
-
82
82
(758)
(758)
(758)
(758)
Balance at 30 June 2019
427
4,618
181
4,387
9,613
The accompanying accounting policies and notes form an integral part of these financial statements.
Page 80
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2019
Cash flows from operating activities
Loss after taxation
Adjustments for:
Depreciation
Interest income
Share based payments
Profit on sale of call centre division
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Cash used in continuing operations
Dividend paid
Net cash used in operating activities
Cash flows from investing activities
Cash received for sale of call centre operation
Repayment of loan note receivable
Dividend received
Interest received
Net cash generated from investing activities
Cash flows from financing activities
Issue of shares
Repayment of borrowings
Net cash used in financing activities
Net (decrease)/increase in cash
2019
£000s
2018
£000s
(758)
(858)
-
(181)
82
-
-
(28)
95
-
(2,707)
(4,377)
72
(86)
(3,492)
-
(5,254)
-
(3,492)
(5,254)
-
-
2,114
1,033
-
181
-
28
2,295
1,061
-
-
-
(1,197)
4,638
-
4,638
445
Cash and cash equivalents at beginning of year
2,357
1,912
Net (decrease)/increase in cash
(1,197)
445
Cash and cash equivalents at end of year
1,160
2,357
Page 81
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
1. ACCOUNTING POLICIES
Basis of preparation
The financial statements of the Company have been prepared in accordance with applicable United
Kingdom law and accounting standards (United Kingdom Generally Accepted Accounting Practice)
including Financial Reporting Standard 102, "The Financial Reporting Standard applicable in the
United Kingdom and the Republic of Ireland" ("FRS102") and the Companies Act 2006. This includes
the recognition and measurement principles of IAS 39, whilst the Group accounts apply IFRS 9.
The directors have continued to adopt the going concern basis in preparing the financial
statements.
Deferred taxation
Deferred tax is recognised on all timing differences where the transactions or events that give the
Company an obligation to pay more tax in the future, or a right to pay less tax in future, have
occurred by the year end. Deferred tax assets are recognised when it is more likely than not that
they will be recovered. Deferred tax is measured on an undiscounted basis using rates of tax that
have been enacted or substantively enacted by the year end.
Investments
Shares in subsidiary undertakings are included at original cost less any amounts written off for
permanent diminution in value.
Land and buildings
Land and buildings are stated at cost, net of depreciation and any provision for impairment.
Related Party Transactions
The Company maintains Group intercompany balances with 100% owned subsidiaries, and therefore
has taken advantage of Section 33 of FRS102 which states that transactions between a parent and its
100% owned subsidiaries do not need to be disclosed.
Financial assets and liabilities
The Company’s financial assets comprise cash and trade and other receivables, which under IAS 39 are
classed as “loans and receivables”. Financial assets are recognised on inception at fair value plus
transaction costs. Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. Loans and receivables are measured subsequent to
initial recognition at amortised cost using the effective interest method, less provision for impairment.
Any change in their value through impairment or reversal of impairment is recognised in profit or loss in
the year.
Provision against trade receivables is made when there is objective evidence that the Company will not
be able to collect all amounts due to it in accordance with the original terms of those receivables. The
amount of the write-down is determined as the difference between the assets’ carrying amount and the
present value of estimated future cash flows.
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The Company has a number of financial liabilities including trade and other payables. These are classed
as “financial liabilities measured at amortised cost” in IAS 39. These financial liabilities are carried on
inception at fair value net of transaction costs and are thereafter carried at amortised cost under the
effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-
term highly liquid investments with maturities of three months or less from inception that are readily
convertible into known amounts of cash and which are subject to an insignificant risk of changes in
value.
Intercompany balances
Intercompany balances represent amounts lent to subsidiary companies for working capital purposes.
The loans are repayable on demand and interest is not charged on the balances outstanding.
Equity
Equity comprises the following:
• “Share capital” represents the nominal value of equity shares. The shares have attached to
them voting, dividend and capital distribution (including on winding up) rights; they do not
confer any rights of redemption.
• “Share premium” represents the difference between the nominal and issued share price
• “Other reserves” represents the net amortisation charge for the Company’s share options
scheme
• “Profit and loss account” represent retained profits
Contribution to defined contribution pension schemes
The pension costs charged against profits represent the amount of the contributions payable to the
schemes in respect of the accounting period.
Foreign currencies
Transactions in foreign currencies are translated at the exchange rate ruling at the date of the
transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange
ruling at the year end.
Any exchange differences arising on the settlement of monetary items or on translating monetary
items at rates different from those at which they were initially recorded are recognised in the profit or
loss in the period in which they arise.
2. LOSS FOR THE FINANCIAL YEAR
The Company has taken advantage of section 408 of the Companies Act 2006 and has not included
its own the statement of comprehensive income in these financial statements. The loss for the
Company for the year was £757,700 (2018: £857,500).
3. PERSONNEL REMUNERATION
During the period the Company had three employees James Barham, William Good and William
Catchpole and also pays the service fees of the two non-executive directors. Their salaries and
benefits are disclosed in the Directors Report above.
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4. INTEREST INCOME
The Company received interest from bank deposits of £1,000 (2018: £3,000). The Company also
recognised £180,000 (2018: £25,000) from the unwinding of the Loan notes receivable discount.
The Company does not charge interest on its intercompany balances.
5. FIXED ASSETS INVESTMENTS
Cost at 1 July 2017
Disposals
Additions
Cost at 30 June 2018
Additions
Disposals
Cost at 30 June 2019
6. TRADE AND OTHER RECEIVABLES
Amounts due within one year
Loan notes receivable
Amount owed by Group undertaking
VAT recoverable
Prepayments
Amounts due after one year
Loan notes receivable
Subsidiary
undertakings
£000s
-
Total
£000s
-
-
-
-
-
-
-
-
-
-
-
-
-
2019
£000s
2018
£000s
-
8,534
13
21
8,568
-
8,568
908
5,824
17
20
6,769
1,206
7,975
Amounts owed by Group undertakings are repayable on demand and there is no interest charged
7. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade creditors
Accruals
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2019
£000s
27
88
2018
£000s
23
20
115
43
8. SHARE CAPITAL
Company
Authorised:
Ordinary shares of 1p each
2019
Number
2019
£000s
2018
Number
2018
£000s
100,000,000
1,000
100,000,000
1,000
Allotted called up and fully paid:
Ordinary shares of 1p each
42,721,178
427
42,721,178
427
The Company owns 167,229 (2016: 167,229) shares and these are held as Treasury Shares.
9. DIVIDENDS
The directors have proposed no final dividend of in respect of the year ended 30 June 2019 (2018:
nil pence per share).
10. FINANCIAL ASSETS AND LIABILITIES
The Company uses various financial instruments including cash, trade payables, other payables, that
arise directly from its operations. The main purpose of these financial instruments is to maintain
adequate finance for the Company’s operations. The existence of these financial instruments exposes
the Company to a number of financial risks, which are described in detail below. The directors do not
consider price risk to be a significant risk. The directors review and agree policies for managing each
of these risks, as summarised below, and these remain unchanged from previous years.
Capital Management
The capital structure of the company consists of cash and equity. The Company’s objective when
managing capital is to maintain the cash position to protect the future on-going profitable growth
which will reflect in shareholder value.
At 30 June 2019, the Company had a closing cash balance of £1,160,000 (2018: £2,356,600).
Financial risk management and objectives
The Company seeks to manage financial risk to ensure sufficient liquidity is available to meet
foreseeable needs and to invest cash assets safely and profitably. The directors achieve this by
regularly preparing and reviewing forecasts based on the trends shown in the monthly management
accounts.
Credit risk
The Company’s principal financial assets are cash and intercompany receivables.
The main credit risk arises from the intercompany receivables. The directors monitor the trading of
its subsidiaries closely to ensure they are performing in line with expectations.
Liquidity risk
The Group aims to mitigate liquidity risk by closely monitoring cash generation and expenditure. Cash
is monitored daily and forecasts are regularly prepared to ensure that the movements are in line with
the directors’ strategy. The Company’s liquidity risk is monitored as part of this overall Group review.
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Financial assets
Current financial assets
Cash at bank
Intercompany receivables
Loan notes receivable
Note
2019
2018
£000s
1,160
8,534
-
£000s
2,357
5,824
2,114
9,694
10,295
The fair values of the financial assets are considered to be approximately equal to the
carrying values.
Financial liabilities
Current financial liabilities
Trade payables
Accruals
Note
2019
2018
£000s
27
88
£000s
23
20
115
43
The fair values of the financial liabilities are considered to be approximately equal to the
carrying values.
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